Expect at least one member of Erie County's control board to dig in Wednesday as Joel A. Giambra explains a new way to bring in money when people don't pay their property taxes.

Kenneth Kruly says county government should return to the way it collected property taxes years ago, on its own without the help of an outside company looking to turn a profit.

"A tax lien is an asset, and the sale of assets to raise cash is still a sign of distress," said Kruly, who served as a budget director under Dennis Gorski, Giambra's predecessor as county executive.

He said the new deal advocated by the Giambra and County Comptroller Mark C. Poloncarz ignores the long-term view for a short-term gain.

When taxpayers miss payments over a prolonged period, governments place a lien on their property. The lien then becomes an item of value, a symbol of future payments the taxpayer must make, or their property will be seized and sold.

Governments, not just Erie County's, then sell the liens to bring in the missing cash sooner rather than later. Companies that buy the liens make their profit by keeping the tax payments that arrive eventually, plus interest.

Erie County charges 18 percent.

With its fiscal back to the wall in 2003, Erie County signed an agreement with Xspand of Morristown, N.J., which agreed basically only to lend the county the money owed by its delinquent taxpayers.

Xspand charged transaction fees and interest at rates exceeding what other lenders were offering. "That was the best we could do at the time," said Joseph Maciejewski, the county's director of real property tax services.

The terms remained the same until this year, when the county officials who oversee the agreement opened it to a new round of competition. This time, Xspand offered to buy liens for 105 percent of their value.

The only other offer came from the other big player in the industry. American Tax Funding Services of Jupiter, Fla., offered 103.25 percent.

To Giambra, 105 percent is a good price. The county each year can then collect more tax money than it is charging and invest the extra. Poloncarz foresees a $40 million benefit as liens are sold and past deals are wrapped up.

In addition, Giambra officials say that, for the rest of the decade, the contract gives the county at least $4.3 million a year more than forecast under the terms of the 2003 agreement.

Regardless, Kruly has a number of concerns: He wonders if Xspand will fairly collect taxes without favoritism and how the county will be able to police that work. He doesn't think the "Erie Tax Certificate Corp." - the county officials who oversee the agreement - should have discussed it in private. And he asks why officials would want to continue doing business with a company that provided it with such a modest deal in 2003.

Kruly also doubts the government will save that much money in its staff costs by turning the entire collection of delinquent taxes and the auction of seized properties over to Xspand.

On that point, Giambra will be ready with a breakdown showing Xspand will help the county avoid spending more than $600,000 a year.

"This is what the control board has been talking about, privatizing and re-engineering," he said. "This should be right up their alley."

There are subplots in this latest go-round with the state-appointed Erie County Fiscal Stability Authority. For one, Giambra sees Kruly as one of his harshest critics and is ready to go nose-to-nose when the state appointees meet at 2 p.m. Wednesday in the Buffalo & Erie County Central Library.

For another, should Erie County indeed derive some $40 million when the deal with Xspand/Plymouth Park Tax Services closes, county officials can argue their 2007 budget no longer contains the risk of a $15 million deficit.

The control board has said the county's failure to adopt a balanced budget and four-year plan justified the expanded use of its state-given powers to review all hiring and contracts worth more than $50,000. But if the budget and four-year plan do balance, then the panel has less reason to remain a "hard" control board.

"It definitely would assure the 2007 budget is balanced," said Budget Director James M. Hartman. But he never agreed it was out of balance.

The next step actually belongs to the County Legislature. It must authorize Giambra to sign the deal. The Legislature's Finance and Management Committee will be briefed at 10 a.m. Wednesday on the fourth floor of Old County Hall. e-mail: mspina@buffnews.com

Copyright 2007 - The Buffalo News