A Rare Opportunity to Reduce Real Estate Tax Collection Costs: The Time to Act is Approaching

 

Submitted by:

Gerald Cross

Pennsylvania Economy League

Central PA Division

570-824-3559

pelcent@epix.net

 

During the next few months, counties, municipalities, and school districts in Pennsylvania have a once-in-four-years opportunity to bring about savings in their real estate tax collection costs. Prior to February 15, 2009, local governing bodies can change the methods and rates of com­pensation for elected tax col­lectors, and these methods and rates will become effective for those tax collectors elected to four-year terms of office beginning in January 2010. It is time for local officials and taxpayers to begin to do their homework so that they can make the best use of this rare cost-saving opportunity.

 

           Prior analyses by the Pennsylvania Economy League (PEL) of real estate tax collection costs in more than 500 jurisdictions identified millions of dollars in potential annual savings. Jurisdic­tions were advised to shift from the traditional commission form of compensa­tion to the more appropriate salary or “per bill” payments and/or to lower their rates of compensation.

 

          These recommendations were made in part because PEL found major deficiencies in compensating tax collectors on a commission basis. Unlike salaries or “per bill” compensation, commissions are not directly related to work loads; instead, they are based on the value of the taxables and on the tax rate.

 

          An increase in the assessed valuation of a property or in the millage rate produces increased commissions, but the workload remains unchanged. Also, large tax bills generate large commissions, yet they are no more expensive to handle than small ones. PEL also found that not only are salary and “per bill” compensation more logical and more in keeping with the work performed, but these approaches tend to be less costly as well.

 

          Periodic surveys designed to document the actions of public offi­cials in a ten-county area in response to PEL’s analyses of the cost-saving opportunity revealed hundreds of thousands of dollars in continuing annual cost reduc­tions, as well as unspeci­fied savings in terms of future cost avoid­ance. The latter resulted from placing caps on compensa­tion or by freezing com­pensation at current levels in conjunction with a shift from commission-based compensation to salary or “per bill” payments.

 

           In response to PEL’s series of analyses, one county (which at one time was compensating its tax collectors on a “sliding scale” based on the number of tax bills processed ranging from $2.25 per bill down to $1.75 per bill) reduced its per bill compensation rates by 50 cents or by between 22 and 29 percent. As an example of cooperative collection, Lycoming County School Districts collect their real estate taxes under a bank lock box system that allows local tax collections to “deputize” the bank to collect school district real estate taxes.

 

          In spite of documentation suggesting the poten­tial for sav­ings, many jurisdictions failed to make any changes; in some cases the jurisdictions which failed to act were among those with the greatest potential for reducing compensation costs.

 

           Act 169 of 1998 should also prove helpful to officials in reviewing their municipal tax collector compensation. It requires that tax collectors regularly file reports with the taxing jurisdictions they serve detailing the taxes collected using standard forms provided by the state and that the tax collector’s accounts be audited annually by the duly authorized auditors of the taxing district—the elected auditors, the controller, or an independent appointed auditor.

 

Local officials can directly influ­ence the cost of real estate tax collection only by modifying the method and/or rate of compensa­tion of their tax collectors, and these officials must be prepared to act if savings are to be realized. Final action in setting the methods and rates of compensation must be taken prior to February 15, 2009.

 

This PEL News and Views notice allows local officials more than eight months to prepare to take appro­pri­ate action. PEL has long recommended the elimination of elective tax collectors and treasurers and, as an alternative, the countywide cen­tralization of the real estate tax collec­tion function. This would undoubt­edly result in a more cost­-effective approach to the collection of real estate taxes, but it would require action by Pennsyl­vania’s General Assembly. PEL continues to encourage the state legisla­ture to make changes in Pennsylvania’s tax collection laws to allow for more modern and less costly real estate tax collec­tion methods.

 

The past series of reports on tax collection costs and the opportunities for savings is an example of what PEL is all about. The full series of the 2004 PEL Tax Collection Compensation Reports can be viewed at our Website: www.pelcentral.org/Tax Collection/

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