Approve the Xpand Deal

28 Feb

Last week, it was reported that the county had worked out a much improved deal with the private company that handles its tax arrears and liens. It was so good, I called my post “Found Money”. Instead of $8 million, the new deal would raise up to $40 million, thus fiscally helping the county in myriad ways.

Some people are opposing this deal.

I received this email from PUSH Buffalo today:

Hello friends:

As many of you know, Joel Giambra and County Comptroller Mark Poloncarz want Erie County to sell its tax liens in bulk to a private company so they don’t have to collect the debt themselves and get a whole lot of cash up front to balance the budget. Sounds good, right? Well maybe not.

I urge you to contact your county legislator to make sure all of Erie County does not get on board a train wreck. When you call demand:

– That the County Legislature have the power to review, amend, and approve the contract
– That your legislator learn from years of bad policy and act as a voice of reason against shortsighted
– That county government open a public conversation about regional development

Three and a half years ago the City of Buffalo was in the same place. Selling 1,500 liens to a state agency with its financial back against the wall has proved to be a huge blunder and has hindered redevelopment in the city since. What’s been left in the wake of that deal is a spiral of abandonment and vacancy in some of the most distressed parts of the city and a hostage situation for the parcels that have significant development potential.

And while the County seems to be getting a better shake from the municipal debt collector Xpand, the volume of liens is staggering — 30,000 county wide. What’s worse, the deal on the table is simply a yes/no vote to give Giambra the ability to negotiate the contract without any process for amendment by your elected representative. With less than a third of those liens are in the city, this could spell a development nightmare for Erie County. Regional planning groups have concerns with the proposed deal and so should we.

What PUSH is doing (and Legislator Maria Whyte is lobbying along the same lines) is comparing apples with anvils.

They are trying to compare the county’s deal with a private entity – Xpand – with the city’s deal with MBBA, which you don’t have to go far to learn is a pretty lame deal, in retrospect. When the MBBA – a state agency – is stuck with a house that isn’t worth the amount of the lien, that agency has no resources to keep up the property or otherwise prevent the blight that has occurred.

By contrast, Xpand is a private company that isn’t generally in the business of giving money away. Xpand would buy the county’s tax liens for 105% of the amount, and keeps the interest and late fees. Because it’s a private entity, it has a huge incentive to actually pursue the money. MBBA has no such incentive; it exists tomorrow whether it collects a dime or not.

Furthermore, if the deal is blocked, as suggested by Whyte & PUSH, the county could very well end up in deficit at the end of the year. The legislators will have the unenviable job of deciding which pet projects, including neighborhood centers, clinics, and other services they’ll get to cut. On the other hand, if the deal goes through, it could provide the county with enough money to call off the hard control board.

When a town/village taxpayer doesn’t pay up, the vast majority of those property taxes go to schools and municipalities. The county is obligated to cover the unpaid amount to those local entities and go chase after the arrears.

Xpand is not MBBA, and this deal is in no way comparable to that one. I urge you to contact your legislator and ask him/her to approve this deal and take a solid step in the direction of fiscal solvency and surplus.

13 Responses to “Approve the Xpand Deal”

  1. Mike In WNY February 28, 2007 at 9:45 pm #

    This is the perfect example why a private entity is a much better solution than a government solution. The profit incentive ensures efficiency and value. If a government program fails, the people who run it have no personal loss.

  2. Pauldub February 28, 2007 at 11:33 pm #

    Just sent my rep the email.
    Mike – You should have this one framed. It IS your perfect argument.

  3. Eric Walker March 1, 2007 at 9:34 am #

    I’m not screaming for the train to stop on this sale and neither is Legislator Maria Whyte to my knowledge. What I am calling for is to make sure that the legislature exercise some power in getting the most favorable terms for all of Erie County before a contract gets negotiated without their (and by definition of representation your) say on it – simple.

    You misinterpret this notice as direct opposition to the proposed tax sale when it is simply a call to have a rationale conversation about what we don’t want to happen at the county level based on what we know has happened on a much smaller scale at the city level with disastrous consequences and a poor remedy.

    The larger discussion about how municipalities collect their delinquent taxes and how these strategies affect long term development is at the heart of my original email.

    We could debate the issue of public vs. private, but that is not the issue at hand. In fact, MBBA, the state agency responsible for over a thousand homes in the city, actually hired a private firm just like Xpand called JER revenue services, to collect the liens it purchased from the city – In all likelihood thinking that a private company could do it better. While the hope is that what we both get out of the deal, a balanced budget for Erie County and successful collections for Xpand, we should not blindly assume that profit incentive will translate into collections.

    The resolution being voted on has several glaring red flags in it that should make any one who lives in this county cringe at the thought of its passage as is. There are some striking similarities between this proposal and what happened with MBBA. For example:
    – It is merely a vote to authorize Joel Giambra to enter into contract negotiations with Xpand and has no language to insist on things like performance evaluations, methods for lien buybacks if the county decides it wants to maintain control of the property, or any sort of nullification if it becomes clear that Xpand can’t do the job.
    -The liens being purchased from the county are its worst, most uncollectible liens.
    -The blinding lure of cash upfront and a balanced budget has drowned any consideration by local electeds on the possible pitfalls to the sale of tax liens as a matter of public policy.

    That being said, I was the only private citizen at the budget and finance committee meeting when the presentation was made to the Legislature. To this very moment, the conversation has revolved almost entirely around how this deal is better than the one we had as opposed to critically questioning if this is the best deal for the long term stability of the county and the region. That goes far beyond an accountant’s balance sheet.

  4. Kelly March 1, 2007 at 10:20 am #

    How is it a perfect example? They haven’t gotten the deal to go collect the leins. You can say you think and hope it will work out better, but it sure as heck is no perfect example yet. I am so tired of people jumping at every chance to privatize something without looking at the fine print. Profit incentive might encourage efficiency but it does encourage the best, most healthy community. It seems like the original letter was asking people to enccourage the legislature to negotiate better terms and not just jump because someone waives money in their face.

  5. Chet Morton March 1, 2007 at 10:28 am #

    The county sold the tax liens to XSPAND in 2003 and XSPAND has been administering and pursuing the payments of unpaid county property taxes on those properties since 2003. I’ve never heard of any problems in the last four years with XSPAND and these county liens and delinquent property owners. To get 105 cents on the dollar on tax liens is a sound business decision in my mind.

  6. Slothrop March 1, 2007 at 10:39 am #

    I don’t agree that there would be a deficit if the deal would not go through because the County STILL HOLDS THE LIENS! Isn’t it about the value of the liens?

    Moreover, private companies such as XSPAND have caused problems in communities like Detroit and Flint. In fact, I was told Maria Whyte actually initiated a conference call to an official in Flint, Michigan to ask how to make this deal better so that Erie County does not fall into a trap it cannot get out of. All involved in the call came out impressed and I believe the deal will now be better.

    I think there is a bigger problem at hand. Some legislators voted against the 2007 budget over a few jobs and cultural funding. They stood on their soapboxes and yealled about small drops in the bucket.

    Now, there is a $40,000,000 contract on the table and there is only one legislator asking detailed questions? Wonder why our priorities are all messed up?

  7. CB March 1, 2007 at 10:41 am #

    What happens to the properties when they can’t collect? You know there will be some…

    My guess is because they are a for profit company…they will sell them without regards to who they are selling them to…or let them sit and rot….sounds like a scene out of “Flipped”…that is what PUSH Buffalo is concerned with…

    In what I have read about the deal, I see no safeguards in place.

  8. Erie Watcher March 1, 2007 at 11:01 am #

    I heard/read that xspand agreed to sell any bad liens back to the county for its cost if they were uncollectable. That’s a big difference between the county deal and the city’s old deal with MBBA, city doesn’t have the right to buy back these old unproductive liens but county does. Sounds like the county learned from the city’s mistakes. I don’t know why some dislike this. Guess people assume if the county does it, it must be bad.

  9. Hawk (Not Hank) March 1, 2007 at 11:13 am #

    I know I’m going to sound like Hankie (which riles my bones), but I don’t get it. People are criticizing the county because its getting a good deal with a private sector company and it helps its fiscal house, that’s crazy.

    The problems in Buffalo were not caused by tax liens, but by white flight, crime and all sorts of nastiness from the past 40 years that community activists don’t want to admit. Yes there are problems with underdeveloped properties in Buffalo, and from what I read MBBA has caused some of the problems, but if people think Benderson or other developers are going to flock to the east side once these properties are cleaned up, their nuts.

    Stop the killings, clean up the drug trade, make the neighborhood safe, and then people will think about buying and developing land down there. Until then, it does not matter whether a piece of property is lien free or not, its still not going to get sold.

    People have their priorities in the wrong place. Instead of going nutso over a lien sale, they should be marching on city hall screaming about the senseless violence and killings in the city.

  10. Kevin Hayes March 1, 2007 at 11:40 am #

    There are upsides and downsides to every deal like this. Too often, the upside is just “more money coming in”, while the downside is unclear but may include neglected properties, flipping, money going out in the form of demolitions, fires and neighborhood decay.

    I’ve been a critic of the City’s tax auction for quite some time. It plays an important role in dealing with tax delinquency, but it has a downside. We’ve been trying to get a handle on the downside, which I have a gut feeling is far more substantial than its upside of money in the City’s treasury. Fraudulent flipping has a negative economic impact on the city, and even more so on the streets it occurs on. Unnecessary demolition can be very harmful to a neighborhood. Dilapidated, open properties are also bad, and this has an economic impact. Fire calls cost real money and sometimes lives. Many properties have been sold at the City auction multiple times over many years.

    One of the problems with MBBA’s involvement in tax delinquent properties was that in most cases the properties were allowed to deteriorate, were wide open to the elements and to people up to no good, and the City, I believe, had an agreement to not write code violations and take the owners or the responsible parties to court. The same thing happens with City-owned properties – they get a pass from code enforcement.

    MBBA/JER were also unresponsive to citizen attempts to do something constructive with the properties. PUSH advocated strongly for this and have started to make some progress lately. I know them as one of the more productive advocacy groups in the city, and commend them for speaking out. Also, as Eric says, deals like this should be made in the open, with as much discussion as needed.

    At the root of flipping, and I believe of deals like this and MBBA, is the idea that houses in Buffalo are sort of like poker chips – tokens in a money game that makes a profit for some people no matter what the impact is on some others. MBBA presumably made money on Wall Street selling the worthless liens and the purchasers probably had a sizable tax write-off. Buffalo was left with 1,600 derelict properties it had no control over. I wouldn’t like to see this happen again, which is why any deal like this should be scrutinized carefully.

  11. Mike March 1, 2007 at 3:21 pm #

    Whatever you think of this deal, it is NOT sound fiscal policy to sell long term assets to pay for short term budget shortfalls. You would think the comptroller would have at least have some reservations about that aspect of the deal.

    When next year rolls around, will we have 3 years of tax liens to sell to balance the budget?

    Selling assets to pay for operating expenses is the first step towards (real) fiscal crisis. Thats what got NYC in trouble in the 70’s and is part of what the City of Buffalo did when it faced crisis in 2002 (see MBBA sale)

    And why, if this is such a good deal for the County, would Xpand be pushing for such a fast track approval on this deal. Why not give the legislature time to review and negociate the best deal for Erie County? They are a private company with profit as the SOLE motive, that reason alone should give us reason to slow down and really scrutinize this deal.

  12. hank kaczmarek March 1, 2007 at 5:33 pm #

    Hawk–I’m framing your comment.

    Don’t let your bones get riled. Just because you see the reasons behind the issue as I do doesn’t mean you’ve gone “to the Dark Side”.

    I see an angle that hasn’t been mentioned. If the hub-bub is about the passage of the bill allows the C E to negotiate, then perhaps a look (and I don’t know the result) of Giambra’s record as a negotiator could be in order.

    If history shows that Giambra is NOT a good negotiator, In other words he makes deals like Masiello did with the Seneca’s……

    Could the bill not be passed with an addendum that whatever deal the C E negotiates with this company be subject to approval by the Legislature?

    End of the day Hawk, you’re calling it straight. Don’t matter if there’s a lien on a given property, or a number of properties in a given neighborhood. If the area looks like New Jack City, it won’t sell anyway.

Trackbacks/Pingbacks

  1. In da Buff: Naked Words from the Naked City - March 2, 2007

    […] A couple of days ago Buffalo Pundit wrote blog piece critcizing PUSH Buffalo for running a some opposition against Erie county’s plan to enter a deal with Xspand to collect on tax liens. […]

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