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Reason Foundation

Chicago Hiring Private Bill Collectors to Boost Revenue

Leonard Gilroy
July 10, 2009, 11:22am

Per the Chicago Tribune, the latest privatization initiative from Chicago Mayor Richard Daley's administration—one of the dozens undertaken thus far during his tenure—involves hiring private sector collection agencies to help the city recover debts, fines and taxes from debtors:

The same bill collectors who pester debtors on behalf of credit-card companies are being recruited by Chicago City Hall to go after anybody who owes money to the cash-strapped city. [...]

Last year alone, past-due fines and taxes amounted to tens of millions of dollars, including almost $95 million in unpaid water bills alone. The debts are piling up as Daley faces a budget shortfall his aides peg at about $300 million.

"Whether it's municipal governments like the city of Chicago, or state or federal agencies, they are having trouble making ends meet," said Thomas Penaluna, president of CBE Group, a Waterloo, Iowa-based collection agency among 13 companies expressing interest in doing business with the city. "They need to find any way possible to increase revenues. Because people are having a difficult time, they have not been able to pay on time."

The city sends letters to debtors and sometimes hires law firms to try to collect. Now the Daley administration plans to hire one or more companies to assist in recovering the debts, city documents show. City Hall then would pay the collection agencies a percentage of what they are able to get debtors to fork over. [...]

A couple of firms bidding for Chicago's contract collected taxes owed to the Internal Revenue Service until President Barack Obama's administration canceled that three-year program in March.

The city is looking for five-year deals with collection agencies. According to bid documents, debts that could be sent for collection range widely, from bills for ambulances to bottled water taxes, building permit fees and taxes on real estate sales.

Leonard Gilroy is Director of Government Reform


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