Facing the Budget Crunch: Municipalities Turn to ARM Firms

April 10th, 2007

While most companies in the ARM industry are well aware of the sizable federal and state contracts available to private collection firms and law offices, competition can be intense. That fact, coupled with the particular challenges of collecting federal and state receivables — perhaps none more widely publicized than the embattled IRS PCA (Private Collection Agency) pilot program — may deter some ARM industry participants from entering the bid process for large-scale government collections.

But outside of the federal and state arenas, plentiful opportunities exist for private companies to assist municipal governments in collecting delinquent receivables. According to the U.S. Census, there are more than 35,000 cities and towns in the United States, many of which — in the face of decreasing federal support in the last 25 years — have had to seek innovative strategies to recoup overdue receivables in order to maximize revenue.

The amount of delinquent receivables owed to U.S. municipalities has been estimated at approximately $40 billion. The deceleration in the housing market, which will undoubtedly put a strain on cities’ property tax revenues; and the broader civic resistance to raising local taxes to fund municipal services makes receivables management all the more pressing for America’s cities and towns.

Collection agencies and law firms can profit from collaborating with municipal governments to recover a variety of classes of delinquent receivables. Across the country, cities are seeking vital revenue from outstanding parking tickets, fines for overdue library materials, delinquent court fees and fines, and unpaid municipal taxes: the primary source of cities’ revenues. Chicago, Illinois, for example (which outsources a portion of its collections to private ARM companies), had more than $160 million in parking ticket revenues in 2005. Despite that success, five members of the Chicago Board of Education collectively owed $45,000 to the city for unpaid parking violations as of January 2007.

Municipal collections are an attractive market for ARM companies as a result of their sheer numbers, the revolving frequency at which bids become available, and the varying scale and geographic distribution of their needs. To learn more about our research on local government collections, read the Kaulkin Ginsberg Executive Brief on municipal receivables that is available for download on insideARM.com.

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