Oregon Department of Revenue will undergo top-to-bottom review
The Oregon Legislature is ordering a top-to-bottom review of the state’s troubled tax collecting agency even as it prepares to hand the agency expanded powers to go after bad debts owed to the state.
Lawmakers on the Joint General Government Subcommittee ordered the Department of Revenue to undergo a $150,000 comprehensive financial audit and a $350,000 management assessment.
The action comes on the heels of an unprecedented two weeks of grilling the Department of Revenue on its budget and issues raised when lawmaker e-mail boxes were “inundated” by insider complaints about how the agency functions.
Over the next two years, the agency must make frequent, mandatory reports to lawmakers during the interim and regular sessions of the Legislature.
The orders for agency examination and reporting are so heavy that chief Department of Revenue critic Rep. Betsy Johnson, D-Scappoose, wondered if the agency would still have time to do its job collecting about $8 billion a year in taxes.
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“We’re going to have people looking over their shoulder continuously,” Johnson said.
Lawmakers upped scrutiny of the Department of Revenue this session after the leadership made its regular budget presentations, said Rep. David Gomberg, D-Central Coast.
“They came in and it was clear there were issues,” he said.
Performance plummets
Repeated financial audits had uncovered “significant” and “material weakness” in the agency’s accounting system, which the agency defended by saying their accountants lacked training and experience. Lawmakers set a deadline of May 2018 for the financial audit and the agency response to reach their hands.
Performance measures in areas of agency helpfulness, timeliness, accuracy and expertise plummeted over the past four years. Accuracy dropped from 86 to 24 on a 100-point scale. Expertise slid from 86 to 19.
Johnson asked for reassurance that agency training constituted more than “seat time” but a substantial endeavor that would improve agency expertise.
“What are we training people to do?” she asked earlier this week.
A status report on the management assessment that lawmakers ordered is due during the 2018 legislative session, and the full report must be completed no later than December 2019, according to recently adopted budget notes.
Lawmakers were startled to discover the agency had 175 vacancies, which is two to three times the norm for state agencies. Lawmakers stripped away 86 vacancies, but Gomberg expressed some qualms about doing so.
Revenue collectors bring in up to $12 for every dollar of salary, he said.
Rising debts
Over 20 years, the agency’s debt collection practices have been the subject of a half-dozen audits, while over the past decade the debts owed to the state doubled. The agency was slow to adopt auditor recommendations, according to the auditors.
One deficiency that Gomberg says “makes him crazy” is the lack of ability to compare data across state agencies. “9,000 businesses do work for state agencies but owe money to other state agencies,” he said. “That’s unacceptable.”
Over the interim and through coming legislative sessions, lawmakers will get regular updates from the agency, overseers in the Department of Administrative Services and the private firms hired to study the problems.
“We’re not going to go away for two years and come back and say, ‘Gee how did it all work out?'” Gomberg said. “We’re going to be checking a lot more frequently.”
While lawmakers hone in on the agency’s functioning, several bills moving in the Legislature would expand its role and authority over collection of debt owed to the state.
State agencies hold $3.3 billion in unpaid taxes fines and fees, according to state figures. The sum breaks down to:
-- 49.3 percent criminal fines and restitution
-- 19.1 percent unpaid taxes
-- 12.1 percent unpaid child support
-- 19.5 percent all other unpaid fees and fines
Today, the Department of Revenue collects delinquent taxes as well as provides backup collections for 130 state government boards and agencies.
The government cost containment bill, Senate Bill 1067, would consolidate responsibility for debt collection within the Department of Revenue, perhaps in an all new “collections division.” Lawmakers want to keep the activity within DOR because the agency has the power to seize tax refunds, place liens on property and garnish wages.
“Let’s put a plan together to start collecting 10 percent a year of this money that’s owed to us,” Gomberg said. The proceeds could be as much as $75 million a year, he said.
That would be enough to hire a bunch of teachers, he said.
Debt-collecting practices
Gov. Kate Brown signed an executive order meant to tighten up debt collection practices in April. She said she’ll set a benchmark for collections by Jan. 1, 2018.
Brown, Senate President Peter Courtney and House Speaker Tina Kotek have all committed to passing Senate Bill 1067 in the current legislative session, which must end by July 10. So far, the bill hasn’t moved out of the Capital Construction Subcommittee of the Joint Ways and Means Committee.
Gomberg, a kite seller with an MBA from Willamette University, also worries about the $500 million in debt that the state’s 130 state agencies write off as uncollectable each year.
“Poof. It’s gone. Half a billion dollars is gone,” he said. “How do we know they’re not cancelling debt because they’re simply tired of chasing (debtors) or don’t have the resources to pursue?”
Gomberg stuffed a new measure into House Bill 2947 that would require state agencies to report their write offs to the Department of Administrative Services by Dec. 31 each year, and the later agency would verify that the write offs were done in accordance with state standards. The bill won unanimous passage on June 21. It's awaiting action in the Senate Rules Committee.
Another bill that would help Department of Revenue tax collectors find and garnish debtor bank accounts was headed for the House floor Thursday evening. House Bill 254 won unanimous approval in the Senate on June 22.
The bill would require banks and credit unions to match the state debtor databases with their customers’ accounts and tell the state when they found a match. This would be far more efficient than the current procedure in which state debt collectors guess where debtors might bank based on last known addresses and old cancelled checks.
The state would pay banks and credit unions each $2,500 to set up the program and $150 a quarter to run the searches. The costs would be added to the debtors’ totals.
“We’re going to save money by finding out where the fish are before we go fishing,” Gomberg said.
A second new power in the bill: Department of Revenue debt collectors would get access to a list of new hires and rehires that employers are required to report under federal law to the state Department of Justice Child Support Program.
That would shorten the time to wage garnishment to 20 days, down from the five or six months it takes now, according to the Department of Revenue.
If approved, the bill would take effect July 1, 2018. By the third, two-year budget cycle it would produce about $10 million in debt recovery, according to state figures.
The Legislature reoriented Department of Revenue Director Nia Ray, he said. She’d been focused on launching the new $72 million GenTax computer system, he said.
“She is refocused on the bigger picture now,” Gomberg said. “The director has a clear sense of what the Legislature is looking for now.”
The Oregon Department of Revenue is facing intense scrutiny, including:
Comprehensive audit by external firm ($150,000)
Outcome-based management assessment by private firm ($350,000)
State accounting and budget review (Department of Administrative Services)
Review of personnel practices and legislatively authorized positions (Department of Administrative Services)
Oregon Governor, lawmakers seek clean-up of the Revenue department
Oregon is sitting on $3.3 billion in bad debt from unpaid taxes, fines and fees