07 Feb Closing the Gap
How TMA Helps Clients Right the Fiscal Ship
By Chip Cooke
It’s everywhere you look these days. The nation is awash in red ink as the recession continues to batter state and local government budgets. For the past three years we have watched as revenues from income tax, sales tax and property tax have declined throughout our client base. Pressure to eliminate items from client budgets has resulted in staff declines, early retirements, eliminated programs and stalled capital projects. With few exceptions, this downturn has become the new normal.
While there have been some promising trends in the stock market in 2010, consumer confidence remains weak, and those with disposable income continue to sit on the sidelines, watching for some sign that the worst is over. This reluctance to spend is draining sources of revenue for governments, forcing budgets to be slashed and resources to be stretched too thin. This is the problem our clients are facing – when there is nothing left to cut, what are your options? The answer, as TMA has suggested, is to ensure that every existing tax is administered to the fullest potential.
For over thirty (30) years, TMA has been a leader in the state and local government space, and increasingly we find ourselves in the role of revenue enhancement – maximizing dollars to government through existing resources. This means finding everything that is taxable and ensuring that individuals and businesses pay their fair share. Quite frankly, this is a job we take seriously. To date, TMA has created almost $800 million in additional tax dollars for our clients across the country. These tax dollars have come with the addition of almost $36 billion in unreported additional property tax value from various sources, including business personal property tax audits, discovery of non-listing businesses and denied homestead applications. The best part about this tax value is that it often creates continuing annual revenue for our clients.
From a philosophical perspective, these service lines make even more sense. Imagine the dilemma of community elected leaders who need to provide services to their constituents. Those constituents agree to fund these services through taxes that are approved at both the state and local levels. But what happens when the taxes are only assessed and collected at 50% of their allowable level? Of course, the quality of the services is sacrificed.
It’s unfortunate, isn’t it? But there are a number of factors that contribute to these lower than anticipated revenue levels, especially when dealing with self assessed taxes, where the problem can persist indefinitely if not addressed with specific policies and procedures. A self-assessed tax by its very nature is voluntary – not voluntary in that you may choose not to participate, but voluntary in that the information supplied is freely given by the taxpayer. That information may or may not be accurate, and the duty to determine truthfulness in listing becomes the responsibility of the taxing jurisdiction. So what happens when staff is lost through budget cuts and other revenue shortfalls? The ability to ensure accurate listings becomes even harder and revenues continue to drop. These decreased revenues lead to decreased staff, eliminating compliance efforts and decreasing revenues even further – the tax system essentially begins to eat itself.
So the question becomes, how do we close the gap and stop the cycle? The answer is fairly obvious – the jurisdiction has to collect everything it is legally owed in order to remain funded at the highest level possible. There are a few options jurisdictions have to accomplish this. They may shift staff from other responsibilities to compliance efforts. This could mean having real estate appraisers double as compliance personnel, or moving personnel from other departments to the tax office for a limited time. However, these options are not ideal and the jurisdiction may not have the resources in place to adequately train staff to perform these functions. Because of this problem, compliance efforts often fall to the wayside.
So what can be done to maximize compliance? Of course, from TMA’s perspective, we would suggest outsourcing these functions to a qualified third party. Outsourcing carries a number of benefits, including, but not limited to cost, training, scalability and experience. The costs are inherently lower than hiring and training new staff due to the fact that these programs are performed on a limited basis – usually from three to five years in nature. A staff hire, on the other hand, will incur cost until the employee is terminated, quits, or retires – often carrying additional costs in terms of associated pensions. A qualified third party will already be trained in the field of compliance and will bring its own policies and procedures as best practices for the client. The third party is more readily scalable and may add or decrease staff as necessary to reach the client’s objectives. Finally, the third party is often more experienced in these matters, and in the case of TMA, may bring decades of experience and training to bear.
Until the economy recovers and revenues begin to flow into state and local government again, it is imperative that tax offices across the country become more aggressive in their approach to verification of existing taxes. We are already seeing this effort in various requests for information and requests for proposals. States are reaching out to contractors and experts across the field of taxation looking for comprehensive solutions in revenue enhancement. As TMA responds to these requests, we return the same information to our clients – know your available taxes, ensure that everyone who is supposed to list with your office is doing so, and verify that the listing is accurate.
As budgets are already stretched, even projects with positive ROI are hard to fund initially. TMA can assist in that effort by suggesting alternative forms of payment, including revenue sharing and enterprise fund arrangements. With these arrangements, the client may realize the full benefit of the program now, instead of waiting for budget requests that never materialize. Let TMA assist your jurisdiction by showing the many solutions we have to create stop gap funding.
Download a copy of – The Audit Report – 2010 4th Quarter