Despite months of courting by city officials, tax lien companies have made it clear that Schenectady’s delinquent taxes are worth only pennies on the dollar.
American Tax Funding used to offer 92 cents or more for every dollar of unpaid property taxes. But when that rate dropped precipitously last year, the city began searching for a new partner.
Now the council has agreed to funnel most of its business to Xspand, a division of J.P. Morgan. But the city will get an average of just 64 cents per dollar owed — far less than the mid-90s goal that Mayor Brian U. Stratton set when he announced his plans to find a new tax lien buyer.
Finance Commissioner Ismat Alam said final details with Xspand have not yet been worked out. But she told the council to expect a 64-cent rate.
Still, that was better than ATF was willing to offer, Councilman Mark Blanchfield said. ATF’s offer was not publicly available. Nor was another offer sent in by a third, unnamed firm.
The City Council met behind closed doors Tuesday to discuss the issue before agreeing to a contract with Xspand.
But the city can’t divorce ATF immediately. ATF’s contract gives it the right of first refusal for any new tax liens owed by people who already owe liens to ATF.
ATF has exercised that right and will buy about $3 million in liens, paying face value for each lien.
ATF wants certain liens because it cannot foreclose on property unless it holds three consecutive years of tax liens owed on that property. ATF rarely forecloses, but the threat often convinces owners to begin payment plans.
Xspand will buy the rest of the city’s liens, including holdovers from 2008 that ATF refused to touch, for about $2.4 million.
With such low offers for the liens, this might be the last time the council actually sells its unpaid taxes.
Blanchfield said the city might offer an amnesty period and try to collect taxes in-house. Then it might set up a joint collection system with the county and the city school district, he said. If successful, that would have the benefit of bringing in not just the tax revenue but also fees and interest payments.
“We still would have room to do that with 2010 delinquencies,” Blanchfield said. “The problem is in a cash flow point of view, waiting and collecting the interest doesn’t give us the cash up front.”
The city’s cash flow is tight, but the council must also find ways to raise $13 million by the end of next year to avoid layoffs or a large tax increase. If in-house tax collection can raise much more than the city can get through tax lien sales, the council may now be motivated to try it. Council President Gary McCarthy wants the council to enact new, out-of-the-box initiatives that save money or raise revenue.
Blanchfield said in-house collections may be more realistic if the state gives permission for the city to stop making the school district whole on its unpaid taxes. The city has already told the county it will no longer pay unpaid county taxes, ending a long tradition.
The county and school district might agree to help pay for an in-house collections effort, Blanchfield said.
“We’d be able to spread the cost, if they’re going to participate,” he said. “That does open up some new options for us.”