By Larry Jones
April 23, 2007

Testifying before the House Government Management, Organization and Procurement Subcommittee on April 19, Oklahoma City Mayor Mick Cornett urged members of the panel to support proposed legislation that would create a two-year pilot program to help local governments collect past due taxes.

The bill, H.R. 1865, would amend the Federal Tax Offset Program to include local tax debt. Under current law, the U.S. Treasury Department is authorized to reduce a taxpayer’s federal income tax overpayment refund by the amount an individual owes a state government in past-due income taxes and child support obligations, and send the funds to the appropriate state. The proposed legislation would expand the program to include past-due taxes owed to local governments.

A total of 36 states and the District of Columbia currently participate in the federal Tax Offset Program. In addition to participating in the Federal Tax Offset Program, a number of states have their own state offset programs. A total of 14 states permit local governments to submit their delinquent tax accounts to the state for collection against any state tax refund or any lottery winnings owed to taxpayers.

Under the state programs, prior to issuing a taxpayer a refund, the state checks to see if there are any claims for past-due debt submitted by a local government. If so, the state will delay sending the refund or lottery winnings pending notice to the taxpayer. After appropriate notice is given, the state will reduce the delinquent taxpayer’s refund or lottery winnings by the amount owed and send those funds to the local government. In many states this has proven to be a low-cost, highly effective program.

Commenting on the bill, Cornett told members of the panel, “If enacted, this legislation will promote the kind of intergovernmental partnership that we have always believed should exist between the different levels of government. When we work together to achieve a common goal, particularly a goal as important as collecting past-due taxes, all levels of government benefit, as well as the American people.”

In explaining the problem that local governments face, Cornett told members of the subcommittee that local governments often find it difficult to collect past-due taxes and sometimes they end up investing an enormous amount of time and resources going after delinquent taxpayers. “This not only places a financial strain on local governments but it unfairly burdens members of the community who pay their taxes promptly,” he said.

Based on a recent review of tax data for Oklahoma City, Cornett said the city is experiencing a delinquent sales tax rate somewhere between five percent and seven percent, which amount to an estimated $10 million in delinquent taxes. The city is also experiencing an annual delinquent property tax rate of about fice percent, which amounts to an estimated $2 million in delinquent taxes. He explained that in reviewing tax data over an eight-year period, the city experienced a 1.4 percent delinquent rate, which would amount to an estimated $4 million in delinquent taxes.

To demonstrate how the funds from the delinquent property taxes could be used, Cornett said, “On average, we can resurface one lane-mile of our city streets for approximately $200,000. If we use the $2 million estimate, we could resurface ten lane-miles of streets, and if we used the $4 million estimate, this would double to 20 lane-miles of streets.” In another example he explained that funds could also be used to hire new first responders to help better secure the homeland, pointing out that the annual salary for a new firefighter or police officer is $60,000. “Using the $2 million estimate, we could hire approximately 33 new firefighters or police officers, and if we used the $4 million estimate, we could hire approximately 67 new firefighters or police officers,” he said.

In closing, Cornett recommended that the number of pilot programs allowed in the bill be increased to no less than four and no more than eight. As written no less than three and no more than five states would be allowed to participate by filing claims on behalf of their local governments. Cornett said, “This would allow for pilot programs to be established in at least two states in each region of the country: north, south, east and west. Not only would this give more local governments the opportunity to participate, but it would give Congress a better feel for how the expansion would work in different states and regions of the country.”