A 44 percent reduction in tax collectors and auditors at the Department of Revenue could make it more difficult for the state to go after delinquent taxpayers, possibly resulting in millions of lost dollars for Arizona, a department official said.
With 208 tax collectors and auditors laid off since late February because of budget cuts, the agency projects the state will lose $174 million through next year in reduced collections of delinquent sales, income and corporate taxes. But the Governor’s Office said tax collections could drop anyway as more companies battle to stay in business during the recession. And the department’s plight doesn’t generate much sympathy from the Republican-controlled Legislature, where a leader said state administrators made their own choices on where to cut.
In fiscal 2008, the Department of Revenue brought in about $14 billion through tax collections, with about $500 million coming from delinquent collections and audits, said Anthony Forschino, Revenue’s assistant director. The agency, which now has about 650 employees after staff cuts, processes tax payments and tax returns.
Forschino said when the Legislature earlier this year was forced to rebalance the current budget, his department had to make $9.5 million in cuts, and the agency laid off 300 employees, with more than two-thirds of them in collections.
The layoffs of tax collectors and auditors came after the department released probationary employees, didn’t fill positions and implemented furloughs – unpaid days off – for employees, Forschino said. The department also postponed maintenance, such as replacing a computer server.
Forschino said the department didn’t want to make deep cuts to employees who process tax collections or returns, which would have had more impact on the public. Beyond the tax collectors and auditors, he said, the department had few other options to find $9.5 million in cuts for the final four months of the current fiscal year.
“That’s 12 percent of our budget for the full year, but when it comes in the last four months that’s a 34 percent hit,” Forschino said. “We looked at everything we could do and not stop production and critically hurt the department. . . . There was nothing we could do but lay people off.”
G.E. Howard, one of the collectors who lost his job, said he generated as much as $1.2 million a year from delinquent taxpayers.
“The people of Arizona are the ones suffering more than those of us who were laid off because their services are being cut,” said Howard, who said he worked six years for the state.
Democrats, in the minority at the Arizona Legislature, have called for the positions to be restored and for the state to spend additional dollars for more staff in the fiscal year starting July 1, when Arizona is projected to face a nearly $3 billion budget shortfall.
Rep. David Lujan, D-Phoenix, said it would be a good return on investment.
“These are delinquent taxpayers who are not fulfilling their obligations to the state,” said Lujan, the House minority leader. “It’s unfair to citizens who pay their taxes and are getting their services cut.”
But House Majority Leader John McComish, R-Phoenix, said the Department of Revenue, like other state agencies, was given a lump-sum cut and lawmakers left it up to administrators to decide how to make reductions.
“They are the professionals, rather than having us micromanage,” McComish said. “They are better suited to decide where the cuts should be.”
The Governor’s Office also is skeptical, saying the revenue-loss figures are estimates and that it might be more difficult to collect unpaid taxes from businesses or individuals given the financial climate.
“There have been questions in the past. It’s hard to measure the impact on revenue,” said Paul Senseman, a spokesman for Gov. Jan Brewer. “It’s an estimate in the truest sense. … (But) there is no question bankruptcies and other challenges in the private sector are growing.”
Forschino said those laid off included 94 tax collectors and 114 auditors. The state has 121 collectors and 143 auditors.
He said tax collectors and auditors typically earn about $40,000 a year, and a collector generates about $800,000 a year from delinquent taxes. An auditor generates about $400,000 in collections, he added.
The loss of those employees, multiplied by the amount they typically generate, is projected to cost the state $54 million for this fiscal year, which ends June 30, and $120 million the following fiscal year.
While the Revenue Department says the personnel cuts will result in less money coming in, the state also has about $400 million outstanding in collections. Businesses owe more than 60 percent of those taxes, Forschino said. Of those, 451 businesses owe a total of $117 million. The businesses’ names were not released because of privacy laws.
Forschino could not immediately provide the percentage of outstanding delinquent revenue collected over the past few years.
The cuts to Arizona’s revenue department were the largest, by percentage of workforce, than any other state’s tax collection agency, said Jim Eads, executive director of the Washington, D.C.-based Federation of Tax Administrators.
Eads, whose organization includes all 50 states, the District of Columbia and New York City, said trimming revenue departments is a delicate balance for states.
“It makes sense to keep people on the payroll who are collecting money,” Eads said. “On the other hand, if you are not able to provide state services, it’s sometimes hard to justify to other agencies that these folks get a pass.”