N.O. continues to overpay its vendor for delinquent tax collections, IG says

28th December 2015   ·   0 Comments

By Charles Maldonado
The Lens

More than two years after the Office of Inspector General reported that the city’s delinquent-property-tax collections contractor charged more than 10 times what its services were worth, the office issued a follow-up report today finding that the city continues to overpay for the service.

The OIG also found that the city pays its contractor, Archon Information Systems, exactly what the company asks even though the company’s invoices lack any detail on the services it performs.

The report from the Inspector General comes after The Lens reported that Archon’s total billings over eight months came to more than $3 million based on invoices that were only a few lines long.

The initial 2013 investigation by the watchdog agency found that the city’s previous contractor, Strategic Alliance Partners, was paid $3.3 million for collection services worth less than $300,000. Archon was the main collections subcontractor in the Strategic Alliance Partners contract. It took over as prime contractor last year after winning a bid in 2013.

Archon CEO Bryan Barrios did not respond to requests for comment on this story, but Mayor Mitch Landrieu’s administration released a response.

“Given the resounding success of the City’s tax sales and adjudicated auctions, we are surprised and disappointed by the OIG’s follow-up report,” Landrieu spokesman Hayne Rainey wrote in a statement, adding that the city followed many of the Inspector General’s recommendations from the 2013 report.

While praising the city for recently implementing a tax adjudicated auction program – which produced $12 million in sales, according to the report — the Inspector General found lingering problems with Archon’s prices, which are passed on to the delinquent taxpayers. The agency also reported that the company may have had an unfair advantage in the city’s 2013 bidding process.

According to the new report, Archon is overcharging for every service it performs. The largest gap between what the Inspector General said a service should cost and what Archon charges is for finding the correct contact information for property owners owing back taxes, known as skip tracing. Based on a survey of collection vendors, the office concluded that skip tracing about 36,000 delinquent bills should cost about 29 cents each. Archon’s cost is $60, more than 200 times higher.

Rainey’s statement said the city explained the costs in its response to the 2013 report, arguing that the Inspector General’s pricing estimates are flawed because they’re based on basic collection services. Because delinquent taxes can result in the taking of a property, the city must make repeated contacts with property owners and other interested parties during the collections process. The city claimed that the Inspector General’s analysis didn’t take that into account.

“The differences that remain relate largely to the OIG’s disagreement with the City about the level of noticing and associated costs that are required of the City based upon federal and state laws and court rulings,” Rainey wrote.

In the previous report, however, the OIG disputed the city’s claim, saying the agency’s analysis accounted for all legal noticing requirements.

The report says the city issued new bid solicitations for a collections contractor after the 2013 report, one of the Inspector General’s earlier recommendations, but it questions the fairness of the process. The report notes that the request for proposals asked for pricing based on “standard assumptions of likely activity.” But it didn’t provide any information on the typical work volume. Archon, which was essentially the incumbent bidder having handled Strategic Alliance Partners’ collections business, may have been the only bidder that had that information.

“The incumbent vendor had an inherent advantage due to its familiarity with the typical volume of activity required,” the report says.

Archon’s price proposal — at the time, a range of six percent to 9.5 percent of tax collections — was still higher than other top bidders. In spite of that and an investigation into the company’s disadvantaged business enterprise practices, a city selection committee in fall 2013 gave Archon’s bid the top ranking, citing its prior experience with the city and its web-based CivicSource platform.

The company didn’t sign a contract with the city until May 2014. In the meantime, a January 2014 State Supreme Court ruling forced it to change how it did business in New Orleans. The firm could no longer charge a percentage-based rate for taxes it collected. Instead, it had to charge flat fees for the services it performed. The ruling only applied to New Orleans, and the company later bankrolled an unsuccessful campaign backing a constitutional amendment that would have protected its business in the rest of the state.

That gave the city a chance to find a better deal, the Inspector General’s report says, by going back to all the bidders and asking for “task-based” proposals. Instead, the city went back to Archon to ask it to rework its prices to reflect the actual costs of collections work.

In June, The Lens found that the company’s “collection fee” represented seven percent of its total reported delinquent tax collections. Two unexplained items on its invoices increased that to 25 percent.

“The City missed an opportunity to ask the other contractors who submitted proposals for task-based costs in this format,” the Inspector General’s report says. “Other respondents may have offered lower prices than those in Archon’s second proposal had they been aware of the specific delinquent tax collection services the City desired.

This article was originally published by The Lens (thelensnola.org), an independent, non-profit newsroom serving New Orleans, The Louisiana Weekly enjoys a partnership with The Lens.

This article originally published in the December 28, 2015 print edition of The Louisiana Weekly newspaper.