Overlooked funding source: How to collect money you're owed

Thu, 2016-08-18 11:19 -- Kevin Ebi

Funding is often one of the biggest obstacles to city improvement projects, but you don’t always have to find new sources of revenue to fund them. You may be able to do with the funding sources you’re already entitled to collect.

We’ve rounded up a few ideas, like the system in Mexico that has citizens volunteering to pay their taxes, and the analytics system that’s catching tax cheats efficiently. You don’t always need new taxes; sometimes you just need a new approach to better collect on the ones you already have. — Kevin Ebi


Make it easy for people to pay
One sure fire way to boost your tax revenues is to make it incredibly easy for taxpayers to pay. Obviously, the law is the law and people owe what they owe, but by making it easy, you encourage more people to pay voluntarily. Your city gets tax revenues faster and spends less on collections.

An online income tax service in Mexico developed with the help of Council Lead Partner Microsoft almost immediately boosted overall tax revenues by 10% and increased the number of tax statements submitted by 20%.

The old system was quite cumbersome. To register, citizens had to take their birth certificate to a tax office. Now, registration is handled entirely online. The cloud-based service also brings all of the taxpayer’s information into one portal, eliminating the need to enter or re-enter a lot of information.

Income tax filing are an extreme case, of course, but it may serve your city well to think about how you collect fees and taxes from the perspective of those who have to pay them.

Quickly identify tax cheats
Even when taxes are easy to pay, there will undoubtedly be people to choose to cheat. Catching those cheats and collecting the revenue has traditionally been a laborious process, but data analytics are making that job much easier, boosting tax collections by millions of dollars in some cases.

Analytics do not replace tax inspectors, but it does make them more effective. The analytics looks for patterns and unusual behaviors and can even help unravel schemes where several different people are working together. This directs inspectors to areas of likely fraud and lowers the false-positive rate so inspectors aren’t wasting time and bothering law-abiding taxpayers.

The impact can be sizeable. Council Lead Partner IBM helped the state of New York save nearly $900 million by being smarter about the tax cases it audited.

Council Lead Partner SAS helped several state and local governments recover millions that would otherwise be lost to fraud. In the case of North Carolina, it recovered or blocked nearly $8 million that would have been lost through employment security fraud. Elsewhere, it uncovered more than $50 million of fraud by a property tax department employee.

More taxes and fees are never popular and you may be able to avoid them by being smarter about the money you’re already entitled to collect.

Get the Smart Cities Financing Guide…
The Smart Cities Financing Guide, developed for the Council by the Center for Urban Innovation at Arizona State University, provides detailed, expert analysis of 28 municipal finance tools for city leaders investing in the future.  Many of the tools represent alternatives to the traditional funding mechanisms municipalities have used for decades. Download your free copy today.