Senator Doug Whitsett's Newsletter

 

Senator Doug Whitsett
R- Klamath Falls, District 28

Phone: 503-986-1728    900 Court St. NE, S-303, Salem, Oregon 97301
Email: sen.dougwhitsett@state.or.us
Website: http://www.leg.state.or.us/whitsett
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The state of Oregon’s efforts to manage and collect its accounts receivable are at best abysmal. More than fifty Oregon agencies are owed a total of more than $2.7 billion in unpaid debt. To put that huge amount of unpaid money into perspective, it is equal to about twenty percent of the State’s entire two-year general fund budget. Further, the State’s accounts receivable are growing very rapidly.

More than $460 million in unpaid debt was added to the bad-debt list in 2012 alone. That amounts to an eighteen percent increase in recent unpaid debt. About half of that incredible growth in unpaid debt was offset by accounting adjustments, write-offs and the closing of unpaid accounts.

However, adjusting and writing off uncollectable debt does not change the reality. Recent unpaid debt, owed to the state of Oregon, grew by nearly twenty percent in a single year.

I travelled to Salem last week to participate in a two day seminar on Oregon debt management. We helped to organize the event held at the Willamette College of Law and Atkinson School of Business Management. Nearly a hundred people who manage government and private sector unpaid-accounts attended and participated in the discussions.

Several valid points were made, to explain at least some of the difficulty, in collecting debt owed to government agencies.

First, the unpaid debts are largely obligations that are the result of government charges that the debtor did not anticipate and may not support. Most of the debt is composed of unpaid taxes, fines, licenses, charges, penalties, child support and court ordered criminal and civil restitution.

The nature of the debt and the manner in which it is imposed prevents screening of the debtor, for employment, ability to pay, and credit history. Much of the debt would be considered high risk in the business community. The fact of the matter is that private sector lenders would not extend credit to many of those who owe money to state agencies.

Second, a significant amount of the debt, owed to the State, is very old and is unlikely to ever be repaid. Both the Internal Revenue Service and Oregon’s Department of Revenue recognize that all past-due accounts lose their value with age. Both tax agencies allow private sector businesses to depreciate their unpaid debt, based upon the age of the accounts.

Oregon has no statute of limitations on debt owed to the state. This is one reason why state agencies have failed to develop the capacity to age past due accounts and why older past due accounts are not written off as uncollectable.

The reality is that a significant amount of the $2.7 billion in bad debt is very old and has very little actual value. At this point in time we have no reliable way to even estimate the actual value of the debt owed to Oregon agencies. Much of the older poor quality debt would have been written off by private sector businesses decades ago.

Third, professional debt collectors know that it is very important to start collection efforts early and to use the modern tools of  collection technology. They understand the need to aggressively pursue collections before the accounts age, while strictly adhering to state and federal collection laws.

State laws and administrative rules are generally designed to ensure due process in establishing both the validity of the debt and the amount of debt owed. The mandated procedures often delay the start of collection efforts on state past due accounts for up to several months.

Finally, each agency appears to have its own collection division as well as its own preferred methods of pursuing the collection of its past-due accounts. To some extent, their collection activities may be limited by statutes and rules specific to that agency.

Five large agencies are owed about ninety three percent of the State’s outstanding past due accounts receivable.  They include the Judicial Branch, and the Departments of Revenue, Justice, Employment and Consumer and Business Services. The seven percent balance of the outstanding debt is owed to nearly fifty other agencies.

Many of the methods being used to collect government past due accounts are outdated, ineffective, and often counterproductive. For instance, the Judicial Branch of government has about $1.2 billion in past due receivables. It has the statutory authority to charge nine percent compounded interest on most of its past due accounts. It’s failure to develop the capacity to charge interest on any past due accounts foregoes both much of the incentive for a debtor to pay as well as nearly $100 million in annual interest charges.

Procedures used by many agencies are too time-consuming causing them to be inefficient and not cost effective. Accounts are often six months past due before any meaningful collection effort is established. Delayed action to collect debt results in unpaid accounts aging unnecessarily. Both the collectability and the value of a past due account diminishes rapidly with age.

Improving our debt collection processes truly is important. The old adage that a penny saved is a penny earned certainly applies. The State should be able to reduce taxes and fees one dollar for each dollar of past-due debt that is collected.

Agencies generally lack the incentive to prioritize their collection efforts. This is demonstrated by their too obvious lack of meaningful effort and is clearly illustrated by the nearly unrestrained growth in past due receivables.

Several agencies are using their authority for mandatory wage garnishment as their primary method of collecting past due accounts. Virtually the entire cost of that collection tool is borne by employers, primarily those in the private sector business community. Employers are required by law to collect the money for the state agencies. Business owners are generally not compensated for their cost to garnishee their employees’ wages.

Last week’s seminar at Willamette was the first in what we hope will be several discussions on how to improve the dismal collection performance. The proceedings certainly helped to identify the magnitude of the problem at hand.

For example, it is clear that our state government does not need more than fifty separate agencies attempting to collect bad debt. The duplication of effort is inherently both costly and inefficient, as well as being nearly impossible to manage.

A number of new collection methods were discussed by both private and public sector collection professionals. We need to identify, and embrace, the most productive collection methods, and to eliminate some of the outdated and ineffective procedures that are clearly counterproductive. However, to apply these changes to more than fifty collection programs would certainly be a daunting task

In my opinion, we should explore the centralization of the entire collection enterprise into a single existing agency. For instance, such a new or enhanced division in the Department of Administrative Services could more easily age the debt and grade it for quality and collectability. A centralized approach would facilitate the use of modern technology to professionally determine how best to pursue collection of each type of debt.

Some forms of debt are best collected by methods that are most suitably put to use by state employees. Other forms of debt, and certain debtors, are more productively approached by private sector professionals. A more centralized approach would allow for the prompt assignment of collection activity to the professionals who are most likely to collect the debt in a cost effective manner.

Hopefully, our discussions at Willamette last week helped to move us past the litany of excuses and blame that so often ends in impasse. The organizers agree that casting blame for past failure in government procedures is generally pretty useless.

Our focus remains upon identifying the problems and creating useful collection solutions.

Please remember, if we do not stand up for rural Oregon no one will.

Best Regards,

Doug