Some municipalities are finding that showing a little mercy to their residents via amnesty programs is paying off for them.
Cities like Reading, Pa., and Green, Ohio, enacted amnesty programs on real estate taxes, and Richmond, Va., was considering it. Winter Spring, Fla., enacted an amnesty program for code compliance liens this year, which has been quite successful.
Professor Justin Ross, associate professor of public finance in the School of Public and Environmental Affairs at Indiana University, Bloomington, Ind., wrote a paper on the topic in 2012, titled “Local Government Property Tax Amnesty Programs—Structures and Themes,” where he found a number of local governments with amnesty programs had grown in the decade prior to 2012.
Ross wrote, “While use of tax amnesty programs have been commonplace for decades among subnational governments in the United States, historically these offers have not been extended to delinquent real property taxes.”
In that decade from 2002-2012, 29 property tax amnesties had been offered in seven states. However, Ross said, “Property tax amnesty is so rare” he could think of only two counties in the state of Indiana where there may have been a local property tax amnesty program.
“At the local government level, most amnesty programs are related to library fines — very small items,” he said.
The reason for that, he surmised, is “a bit of tension” about whether local governments are allowed to offer such programs. He said some can, but they need state approval.
One of the themes he discovered was when a local government offered property tax amnesty, it was generally done on a case-by-case basis and when it was hindering economic development. He mentioned a case in Detroit where a property was being offered for sale for a mere $10, but the amount of delinquent property tax that needed to be paid first made it too expensive. “That would be a good case for amnesty,” Ross said.
He said overall “property taxes have a high rate of compliance so there’s generally only a handful of cases.”
His paper notes most tax amnesty programs usually offer waivers from any criminal charges as well as forgiveness of penalties and interest. He also summarized five points of using real property tax amnesty as a fiscal management tool.
Those points are:
- Improving property tax compliance — By offering amnesty, it gives people an option to get the delinquent tax paid. Putting liens on a property and seizing a property can get expensive and complicated.
- As a substitute to hosting tax auctions — It’s been said that it’s not worth it unless there’s a million dollars in tax liens.
- Advance economic development — A city can’t sell a property while tax is owed on it.
- Improving compliance on other revenue instruments — Another strategy of a handful of amnesty programs was bundling the real property tax amnesty with more difficult to collect revenue sources.
- Increases revenue collections — Amnesty generally is faster than having a property go into foreclosure.
Ross said a disadvantage of tax amnesty programs is noncompliance. “If people know there’s a tax amnesty program, some may take advantage of that,” he said, especially at the state level.
He is aware of an advisor telling someone before they paid their taxes to check if there was an amnesty program, and in another paper, Ross wrote some businesses were using tax amnesty “as short-term business loans.”
Ross also cautioned if they let properties go multiple years without collecting, “it’s much more complicated.”
“Some tax lawyer said if it goes multiple years, it’s almost impossible,” he said.
He explained since there are several lien holders on property taxes — schools, county, state, libraries, etc. — it becomes muddled as to who has priority. To avoid that, local government should consider using the threat of seizure in the first year, and depending on the size of the bill, it would make its money back.
Winter Haven Code Compliance Amnesty
Winter Haven, Fla., enacted an amnesty program for code compliance in January and has had great success with it. Winter Haven is located in central Florida between Orlando and Tampa. It has a population of 47,000. Winter Haven also has 55 lakes with 24 of them connected by canals, making it the Chain of Lakes City.
Tanya Ayers, city of Winter Haven code compliance supervisor, said she’s been wanting to enact an amnesty program for a number of years, “but with the pandemic and people struggling financially, we were able to come up with a program that allows people to resolve their code compliance liens at the least amount and without the inconvenience of attending a hearing.”
The city enacted the program from January to June of this year. She said there were 274 cases on that lien list with a total balance owed of $12,381,756, and the goal was to get that reduced by a million dollars. To date in mid-March, 40 of the 274 have paid — 30 through the amnesty program and 10 through other means.
“When people call us because they got the notice of the amnesty program, we work the numbers, and for a few of them, another way works better for them,” she said.
The amnesty program reduces the lien by 5% of the total or $1,000, whichever is less, they pay a $50 application fee and all city costs, including the cost for processing the case, mailing costs and inspections. She said if the amount owed is smaller, the city has a different program that might be best. If the amount is too large, residents can approach the special magistrate to reduce the amount.
“Our goal was to reduce the liens by a million dollars, and by close of business on March 22, the liens were reduced by $1,091,860. It’s definitely been a success, and we have more applications coming in.”
Ayers explained the amnesty program is for code compliance issues that have gone to the special magistrate and have been assessed fines. She mentioned one example of $94,000 in liens owed. The amount depends on how much the person is fined on a daily basis and how much the daily fine for noncompliance is. The $94,000 is a case from 2017.
She pointed out these are not special assessment liens like mowing tall grass where the city can correct it and charge the property owner; these are code violations the city doesn’t have the ability to correct like large amounts of junk on the property or roof repairs, for example.
To be eligible for the amnesty program, the property owner must first come into compliance and then submit an application.
“We’ve had such a positive response to this program from our citizens. They’re so grateful to have the opportunity to reduce their fines and glad they don’t have to come in for hearing. It’s been a great program,” she said.
“People get overwhelmed,” she said, adding if the amount owed is $20,000, they think what’s the point? “This way they can see where they can get it down to next to nothing. Plus it gives us the opportunity to talk to our people and give them ideas of how to get into compliance.”
COVID was the driving force to enacting the program as well as trying to resolve liens in the easiest way for residents while encouraging compliance. Ayers has been with the city for 22 years, and she said this is the first time it has ever done anything like this.
She didn’t see any disadvantages to the temporary program. “The hard part was getting the data together to do mass mailings to let the people know about the program. Beyond that, there were no negative administrative side effects. It’s gone very smoothly.”
White Haven will probably reexamine the program in five years to see if there’s a need to do it at that time.
“At the very least sending the letters allowed us to talk to people about their options to maintain compliance. As government officials, we should keep those lines of communication open,” she said.
“It’s been a real positive thing. I hope other municipalities decide to try it and reach out to us,” she said.
Ross said his best advice is to not “be put in a position where you need an amnesty program, but don’t let it go multiple years. The best cases to use it are when it prevents the transfer of property.”
Ayers said she’d definitely recommend cities use an amnesty program where they can but advises, “Try to make the process as easy as possible for the citizens — that’s the key. If it’s cumbersome or the liens are too high for the average resident, you’re not going to get it. Make it as easy as possible.” Showing a little forgiveness where it’s prudent to do so may be a winning solution for all parties.