Several thousand residents of South Dakota have lost their privileges in terms of driving, hunting, and fishing on the territory of the state since the year 2016 because of their unpaid debts. Namely, those South Dakotans have unpaid fees, fines, or even college tuition. However, according to an unwritten rule, the ones to endure the greatest consequences of the state debt collection attempts are underprivileged residents who are highly unlikely to manage to pay up.
The state Obligation Recovery Center, commonly referred to as the ORC, enforced the license and registration suspensions, aiming to collect funds residents owe to government agencies.
According to state law, if an individual owes at least $50 to a government agency, they will be unable to have a hunting and fishing license issued. Moreover, such residents will not be granted an entrance pass to a state park, and they will not be allowed to make a camping reservation at a state park. Furthermore, if a resident’s debt exceeds $1,000, they may face annual vehicle registration and driver’s license suspension.
According to state officials, vehicle registration and driver’s license suspension represent an inevitable way of collecting over $80 million in debt owed to state agencies and departments for debts. The cited amount of money has accumulated thanks to unsettled taxes, fines, and fees.
As stated by Scott Bollinger, commissioner of the state Bureau of Administration, which supervises the ORC, debt penalties represent a state government’s method of urging residents who owe money to pay their debts. Additionally, it is an efficient way of reducing costs for residents who have no unpaid debts. According to Bollinger, obtaining debts owed to the Board of Regents, which is among the most prominent receivers of the ORC debt collections, is likely to reduce the cost of tuition at public universities.
Bollinger claims that the state would have reasonable sales tax rates and tuition prices if everyone were to pay up the money they owed. However, he states that the described situation is an ideal one.
The ORC, which was established as a result of the efforts of the 2015 state legislature, operates as the central debt collector of the state government. State agencies had delivered to the ORC 122,353 respective debt accounts by June 30, 2019. So far, since the operations commenced in 2016, the center has generated over $8.7 million in recovered debt and brought it into state repository, as stated in the most recent annual report. Concurrently, debtors who owe additional millions of dollars to the state have started developing their payment plans in order to be able to return their debts.
Over the course of the 2019 fiscal year, which lasted from July 1, 2018, through June 30, 2019, the ORC notified 18,000 people that they had been banned from purchasing a fishing or hunting license on the territory of the state. Furthermore, 3,000 residents of the State of South Dakota were informed about their inability to extend their vehicle registrations and driver’s licenses that year, that is, unless they managed to return their debts in full or developed a payment plan.
Keeping a record on the ORC operations is Bollinger’s responsibility. According to him, the center has contributed to the fiscal bottom line of the state without enforcing any supplementary costs on taxpayers due to the fact that the independent contractor administering the ORC gets paid only after the state has been paid.
Bollinger claims that the state manages to collect more money in debts than it used to, stating that the results are visible in the raw numbers.
So far, the court system of South Dakota has been the most prominent beneficiary of the attempts the ORC has been making. An estimated amount of $3.67 million in total has been obtained since 2016 for the courts. Over the course of the 2019 fiscal year, an amount of $1.48 million in court-ordered debts was acquired. A significant segment of the sum represented court-ordered restitution, which was delivered to crime victims.
The state Board of Regents, which is in charge of South Dakota public universities, has been delivered the second greatest portion of the collected money. The six public universities in total have received approximately $3.5 million in debts since the year 2016. The third-largest sum of the collected money went to the state Department of Corrections, which received over $1.17 million over the course of the last three fiscal years. The ORC delivered an approximate amount of $950,000 of debt to the Department of Revenue.
The estimated debt of $670 was assigned to the ORC in 2019. Therefore, the majority of the state’s debtors were out of reach of its most severe sanctions.
However, underprivileged South Dakotans represent a large portion of those who have been confronted by the ORC enforcement actions. They are unable to pay up and cannot afford to be taken away the right to drive legally, as stated by critics who claim that the debt collection method targets underprivileged citizens.
According to the policy director for the American Civil Liberties Union of South Dakota, Libby Skarin, the system is unfair toward residents with a lower income as it punishes them differently than it does wealthy people, solely due to their ability to pay. The criminalization of underprivileged individuals and the management of the budget at the expense of underprivileged people is unfair as it impairs the legitimacy of the state’s legal system.
A resident of Rapid City, Tomia Valdez, aged 42, suffers from a degenerative genetic condition that causes disability in addition to having custody of her autistic son of 17 years of age. According to her, she owes $4,000 to the state, which is why she has been unable to extend her driver’s license since 2017.
The issue regarding her debt came into being in 2014 when Valdez was assigned a public defender for a certain legal battle. Valdez claims she was prosecuted for allegedly neglecting and abandoning her son, following their eviction from their then residence. According to her, the entire incident was a result of a misconception. Two years passed before it was overcome and she managed to gain custody of her son again.
As claimed by Valdez, she went to get her driver’s license extended in 2017, following the settlement of an independent legal issue. That was the first time she was informed that she had a debt of $4,000. She explained that coming up with a payment plan was almost impossible, considering her limited income.
Valdez listed things she was unable to do due to the unsettled debt — take her son fishing, go grocery shopping and to medical appointments, mentioning that her son was disabled. She concluded by saying she was unable to do anything.
Enhance Government Revenue Without Increasing Taxes
Pursuing debtors by means such as threatening letters and bothersome phone calls on behalf of the Obligation Recovery Center is not South Dakota’s policy. Instead, the state hired a private contractor for that purpose. Essentially, the center represents a software system operated by a contractor named the CGI Technologies and Solutions. The debt collection functions of the CGI are automated. However, it also features a call center. The system is also available to debtors, who can utilize it in order to make payment plans or payments on their own.
The CGI, whose headquarters are now located in Virginia, has gained the status of a global entity, featuring a vast selection of services, inclusive of information technology outsourcing, consulting services, and business processing, and offering them to governments worldwide. They state from the company that it has successfully collaborated with twenty states and managed to develop fruitful debt collection plans, in addition to assisting governments worldwide to enhance revenue by $3.5 billion by upgrading collection of debts and unsettled taxes.
During the past decade, the CGI has taken part in some prominent failures. The company encouraged building of the initially problematic federal healthcare.gov internet website, which was established in the context of the 2009 Affordable Care Act. In the more recent past, in 2018, the CGI was granted no-bid contracts in the context of a failed attempt to privatize and subsequently outsource the Information Technology segment of the Kansas Department of Revenue.
Given its role of a consultant, the CGI represented a crucial part of the establishment of the South Dakota Debt Obligation Recovery Center in 2015. One year before the event, Dennis Daugaard, former governor, was looking into ways of enhancing state revenues without increasing taxes. Namely, the CGI conducted an analysis which showed that the overall debt to the state, inclusive of unpaid fines and taxes, as well as court-ordered restitution and college tuition, exceeded $120 million.
Before the system was reformed, each state government agency gathered debts on its own. For instance, before 2015, if a student left a state university after two-thirds of a semester without paying their tuition, the university itself would have the responsibility to collect the debt. That system often resulted in employees neglecting their duties in order to send letters or make collection calls. In cases when that did not give results, the university would have to absorb the damage or enter into an agreement with a private collection agency in order to subsequently write off a significant part of the debt.
If a debt was court-ordered, such as court fees or fines or criminal restitution, and thus not registered, it frequently did not get collected at all as the court system of the state did not use to hire debt collectors.
Daugaard administration officials, along with the CGI, established a central collections center so that the state’s agencies would have someone to turn to with debts they could not collect on their own. According to the governor’s words directed to the legislature in 2015, the centralization of the debt collection practice is more successful and efficient if referred to professional debt collectors.
All debts referred to the center would be imposed a 20% surcharge so that the operations of the center could be paid for. The one responsible for the additional 20% charge would be the debtor. The sales pitch that was given to legislators in 2015 implies that the ORC would be completely self-sustaining, thanks to the 20% charge.
Furthermore, the sales pitch in question also implied that the establishment of the ORC would require fewer state employees. The procedure would be automated for the most part, and third parties were to be contracted to manage debts that had to be collected in a more traditional way. The Bureau of Administration would be responsible for supervising the ORC and managing the relationship between the state and the contractor.
However, it was uncertain whether the state would approve the ORC. The bill that established the ORC was created late into the session and barely passed the state senate. Certain legislators claimed the ORC was being assigned too serious a responsibility with the right to suspend vehicle registrations and licenses. Others, however, stated that the competition between the public ORC and private debt collectors would be unfair. However, the bill ultimately passed, and Daugaard subsequently signed it.
Once it gets collected, money is deposited in the general fund of the state. Afterward, it gets referred to a certain agency, according to Bollinger. The surcharge of 20% is delivered to the general fund, only to be given to the ORC contractor as payment. As stated by Bollinger, the CGI does not get paid unless a debt is collected. He also said that tax dollars had not been utilized on the program yet.
In order to urge debtors to pay up, states bordering South Dakota that generally have a state income tax, threaten not to send out a portion of an annual tax return or even the entire amount. None of the neighboring states, inclusive of Wyoming, which resembles South Dakota in terms of not having an income tax, compel debtors to restitute their debts by suspending their licenses.
South Dakotans that think they have been targeted without a valid reason or that they were not informed properly about having a debt have the option of facing the state Board of Hearing Examiners by demanding a due process hearing.
Bollinger described the hearings as fairly limited in their remit. However, he pointed out that it was mandatory that the referring agency presented evidence. In the period of two fiscal years (2017—2019), debtors asked for 46 due-process hearings in total. Out of that number, 16 hearings were either withdrawn or dismissed, as stated in the ORC 2019 annual report.
Certain Debtors Protest Against Paying
According to Laurise Amundson, her first letter from the ORC was delivered to her in 2017. It was stated in the letter that she owed over $3,500. Only after contacting the customer support number provided in the letter did she find out that the debt in question dated about six years prior to the event. Her son had gone to Star Academy, formerly known as the Department of Corrections juvenile treatment facility, located outside of Custer, about seven months before, as claimed by Amundson.
Amundson stated that the boy had been charged with assault and theft, as well as a series of other crimes. When her son’s sentence ended, Amundson was requested to pay $1,200 to cover the damage he had caused to a car so that he could be discharged from the detention facility. Back then, there were no words of the additional charge of $3,500 for board and room at the facility, according to Amundson.
When she discovered the first notification letter sent by the ORC in her mailbox in 2017, Amundson said she was perplexed and rather angry.
She stated she had been told that her driver’s license would be held off if she failed to pay the bill. Amundson told them to go ahead.
Subsequently, she has had her driving privileges suspended since 2017. According to her own words, the suspension does not particularly affect Amundson as she has not driven in a while. She now lives in Vermillion, which allows her to get around town rather well with the help of public transport. Amundson’s debt has been referred to Municipal Services Bureau, the third-party collections contractor based in Texas, which the state uses in case the efforts of the ORC turn out to be in vain.
According to Amundson, she has ignored the bill so far for two reasons — she thinks she should not be obliged to amend for a crime her son committed against her, and she is unable to afford to pay it. She is unemployed, partially due to the fact that she suffers from fibromyalgia and chronic fatigue. Amundson’s husband, a truck driver, owed money to the Internal Revenue Service as well.
In Amundson’s opinion, she should not suffer for her son’s deeds. She thinks her privileges were unfairly suspended through no fault of her own.
Amundson said she would continue throwing the collection letters away. She thinks that the state cannot do much more in order to urge her to pay.
Within the private sector, the purpose of debt collection agencies is gathering “bad debt,” that is, debts that have not been collected in over sixty days, in the name of the particular organization to which a debtor owes the money. Everything, inclusive of hospitals, credit card companies, and local government utility departments use the services provided by the agencies. Frequently, a collections agency takes as much as 45% of the funds it collects.
The federal Fair Debt Collections Practices Act limits the operations of the private collections agencies. Legally, they are unable to contact anyone at odd hours, threaten, intimidate, or lie to a debtor, and they cannot contact a third party regarding a debt. Collection agencies may make certain deals in order to help debtors clear their debts at reduced costs. Additionally, they can collaborate with credit bureaus with the purpose of limiting a debtor’s access to credit. Except for filing a lawsuit, those are all the rights they have.
South Dakota’s ORC has all the same rights as the private collection agencies. In addition to those rights, the ORC can request that the Game, Fish, & Parks Department suspends hunting privileges of a debtor if they owe more than $50. The ORC can also request that the Department of Public Safety suspends a person’s driver’s license as well as request that the Department of Revenue restricts a debtor from extending their license plates.
According to Bollinger, the ORC does not file lawsuits in order to recover debts because the collection fee of 20% could not cover the expenses of legal actions.
Bollinger continued by saying that the ORC is not allowed to negotiate with debtors who have been requested by South Dakota courts to pay court fees, fines, or restitution. That can make the debt-collection task more difficult. Unlike the majority of other debts, court-ordered ones cannot be written off, according to the law.
Another problem, as stated by Bollinger, is the fact that about one-quarter of the debt referred to the ORC, which is around $20 million, belongs to over 26,000 people who do not reside in South Dakota. According to Bollinger, the state cannot do much more than preventing someone from obtaining a fishing or hunting license and reporting a debt to credit bureaus in order to urge a non-resident to settle their debt.
In case a debt has not got collected after the ORC has attempted to do so for at least half a year, and if a third-party debt collection contractor fails after trying for at least a year, the debt in question can be addressed to the referring agency. Subsequently, the agency can request that the state Board of Finance writes it off.
In 2019, three Board of Finance meetings have been dedicated to debt write-offs so far. The majority of the write-offs concerned debts owed to the Department of Transportation due to property damage. They have not been collected and thus referred to the DOT. One debt to the South Dakota School of Mines & Technology in Rapid City got written off due to the debtor’s death, whereas the one to Black Hills State University in Spearfish got written off because of a bankruptcy, as stated in the relevant documents.