Lottery pays off for counties trying to collect delinquent debts

By Todd McGee
Communications Director

Several winners of the North Carolina Education Lottery in September received a bit of a surprise when they got their checks from the state – some of the money was missing.

No, the state is not assessing a tax on lottery winnings in an effort to generate more revenues because of the economy. Instead, more than $20,000 of lottery winnings for that month was diverted to cities and counties to settle past debts as part of the N.C. Local Government Debt Setoff program.

The program, authorized by the General Assembly and administered by the NCACC, the N.C. League of Municipalities and Five Star Computing in Columbia, S.C., offers another collection method for outstanding debts to counties, cities and other local agencies, such as water and sewer authorities, joint regional agencies, public health authorities and sanitary districts.

The entities submit their outstanding debts to the Debt Setoff Clearinghouse. These debts are sent to the N.C. Department of Revenue and compared with lists of anyone set to receive an income tax refund or lottery winnings. If a match is found, the DoR first pays off the debt before sending any money to the taxpayer.

Cherokee County was the big winner in the Sept. 22 report, receiving nearly $6,000 of the almost $80,000 that was returned to N.C. counties and cities.

The program can be used to collect any debt owed by a citizen – parking fines, property taxes, library fees, public health fees, etc. Before a debt can be submitted to the clearinghouse, the local government must send a letter notifying the taxpayer of the debt and giving them 30 days to pay the debt or the county will submit it to the clearinghouse and attempt to garnish the individual's state income tax refund to pay the debt. The letter also notifies the debtor that if the match is successful, he or she will be liable for a $15 service fee.

Five Star President Bill Walsh said that this letter is a motivating factor for many taxpayers to settle their debt. He reported that Mitchell County collected nearly 40 percent of the debts from this letter even before sending the information to the clearinghouse.

According to statistics from Five Star, 88 counties are actively participating in the program for 2009. Five Star is actively recruiting the various entities that have been authorized by the General Assembly to participate, such as Public Health Authorities and Sanitary Districts.

Because some of these agencies, as well as many smaller municipalities and counties, have smaller staffs, they have not signed up for the program. During a series of training sessions held throughout the state in September, Walsh said Five Star would work with smaller entities to help them understand the process and to create the files necessary so they could begin submitting debts.

Walsh said agencies with 50 or fewer debts could simply send the information to Five Star, and they would create the files needed to generate the letters to be sent to taxpayers and then submit the debts to the Department of Revenue. The entity would be responsible for printing and mailing the letters.

"We don't want anybody not participating because they say, 'I don't have the staff.' We will do your data entry. We will do your letters. And we won't charge you a thing," he said.

Walsh said that the offer is designed to help these agencies understand how simple it is to compile the data and begin submitting the debts.

For 2009, local governments have received more than $21 million in unpaid taxes and fees. Since 2002, more than $76 million has been returned.