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Tax Law

State Net Capitol Journal – September 3, 2012

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Budget & Taxes

LA LOOKING TO COLLECT ON OUTSTANDING DEBTS: The government of Louisiana is owed more than $1.5 billion by businesses, municipalities and others. And last month, a trio of financial experts offered the state advice on how it should go about collecting on that debt.

Shawn Romero of the business analytics software company SAS said the state should start with an analysis of the debt. He said his firm could determine how many of the businesses that owe the state money still exist and how many of them have reopened under new names.

"Businesses commonly run from debt," he told the state's Cash Management Review Board.

Tom Brenan, president of the collections agency Coface Collections North America, said personal contact with the debtors should be pursued where warranted, although he cautioned that the collection rate for substantially past due debts would only be about 10 to 30 percent.

"This is really grunt work," he said. "It's blue collar work."


Past Due Bad Debt

Finally, Nicolas Perkin of The Receivables Exchange suggested that the state sell fresh debt for 98 cents on the dollar to investors who would then go after the debtors for the full amount owed.

"There would be a tremendous amount of appetite, in my opinion, for what you guys are contemplating," he said.

But Ray Stockstill, one of Gov. Bobby Jindal's (R) top budget advisers, opined that Louisiana might get far less than Perkin proposed, pointing out that when the city of Los Angeles tried to sell its debt it only got 4 cents on the dollar.

John Kennedy, the state's treasurer, was more optimistic about the state's predicament.

"We've got nowhere to go but up," he said. (ADVOCATE [BATON ROUGE], STATE NET)

CONFLICT-OF-INTEREST CONCERNS IN CA BOND MARKET: A report issued last month by California's state auditor has raised questions about whether conflict of interest laws were broken by two of the state's largest issuers of municipal debt. The audit's findings, though inconclusive, cast suspicion on the practices of two joint powers authorities (JPAs), the California Statewide Communities Development Authority (California Communities) and the California Municipal Finance Authority (Municipal Finance), which issue conduit revenue bonds on behalf of private businesses and nonprofits.

"Although we found that the compensation model of the joint powers authorities raises concerns, we cannot conclude that it violates California's conflict-of-interest laws," the report stated.

The trouble is the JPAs are entirely staffed by private consulting firms, which receive a percentage of the fees associated with each conduit issue. California Communities paid its consultants about $50 million from July 2006 through June 2011, according to the auditor's report. The state's Political Reform Act of 1974, however, bars public officials from taking part in decisions in which they have a financial interest. The issue is whether that law also applies to employees of private firms performing the work of public officials.

California Treasurer Bill Lockyer was evidently concerned enough about it to call on Attorney General Kamala Harris to investigate.

"The problems identified in the auditor's report are sufficiently serious and substantial to warrant an investigation by the attorney general to determine if conflict of interest laws have been violated," he said in a statement.

But California Communities chose to focus on the positive.

"We're pleased, but not surprised, that the auditor found California Communities' business practices to be in full compliance with the law," the authority's chairman, Larry Combs, said in a statement. "We're very proud of California Communities' positive 24-year track record." (BLOOMBERG, CALIFORNIA STATE AUDITOR)

BUDGETS IN BRIEF: The PENNSYLVANIA Turnpike Commission is more than $7 billion in debt, up from $2 billion in 2002. Mandated to provide billions of dollars for statewide road and bridge repairs and transit operations by a 2007 state law (Act 44), the turnpike is spending more money each year than it takes in, in spite of toll increases that have doubled the cost of traveling the turnpike over the last 10 years (PENNLIVE.COM). • Also in PENNSYLVANIA, a Commonwealth Court judge has ordered the city council of Harrisburg to double its income tax rate to two percent for a year. The city is currently expecting to end the year with a $13.6 million deficit (PITTSBURGH POST-GAZETTE). • Over the past five years, CONNECTICUT's Department of Children and Families (DCF) has reduced the number of children in state custody by 20 percent, an achievement that has been applauded by child advocates, who prefer keeping families intact. But the accomplishment has also cost the state about $49 million in federal reimbursements, because the DCF has not applied for a waiver from reimbursement rules that base the size of each state's allocation on the number of children in foster care, as 13 other states have done (CONNECTICUT MIRROR).

- Compiled by KOREY CLARK

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