Governments with their backs to the wall financially will agree to marginal deals. County Comptroller Mark C. Poloncarz figures that's the best way to explain the mediocre contract county officials signed in 2003 to help collect overdue property taxes.

It's about to be replaced by a new contract expected to deliver a $40 million benefit this year.

"For whatever reason, they did not question the rationale of the transaction," Poloncarz said of the agreement signed four years ago and approved by lawmakers at the time.

When hunting for new sources of money that year, county officials found a company to help out when property owners failed to pay their county tax bills over a prolonged period.

After the county slapped a lien on the property, the company would cover most of the unpaid bill with a loan and then go about collecting the unpaid tax plus penalties.

The company, Xspand of Morristown, N.J., would charge the county transaction fees and an interest rate that often exceeded rates commonly offered to governments at the time.

While that deal helped the county balance its 2004 budget, governments across the country had struck better arrangements with their tax liens.

"We were in a deficit situation," said Joseph Maciejewski, the county's director of real property tax services. "When Erie County was going through its fiscal crisis, Xspand filled the need for cash upfront. That was the best we could do at the time."

The deal remained the same over the years, until early this year, when the county officials who oversee the arrangement were about to extend it. The panel, known as the Erie Tax Certificate Corp., includes officials from the Giambra administration and the comptroller's office.

That's how Poloncarz got involved. "When I stood up to them, to their credit, they said "OK, we will see if we can get a better deal,' " Poloncarz said.

He explained that Erie County no longer runs deficits and didn't need Xspand to balance its budget. So the panel, with Maciejewski now its president, sought other offers.

The members still want to hire Xspand, which is now owned by the investment giant Bear Stearns. But competition created by another big player in the industry, American Tax Funding Services of Jupiter, Fla., led to a better agreement.

Xspand is willing to pay 105 percent of the value of a tax lien. Then it's entitled to the property owner's payments plus the interest and late fees the owner must pay under county law. Xspand, referred to in county documents as Plymouth Park Tax Services/Xspand, also will arrange the auction when long-delinquent properties are seized and sold.

No longer will Xspand lend money to county government.

"We sell the liens, and we are completely out of the business," Maciejewski said.

American Tax Funding offered 103.25 percent of the cost of a lien.

The benefit to the government is significant. Officials had budgeted $8 million from its tax-lien agreement this year. Instead, it will derive a benefit of almost $40 million as 2006 liens are sold and past deals are wrapped up, officials said.

Poloncarz wants the money placed in a reserve fund and some of it used to pay off the county's debt ahead of schedule.

County officials will explain the agreement to the state-appointed control board Tuesday and to the Legislature's Finance and Management Committee on Wednesday.

The Erie County Fiscal Stability Authority has declared that Erie County is in danger of running a deficit this year. Therefore, the board will review all hiring and contracts valued at more than $50,000.

If County Hall collects $40 million when the deal closes April 30, does that mean this year's budget and the four-year financial plan are balanced?

"That's one of the questions we have to ask: How this impacts the budget and the financial plan," said control board Executive Director Kenneth Vetter. ". . . If there is more money upfront, there is less money later. We don't know what that interplay is. Right now, there are more questions than anything." e-mail: mspina@buffnews.com

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