SALEM — For years, contractors behind on their taxes have been able to continue collecting checks from the state of Oregon because most state agencies had no procedures in place to detect whether vendors owed taxes or other public debt.
It is difficult to gauge the size of the problem because the state has not tracked contractor debt, despite repeated suggestions to do so from state auditors since the late 1990s. Agencies started taking initial steps to address the problem after lawmakers passed a bill last year to encourage them to identify whether contractors owe money to the state.
But early efforts have focused on testing ways state agencies can improve data sharing, not actually identifying how much is owed by individual vendors.
As an example, a pilot project this year suggested nearly 300 vendors for the Oregon Department of Transportation might be delinquent on taxes or some other debt to the state worth at least $25.
Bob Estabrook, a spokesman for the Department of Revenue, said that quantifying the amount of delinquent debt owed by state contractors is not currently part of the project.
“I don’t know that it would necessarily be that difficult for us to figure that out,” Estabrook said.
State auditors have recommended since 1997 that the government intercept future state payments to contractors who are delinquent on their state debt, according to an audit released by the Secretary of State’s Office last fall.
The federal government and at least 40 other states already use the method known as “vendor offset.” After an upfront investment, the system is largely automated and officials in other states told Oregon auditors it reduced future debt because companies that wanted state contracts knew they had to pay taxes and other debts.
There’s a considerable amount of money in play. According to the audit, the state was owed $758 million in delinquent taxes in 2014.
State Sen. Betsy Johnson, D-Scappoose, said the state should not hire contractors who are delinquent or out of compliance on their taxes.
“I don’t think contractors and vendors should be doing business with the state of Oregon if they have delinquencies or a failure to comply with taxes,” Johnson said, adding that tax compliance should be an “absolute requirement” for companies that contract with the state.
At a Feb. 10 legislative hearing, a state accounting manager told lawmakers the pilot project had identified vendors for the Oregon Department of Transportation who were delinquent on taxes and other debts.
Of the nearly 5,600 taxpayers who were also ODOT vendors, 5 percent of corporate taxpayers and 8 percent of individual taxpayers were delinquent, said Robert Hamilton, manager of the statewide accounting reporting services unit at the Oregon Department of Administrative Services.
Tammy Baney, chair of the Oregon Transportation Commission and a Deschutes County commissioner, said she would like to see a list of the vendors who are delinquent.
“It is certainly important to the (Oregon Transportation Commission) and to ODOT that our vendors are current on their taxes,” Baney said. “If you have a list, we have been wanting to have the list ... Boy, I’d sure love to see that.”
The EO Media Group/Pamplin Media Group requested a list of the vendors identified as delinquent, but Estabrook said the pilot project that began last year is still in its early phase. For example, the state is checking whether some of the delinquent debtors are appealing the debt or are in bankruptcy.
Estabrook said the agency likely will not release the information even after the pilot project is complete, because it generally does not provide information about specific taxpayers.
An exception is the list of the top 50 delinquent debtors the agency posted online this year.
ODOT late last year did begin requiring vendors for non-highway transportation projects be current on their taxes.
Dave Thompson, a spokesman for ODOT, said projects in the non-highway program known as ConnectOregon are typically worth a total of $40 million annually. In contrast, state spending on bridge and highway projects has typically been $700 million to $800 million annually Thompson said.
It was unclear why ODOT had not extended the tax compliance requirement to all vendors.
Eventually, the project will also look into how many contractors listed in an Oregon Department of Administrative Services database might also be delinquent on taxes and other state debts.
Auditors in the Secretary of State’s Office already found instances in which the state could have recovered debt by intercepting state payments to some of these vendors.
In the state audit released last fall, the auditors found “more than 9,000 state debtors were on the state vendor list and had received payments or were authorized to receive payments.” Auditors found specific instances in which the state could have recouped some of the debt owed, by intercepting payments to the vendors.
For example, an unidentified vendor for the Department of Human Services and the Oregon Health Authority was paid $1.4 million regularly from 2008 to 2014, despite $224,000 in debt to the state the vendor accumulated during that time. The state could have recovered $166,695 by intercepting payments to the vendor, auditors wrote.
The Capital Bureau is a collaboration between EO Media Group and Pamplin Media Group. Hillary Borrud can be reached at 503-364-4431 or firstname.lastname@example.org.