Sun-Star Special Report: Adams stops bank seizures, taxes go uncollected, Pedrozo brokers special meeting; is it politics?

04/19/2014 12:35 AM

04/19/2014 2:45 PM

A last-resort method of collecting unpaid taxes was discontinued by the Merced County treasurer-tax collector eight months ago, resulting in a potential loss of revenue to the county and a break to some businesses that owed hundreds of thousands of dollars.

The decision to quit collecting taxes using bank seizures comes as the county faces a potential deficit of $9.3 million for the 2014-15 fiscal year, according to a preliminary budget released last month.

The issue raises questions about the Board of Supervisors’ involvement in the tax collection process. District 1 Supervisor John Pedrozo allegedly told Merced County Treasurer-Tax Collector Karen Adams that one business owner -- who owed the county nearly $68,000 at the time -- was “good for the money.”

That business -- though it struggled to pay its taxes -- made a significant monetary contribution to Pedrozo’s most recent political campaign.

In an email obtained by the Merced Sun-Star, Adams directed staff at the Revenue & Reimbursement Department to “discontinue bank seizures” until further notice. Adams provided no explanation for stopping the collection effort in the Aug. 9, 2013, message.

Adams, who is up for re-election this year, has been the Treasurer-Tax Collector since 2002. She took over the Revenue & Reimbursement department after a reorganization in 2009.

Adams acknowledged stopping bank seizures in an interview with the Sun-Star and said it’s unclear when they will be reinstated. Adams said she discontinued the practice after discovering two seizures had been done illegally and because of a shortage in management staff.

“There were several bank seizures that came to my attention that were not executed legally and it’s my job to follow the law,” Adams said, adding that collectors tried to seize money to extinguish debts past three years -- a violation of the state Revenue & Taxation Code. Adams said she’s still “refining” the process, but has added a checklist to ensure collectors don’t go after taxes older than three years.

A bank seizure is an enforced collection of unpaid taxes that involves freezing a delinquent taxpayer’s bank account and taking the money that’s owed. Tax experts say it’s the last resort and happens only after collectors have tried everything else, including phone calls and letters.

“Collectors try to work first on agreements and work with people as much as possible,” said Gordon Ford, Stanislaus County Treasurer-Tax Collector. “It’s just when they absolutely refuse to be cooperative that you have to take a more drastic step.”

Bank seizures do more than just collect delinquent taxes owed to the county.

They are also a revenue generator for the county’s Revenue & Reimbursement Department, which gets a $50 collection fee for each bank seizure it performs.

One collector, who spoke on condition of anonymity in order to protect her job,recalled doing at least 10 bank seizures in one week. There are five collectors in the office, and if each one handled the same amount, it would be $2,500 in weekly revenue to the department.

“That is what helps sustain our office,” she said.“You’d think something like this that generates so much money for the county would be a top priority.”

That extra revenue might have saved Mia Kendall’s job, according to county records. She was one of three people laid off from the Revenue & Reimbursement Department last year because revenues decreased by $127,168 from 2011-12 to 2012-13. Revenues fell another $150,731 from 2012-13 to 2013-14.

“We kept asking if our numbers were good and if we’d survive another year,” said Kendall, who worked as a collections clerk for eight years. “They kept telling us we were OK, and we were looking at it every month. Then she (Adams) came in and said the numbers weren’t where they wanted them to be.”

Kendall said she believes the loss of revenue from discontinuing bank seizures was one of the reasons she got a pink slip.

“That’s major revenue that would have saved my job,” Kendall said. “This was instant money and sometimes the accounts were almost $25,000. It didn’t make sense, because who would stop money coming in?”

Adams said the department’s drop in revenue isn’t because of stopping bank seizures. She blamed it on the loss of several large collection accounts -- the county hospital, traffic fines in 2009 and court infractions two years ago.

“So it was not the lack of revenues from a $50 bank seizure fee,” Adams said. “It was the loss of revenue from our client base changing.”

‘Special treatment’ for some

In response to Adams’ decision to stop bank seizures, an email from a collector in January captured her frustration --  and pointed to three businesses that owed large sums of money.

“I have a folder full of 2012 taxes and a folder full of 2013 taxes that are ready for bank seizure that I CAN (sic) collect on,” Nicole Mattos wrote in the email obtained by the Sun-Star. “The county needs the revenue and R&R has been told we need to generate more revenue, but we are not being allowed to. It is very confusing why accounts are assigned to our office, but we are not allowed to do our job.”

Mattos said Summit Sales, a pipe-plastic manufacturer in Gustine, WakeCraft Boats Inc. in Atwater, and Victor Produce, a sweet potato grower in Livingston, are a few examples of businesses that owe substantial amounts of money, and their cases had reached the point at which a bank seizure would be the next step.

Mattos declined comment when contacted by the Sun-Star.

Summit Sales was sent to collections in 2010 and had a balance of $60,420.54 as of January, accruing $408.34 a month in interest, according to the email. Mattos said in the email that she knew the business owner personally and believed he had money, pointing out that he owned several homes.

“We tried enforced collections until he spoke to you (Adams), and we were advised to back off,” she wrote in the email, adding that the state seized what he owed them. “Now R&R along with the taxpayers of Merced County is left holding the bag.”

Another collector, who spoke on condition of anonymity, worked closely on the account for Summit Sales, which she described as a “huge account.” “The guy was supposed to come in and make arrangements to pay and he never did,” she said. “He never came in, never answered his phone, and we were told to never seize it again.”

Adams denied speaking to the owner of Summit Sales and said she aggressively pursued collection efforts, including closing the business temporarily. “It was the very first time we closed a business,” she said. “I have never backed off. Instead we did multiple seizures, but we couldn’t find a bank account that had any money in it.”

Attempts to reach Summit Sales’ owner Mitch Giles were unsuccessful.

WakeCraft Boats owed the county $38,671.62 by January, accruing $377.96 a month in interest, according to the email. Mattos said the owner made only two payments, one in 2010 and another in 2013.

“R&R confirmed he owns ranches and property and was not in a financial hardship,” Mattos wrote in the email. “We asked for him to provide proof of his financial hardship, but we were told he did not have to prove that to us.”

A collector who worked on the account said WakeCraft Boats is still in business, despite owing thousands of dollars in taxes. The business was sent to collections in 2010.

“We’re not able to do our jobs. The powers that be are keeping us from doing the job,” she said. “It’s revenue for the county, and if we’re not doing that, everybody suffers.”

David Telling, owner of WakeCraft Boats, declined comment when contacted by the Sun-Star earlier this month.

Pedrozo’s involvement, campaign contribution

Sweet potato grower Victor Produce was sent to collections in 2012 and owed the county $67,951.96 with a monthly interest of $861.24, according to the email. Owner Jim Victor was set up on a $10,000-a-month payment plan but failed to make payments, Mattos said in the email.

Mattos said Victor Produce’s bank account was seized twice in 2013, but collectors had to give the money back both times at the direction of Adams.

“You told us ‘John Pedrozo said he was good for the money,’ ” Mattos wrote in the email. “Is Mr. Pedrozo writing the county a check for Victor Produce’s taxes?”

One of the collectors who spoke on the condition of anonymity recalls having to return money to Victor Produce multiple times after it was seized. “On two separate occasions, we were instructed to give his money back,” she said. “Karen Adams came in with Victor Produce, a year ago, and said ‘you will give his money back and you will set him up on a payment arrangement.’”

Adams acknowledged refunding Victor’s money after it was first seized on Feb. 7, 2013, but said it was because the seizure was performed illegally. She denied returning his money a second time, as claimed by the collectors.

“It came to my notice before I met with Mr. Victor that the bank seizure had been executed illegally,” Adams said, adding that they tried to collect taxes beyond three years.

In November 2013, the business owner reduced his monthly payments to $2,000, but still did not make the payments, Mattos wrote. “Finally Mr. Victor admitted he is having financial problems (no surprise to R&R) and is moving to Mexico,” Mattos said in the email. “The county/taxpayers are left holding the bag on this one as well.”

Though the business owner admitted to financial hardship, he was able to contribute money to Pedrozo’s re-election campaign last year.

Victor Produce donated $1,000 to Pedrozo’s campaign in February 2013, according to the supervisor’s financial disclosure forms. It was the largest monetary contribution to Pedrozo during the filing period from Jan. 1, 2013, to June 30, 2013.

Having won re-election in November 2012, Pedrozo’s campaign was long over when he received $1,000 from Victor Produce. But shortly before getting the donation, the supervisor received a phone call from the business owner in February.

Pedrozo said he got a call from Jim Victor after the county first seized his bank account on Feb. 7, 2013. Pedrozo said Victor was upset because he didn’t have enough money to pay his employees that week.

“After I heard his story, that’s when I got involved like I did,” Pedrozo said, adding that Victor Produce is a large business and employs many people. “He was unable to make payroll for his business so he contacted me and I spoke to Mr. (Jim) Brown (County Executive Officer) and Karen (Adams) to see if we can work something out.”

Pedrozo said he met with Victor and Adams in person on Feb. 13, 2013 -- the day the donation was received -- to come up with a payment plan. Pedrozo said he saw Victor again later that day to accept the $1,000 donation.

The money was recorded on the supervisor’s financial statement two days later on Feb. 15, 2013.

But when Victor did not make payments based on the plan, Pedrozo said, he received a call from Adams.

That’s when Pedrozo said he arranged a second meeting on May 31, 2013, with Victor, Adams and County Executive Officer Jim Brown. Pedrozo said both Brown and Merced County Counsel James Fincher were aware of the meetings and the steps he took to help Victor.

“County Counsel was aware of everything I was involved with -- the whole process -- as was Mr. Brown,” he said.

In an interview with the Sun-Star, Brown said it’s not uncommon for him to participate in meetings about constituent issues, though this was the first one about delinquent taxes. Brown has been CEO since December 2011.

“Pedrozo said he would like me to be included in this meeting,” Brown said. “I had very limited knowledge on the situation. I’m not sure I said a thing the whole meeting. It was to observe and to make sure (Victor) was treated fairly and the issue was resolved.”

Brown denied that he had any knowledge of the campaign contribution to Pedrozo before this week.

Pedrozo said Victor’s $1,000 donation didn’t influence the decision to help with his tax troubles. “All I know is he was a constituent of mine and he needed help. I would do that for any of my constituents,” he said. “When I get a phone call from someone, I try to help them.”

Pedrozo claimed he didn’t know Victor personally, but that didn’t match up with what the business owner told the Sun-Star. “He was a good friend of mine, so I went up and talked to him and he helped me out,” Victor said. “He just negotiated with them and talked to them. He did a good job.”

Victor said he owed close to $142,000 from property reassessments, not delinquent taxes. The bill came as a surprise, Victor said, because he thought it was taken care of by a staff member. But the business was behind on its reassessment taxes by about four years.

“They came and slapped me with a bunch of taxes and said I have to pay it now,” Victor said, adding that he made multiple payments before his account was seized. “I specifically told them, we started a new business in New Mexico and I told them I needed more time, but they wouldn’t give it to me. Instead of them working with you to help you out, they seize your account after you made payments.”

Victor said he doesn’t see anything wrong with contacting his county supervisor for help. “I think it’s his job to try to find a solution to the problem and I would hope he stays where he’s at because people need him,” he said. “I’m not the first person he’s helped out.”

According to Adams, Victor still owes the county about $60,000 for his 2012 and 2013 taxes, but is up to date on his current payment plan.

Other supervisors and political experts sound off about issue

Victor Produce was one of the accounts that got “preferential treatment” from Adams, said one collector familiar with the account. Some business owners picked up the phone and called county supervisors to get a break, she added.

“There are certain people that call the Board of Supervisors and say who they are,” she said. “They say, ‘I know so and so, and I will call the board.’ The Board of Supervisors is not supposed to be involved at all in the collections process in this county.”

District 2 Supervisor Hub Walsh said he doesn’t recall receiving such calls from constituents, though people sometimes call to ask about processes and payment deadlines. “What I normally do is I try to get as much information as I can, then refer them back to the department head to resolve the issue,” he said. “But I will not call in and say ‘Hey Karen, cut him some slack.’ ”

District 4 Supervisor Deidre Kelsey said she also refers people to Adams and tries to ensure proper communication, but hasn’t met with constituents about tax-related issues. “Beyond that, I don’t think there’s any reason for a county supervisor to get involved with trying to ameliorate the taxes someone owes,” she said.

Board Chairman and District 5 Supervisor Jerry O’Banion said he’s assisted with tax-related problems, but stops short of trying to sway the process. “I do expect the department head to make up their own minds on how the constituent can be helped,” he said. “I’ve never tried to intimidate anyone or force anyone to make a specific decision.”

District 3 Supervisor Linn Davis did not return calls for comment.

Adams said county supervisors “quite often” get involved with the tax collection process for constituents, though the level of involvement varies by supervisor.

“Depending on the supervisor, it may just involve an email or they may just ask me to deal directly with the taxpayer, or they may voice the request of their taxpayer and I deny it,” Adams said. “Regardless of any kind of pressure that’s been put on me, I have never granted any leniency to anyone.”

A political expert said Pedrozo’s behavior could be a conflict of interest and an example of influence peddling, which happens when an elected official uses their influence to sway a government decision. She said it appeared there was a favor being paid back -- the large contribution to Pedrozo’s campaign.

“Why is he helping him (Victor) and not anyone else?” asked April Hejka-Ekins, professor emeritus in the political science and public administration department of California State University, Stanislaus.

The tax collection process is directed by state laws.

According to Penal Code Section 428, anyone who “willfully obstructs or hinders any public officer from collecting any revenue, taxes, or other sums of money in which the people of this state are interested” is guilty of a misdemeanor.

Reasons for officials to pursue discontinuing bank seizures

Gary McKinsey, a private Modesto-based accountant, said discontinuing bank seizures could be motivated by political reasons.

“This could be a nice move politically to be able to say to the voting public, ‘Look, I’m on your side, I’m not going to arbitrarily take money out of your account,’ ” he said.

The longtime accountant said stopping bank seizures decreases county revenue and encourages delinquency or nonpayment. “If there are no repercussions, then why pay your taxes?” McKinsey said. “Most counties are cash-strapped, so to quit attempting to collect money doesn’t make sense.”

One expert said bank seizures are handled differently in each county, but can be a costly and tedious process for counties with limited resources.

“They are really time-consuming and it depends on if you have the staff to deal with them,” said Shari Schapmire, president of the California Association of County Treasurers and Tax Collectors and treasurer-tax collector of Mendocino County. “If you don’t have the staff, it’s not a place you want to make a mistake.”

Gordon Ford, Stanislaus County’s treasurer-tax collector, said a bank seizure is only one tactic for collecting money. Changing a collection method could be beneficial, he added. “I would like to think that no collector would throw away a technique forever,” he said. “We’ll apply different techniques at different times to try to generate revenue.”

Ford said Stanislaus County hadn’t used bank seizures in many years, but recently started the practice again.

In Fresno County, the treasurer-tax collector Vicki Crow said it’s good to give collectors all the tools available to them, especially because collectors are given performance measures. Fresno County performs bank seizures when necessary.

Crow said she occasionally receives calls from Board of Supervisors’ assistants asking to help a constituent, but doesn’t allow it to influence her decisions.

“I take an oath to follow the law and there is law directing the collections effort,” Crow said. “We would politely discourage any of our Board of Supervisors from being involved in it. In fact, they really don’t have any influence because it’s ultimately my decision and it’s law-driven.”

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