A constitutional amendment before voters Tuesday would let local governments contract with for-profit companies to collect delinquent property taxes — a measure that would greatly benefit one politically connected New Orleans company and would tack fees onto a property owner’s past-due bills.
Voters statewide will consider Amendment No. 3, which opens the market to any company doing that work. It was written by the nonprofit Louisiana Municipal Association and is being supported by the organization’s new political action committee, Preserve Property Fairness.
Many cities and parishes already hire contractors for this work, but a recent court decision has called this legal arrangement into question. The amendment would make clear that such business deals are allowed. It would permit a contractor’s fee up of up to 10 percent, though that figure could change.
The amendment would be a boon for Archon Information Systems, which already has contracts with nearly half of the state’s parishes and two dozen cities, including New Orleans. An arm of the state Municipal Association also would benefit financially.
The relationship between Archon and the Louisiana Municipal Association is close. Archon has a deal that provides income to a for-profit subsidiary of the Louisiana Municipal Association, and the subsidiary essentially works as a marketing agent for the company. That arrangement is dependent on Archon’s continued ability to provide its services. And Archon is the biggest contributor to the association’s PAC.
By eliminating any uncertainty as to whether such privatizing of tax collections is authorized by state law, Amendment No. 3 will cement millions of dollars worth of contracts Archon already has with local governments throughout the state and let the company continue to expand.
One state legislator told The Lens he thinks Archon may be the main reason the proposal is going to state voters.
The Louisiana Municipal Association’s leader says Archon was not involved in drafting the amendment, but that wouldn’t have been foreign territory. Archon CEO Bryan Barrios has said online that he’s written similar legislation in the past, including the New Orleans ordinance that was recently struck down by a judge, giving rise to this amendment.
In an interview with The Lens, Barrios said his company’s work benefits local governments financially, helps to eliminate blight and generally fends off legal challenges from delinquent taxpayers.
“I can tell you that what we do, we’re very efficient at,” he said.
The company’s ability to find and notify people who may have an interest in a property is, he believes, unsurpassed statewide.
“We’ve brought a half-million properties through the tax sale process since 2008,” when the company was founded, he said, pointing out that no sale has been successfully challenged in court.
The executive director of the Louisiana Municipal Association is Ronnie Harris, former mayor of Gretna who signed a collections deal with Archon in 2011, two years before he left office.
He said that many cities and parishes, particularly smaller ones, don’t have the resources to collect delinquent taxes and properly conduct tax sales, free of legal challenges.
“If the constitutional amendment does not pass, it will be very difficult to deal with blighted and abandoned properties,” Harris said in a recent interview. “It will be difficult to collect 100 percent of property taxes.”
Rep. Johnny Berthelot, R-Gonzales, sponsored the bill that led to Amendment No. 3. He did not return repeated requests for comment on this story.
REACTING TO COURT RULING
Amendment 3 was born from a 2014 state Supreme Court ruling, Jackson v. City of New Orleans. It struck down a New Orleans ordinance — drafted by Barrios, according to his LinkedIn profile — allowing the city to hire a collections contractor using a 9.5 percent fee, on top of a 10 percent delinquency penalty, all charged to taxpayers. The Supreme Court, building on a 2008 decision striking down a similar New Orleans law, ruled that only government tax collectors are authorized to collect delinquent taxes, and could do so only by selling properties for owed taxes plus interest and costs, and cannot add penalties and fees.
Before the city ordinance was invalidated in January, the privatized collection system in New Orleans came under harsh criticism. Inspector General Ed Quatrevaux reported last year that the fee generated more than $3 million in 2010 for the city’s contractor, Strategic Alliance Partners. That company used Archon as its collections subcontractor. The report said that the price was more than 10 times what basic delinquent tax collection services should have cost.
Barrios didn’t want to discuss that report.
“I don’t really have an answer for how they came up with what they came up with. I’m not going to debate it in a newspaper,” Barrios said. “It costs money. It really costs money.”
He said it doesn’t matter much financially whether a government employee or contractor conducts the work.
“The tax sale process has costs that have to be incurred regardless of who does” the collection and sale, Barrios said.
The Lens last year raised questions about whether one of Archon’s subcontractors was a legitimate minority-owned firm eligible for the city’s Disadvantaged Business Enterprise program. Despite that and Quatrevaux’s report, New Orleans this year awarded Archon a collection and tax sale contract, this time as prime contractor. The fee is currently based on reimbursing costs incurred by the contractor rather than a percentage of taxes collected, as the amendment would allow.
In September 2013, a city selection committee ranked Archon the highest among three top bidders for the contract, out of four that submitted bids. Members of the committee cited Archon’s prior experience and its web-based CivicSource platform as the main reasons it earned the highest marks.
SQUARING DECISION WITH STATE LAW
The Supreme Court decision applied only to the New Orleans law. The decision acknowledged but did not address a 2009 state law that allows parish tax collectors to hire outside contractors and charge a 10 percent fee. Barrios wrote that law, too, according to his LinkedIn profile and his executive profile on Archon’s website.
The statute, like the New Orleans ordinance, “also purports to authorize a ten percent ‘commission’ to an attorney who assists a tax collection in the collection of delinquent taxes,” the ruling said. However, it went on, “the validity of this provision was not litigated before the district court in this case.”
Archon continued building its business, charging a 10 percent fee, elsewhere in the state. Still, the court’s ruling in the New Orleans case clearly made its deals vulnerable. Amendment 3 would solve that problem.
During debate in the Legislature this spring, State Rep. Major Thibaut, D-New Roads, was openly skeptical of House Bill 488, the resolution calling for the vote on the amendment. Thibaut ultimately voted for the bill, and it overwhelmingly cleared both legislative chambers. But he said he still wonders if the amendment was written entirely on Archon’s behalf.
“I don’t know if they’re the only one that does that kind of work, makes that kind of software, but it sure seems like they’re the only game in town,” Thibaut said. “I always had questions about this.”
Even as the legality of privatizing the work was in question, Archon by 2012 had secured contracts with 29 of the state’s 64 parishes, as well as 22 cities, according to the company’s bid for New Orleans’ business. In his interview with The Lens, Barrios said he did not know offhand how many Louisiana contracts the company has now.
A POLITICAL PLAYER
Since the company’s founding in 2008, Archon has contributed tens of thousands of dollars to political campaigns in Louisiana. Many of those contributions went to sheriff candidates. Sheriffs are the tax collectors for most parishes. The company made three donations totaling $10,000 to New Orleans Mayor Mitch Landrieu. Archon also has sponsored events for the Louisiana Sheriff’s Association and the Louisiana Municipal Association.
“All of this Archon stuff, I think, is coming down from the associations,” Thibaut said. Sheriffs, he said, “aren’t really in the position to buck the trend and question their associations.”
The Louisiana Municipal Association, a private, nonprofit trade group representing city governments, has become the public face for Amendment No. 3. Harris testified in favor of the measure at the House Ways and Means Committee this spring.
“There are instances where government is restricted by resources, either budget or personnel,” Harris told The Lens. “When you do have a contractor, they do have a responsibility to get it right and do it right.”
In mid-September, the Municipal Association formed a political action committee, Preserve Property Fairness, to lobby on behalf of Amendment No. 3 along with Amendment No. 10, which would reduce the window during which delinquent property owners could pay back taxes and get back their property after it’s sold at auction from three years to 18 months. That proposed amendment doesn’t apply to New Orleans, where state law already sets the redemption period on blighted property at 18 months.
Within a week of its founding, the PAC had received $46,000 in contributions from three sources. The largest contribution, $36,000, came from Archon.
“We supported it. The LMA is putting forward some initiatives that are trying to address blight,” Barrios said. “That goes hand in hand with what we’ve been trying to do legislatively for the past four or five years.”
WORKING FOR MUTUAL BENEFIT
The Municipal Association’s financial ties to Archon don’t end with sponsorships and PAC contributions. In March, a month after Berthelot pre-filed the bill, Harris announced a new partnership between Archon and a subsidiary of the Louisiana Municipal Association.
An announcement of the deal, written by Harris, said that the service will allow the subsidiary — the Louisiana Municipal Advisory & Technical Services Bureau — to “increase its revenue.” In other words, the group would be getting a piece of Archon’s 10 percent fee. According to LaMATS director Cliff Palmer, about 10 cities have signed on to the service in the past few months, but because the tax-sale process takes at least four to five months, the group has yet to realize any revenue.
“LaMATS basically does the marketing aspect of it,” Harris said. “Archon does the true work.”
Harris declined to say how much of the fee the subsidiary will get.
“We’re not a government entity, so we don’t have to be that out front with it,” he said. “I just have a real difficulty with saying that’s a legitimate question.”
In response to The Lens, he said that the group’s lobbying activity on the bill was not related to the financial arrangement.
Before he signed a contract in 2011 with Archon as mayor of Gretna, Harris noted that the city was frequently subject to lawsuits for holding tax sales on properties without clear title.
“We got sued. We lost. We had adjudicated properties that we had to give back,” he said. Archon’s subsequent sales were not challenged, he said.
He said that other municipal services, such as garbage collection, are frequently handled by contractors. The impetus to seek the amendment, he said, was the Supreme Court’s decision that he said unfairly hemmed cities in.
“I understand what needs to be done,” he said. “And that’s why I went to the Legislature.”