Harahan has collected about $140,000 in long-overdue property taxes owed from the two decades ending in 2014 and is gearing up to hold what is believed to be the city’s first tax sale this October.
In addition, the amount due in short-term delinquencies was down by several hundred thousand dollars early this year.
Mayor Tina Miceli said a simple tweak to the annual ad valorem tax bill and the hard work of Harahan employees have helped take a considerable bite out of the delinquent payments for which the city was rapped by the state Legislative Auditor’s Office last year.
The auditor’s report, which listed a number of wasteful practices rooted in prior city administrations, said 333 properties owed the city $163,475 in unpaid property taxes and interest.
It also pointed out that Harahan had no mechanism in place for tax sales, as required by state law.
Miceli said the amount cited in the report actually has increased since then because of accrued interest, and that the total didn’t include any unpaid taxes from 2015.
As of last week, the tax sale, which will be held online Oct. 19, is expected to involve roughly $35,000 in unpaid taxes on 42 properties.
A tax sale is not the same as an adjudicated property auction, and no tax-delinquent properties will be sold in October.
At a tax sale, investors bid for the right to pay the delinquent taxes on properties whose owners they think are likely to settle their tax bills within the next three years. If they’re right, they get their money back with interest. If they’re wrong, they’ve just paid someone else’s taxes and would have to force a sale to get the money back. Either way, the municipality gets the revenue to which it’s entitled.
If a tax bill isn’t picked up by anyone at the auction, the property becomes adjudicated to the city and can be sold in a separate auction process after three years, along with those properties whose tax bills were paid by investors but were never redeemed by the owner.
Last year, Miceli proposed having the city’s tax-delinquent properties handled through Jefferson Parish’s tax sale — something she argued would be cost-effective and made sense given the city’s small staff — but the idea was rejected by the City Council.
Earlier this year, the council approved a plan to have the tax sales conducted locally through a program run by the Louisiana Municipal Association.
In the interim, Miceli and her staff set about trying to collect as much of what was owed as possible.
A key discovery was that the city’s annual tax bills didn’t list any prior amounts owed, and many property owners didn’t even realize they owed money from years before, Miceli said. That information was included in the tax bills that went out for 2015, and many property owners responded by settling up.
In addition, administration staffers made phone calls and in some cases knocked on doors to let people know they owed money and that a tax sale was coming.
“It’s been pretty consuming,” Miceli said. “I am immensely proud of this staff.”
She said the results can be seen in the amounts of unpaid taxes owed as of Jan. 1, 2015 — the day she took office — and the same day this year. Taxes from the previous year become delinquent on Jan. 1.
On the first day of 2015, $959,000 was uncollected from the previous year. On the first day of this year, only $424,000 from the prior year was uncollected.
Miceli said every dollar counts in a small city with a $6 million annual budget, especially one that had a $1.2 million hole in the general fund budget when she took office.
Miceli said it’s likely that other past-due payments will be collected before the auction, now that word has gotten out.
Starting last week, delinquent properties began accruing an additional fee that is passed on to the company handling the online auction, New Orleans-based CivicSource.
Tax sales are basically a last-chance mechanism by which municipalities can get delinquent taxes paid by holding an auction that attracts third parties, typically limited liability companies, motivated by profit.
Some bidders may be looking to ultimately gain control of a particular property — a separate process that can’t even begin until the three-year waiting period has ended — but many are there to park their money and earn interest, which starts at 5 percent and escalates with every month that passes.
A winning bidder who pays someone’s tax bill is entitled to 5 percent of it right off the bat but gets 6 percent after the first month, 7 percent after the second month and so on. It’s not compound interest, but with no cap and three years to grow, bidders stand to make a healthy return on their investment.
However, the catch is that the investor only cashes in if the property owner steps up and pays the overdue taxes. If the investor bets on the wrong property and selects one where the problem is not an oversight or a clerical error but an owner who cannot or will not pay, the investor can either walk or go through an additional process to get control of the property and try to force a sale to recoup the investment and interest owed.
Editor’s note: This story was changed June 6, 2016 to add additional details about the tax sale process.
Follow Chad Calder on Twitter, @Chad_Calder.