Justice Inc.: Should private companies help Alabama cities enforce ...

In Prichard, a South Carolina-based traffic enforcement company has offered to pay for police officers to issue tickets and split the fines with City Hall.

In Warrior, a subsidiary of a Virginia-based debt collection company audits businesses for delinquent taxes, and splits the business licenses fees it recovers with the city.

And in Harpersville, an Atlanta-based private probation company has been blasted by a state judge for being a part of a "judicially sanctioned extortion racket."

Among local governments, privatization and outsourcing are not new things. For decades, communities have turned to private companies to provide services such as garbage collection or to manage utilities such as water. But in recent years, cities and counties throughout Alabama have begun outsourcing of a different kind - one that delegates power and authority over citizens.

Private companies have pitched these arrangements with promises of reduced expenses and larger, newer revenue streams, and for many local governments, those promises couldn't have come at a more opportune time. Privatization can reap generous rewards, such as in Center Point, where a traffic enforcement camera contract with Arizona-based Redflex Inc. has become the city's second-largest source of revenue after sales taxes.

Nationally, municipal revenues have fallen each of the last six years, according a report issued last month by the National League of Cities.

"Cities have been making significant cuts to their budgets for several years now, and that trend will continue," writes Michael Pagano, the Dean of the College of Urban Planning and Public Affairs at the University of Illinois at Chicago, who coauthored the report. "These are serious times for cities and their residents. Difficult, but manageable, financial hurdles for cities will remain for the foreseeable future."

In short, cities are hurting financially, and in council chambers and county courthouses, private contractors have offered to help. Private probation companies, tax collectors, private traffic enforcement - they are the first to arrive in a national wave of privatization that delegates government authority over people like you.

But with these arrangements come new questions about civil rights and due process.

"If you get a Sheriff of Nottingham who his carrying out the law in an abusive way, you can vote him out of office," says Jay Stanley, a senior policy analyst with the American Civil Liberties Union.? "The public can't vote out a CEO of a company."

New City, Inc.

In the lingo of privatization advocates, Semmes in South Alabama is a "start-up city." The nascent western suburb of Mobile incorporated earlier this year, and in June the city elected Judy Hale its first mayor.

When building a city from scratch, the earliest challenge can be jump-starting the kinds of city services older cities take for granted. Municipal privatization provides an answer, says Leonard Gilroy, the director of government reform at the Libertarian-leaning Reason Foundation. Why create a planning and engineering department or a revenue department from the ground up, when you can hire one virtually from the phone book?

In recent years, the poster child of start-up cities has been Sandy Springs, Ga., a place that despite its population of more than 90,000 people has just seven city employees outside of the police and fire departments.

"Sandy Springs demonstrates that there are very few things that a city does that cannot be successfully accomplished through public-private partnerships," Gilroy said.

Semmes, however, has only about 3,000 people and is not yet ready for its own police force. Its fire department is still volunteer, and in its first budget, the city has planned for a third fire station.

But before it could have any of that, Semmes needed something that has drawn the ire of public sentiment since the Bible - a tax collector.

The city turned to Birmingham-based Revenue Discovery Systems. RDS is a subsidiary of Virginia-based PRA Government Services. Together, they have more than 250 client cities and counties in Alabama, and more than 750 nationally.

According to Gilroy, outsourcing services traditionally provided by the government lets new cities avoid legacy costs, such as underfunded pension plans and long-term debt that have hamstrung older communities.

But while start-up cities like Semmes find big savings from contractors like RDS, the businesses on the other end of the multi-jurisdictional audits can find themselves fighting for their survival.

In the fall of 2005, the Washer and Refrigeration Supply Co. in Hoover had already been hit hard. Hurricane Katrina had destroyed the company's Mobile distribution center, an almost $2 million loss, when the company got more bad news. It was being audited for local taxes - not by a local government, but by a private company on behalf of 143 different city and county governments.

RDS found that the Washer and Refrigeration Supply Co. owed about $60,000 in taxes, interest and penalties to four of RDS's clients.

At first, the Washer and Refrigeration Supply Co. agreed to pay, even though it disagreed with the assessment, the company's lawyer Charles McCallum says. With the losses from Katrina, an expensive legal fight just didn't seem like a smart business decision. But when the company fell behind on a payment plan, RDS placed liens against the owner's private property. That's when the owner, David Smith, decided to sue.

"Taxation is such an inherently governmental function, and Alabama is the only state that allows both private auditing and private collection of taxes," McCallum said. "There is one big loser and that's the taxpayers."

Smith's lawsuit could, if it is successful, block RDS from doing business in the state. It alleges, among other complaints, that RDS has violated the Alabama Constitution of 1901, which forbids local governments from delegating taxing authority, and that the company has violated the Alabama Taxpayer Bill of Rights by collecting taxes on a contingency basis.

"We have studied it and we feel we are in complete compliance with the law," the company's attorney, Robert Rutherford said. What's more, he says, the lawsuit does not question whether the Washer and Refrigeration Supply Co. should have paid the taxes RDS discovered.

Officials from RDS say that Alabama law has given it a clear set of guidelines for how to conduct its business.

"In Alabama we charge by the hour, whether we find nothing, something or a lot of something," said Mike Pelone, president of RDS's parent company, PRA Government Services.? "If we spend 10 hours on an audit, we bill for 10 hours at a rate that's agreed to in the contract. And that's all there is."

According to Pelone, Alabama's tax laws are among the most clearly defined in the country, and the RDS uses the Alabama Taxpayer Bill of Rights as the basis for all its service agreements.

One of the authors of that law, Bruce Ely, a partner at Bradley, Arant, Boult and Cummings, now says it does not go far enough. During the 1990s, the Legislature tried to regulate companies like RDS in, but those companies evolved around the weaknesses in legislation, he says.

"Unfortunately, I think private auditing firms are here to stay," Ely says. "What the 1998 act did was to build fences around them. I think we need to look back at the 1998 act and see if there are things that can be tightened up. I think that is something we can do in the next legislative session. "

Many of Ely's clients are companies fighting tax auditing and collection companies in court. Large businesses can defend themselves, he said, but the law as it is now does not protect small businesses from errors or abuse.

"It is confusing for any taxpayer who is not sophisticated and does not have a huge budget for legal fees," Ely said. "The thing that frustrates me is that a lot of these clients are small businesses and they can't afford to litigate one of these cases in circuit court."

Kennon Walthall, COO and senior vice president at RDS's parent company PRA Government Services, said that the company welcomes further regulation from the state.

"We want it," Walthall said. "It kind of sounds crazy, but more regulation is better for us because it makes things black and white. There is no gray."

READ OTHER STORIES IN THIS SERIES

Private probation company in Harpersville lawsuits says it's just the court's 'hired help'

It's up to governments to ensure rights are protected, experts say

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Source: http://blog.al.com/spotnews/2012/10/justice_inc_should_private_com.html

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