Prior to September 1, 2002, Property Tax Code Section 33.07 allowed a taxing unit to charge a delinquent taxpayer up to 15 percent of taxes, penalty and interest owed as of July 1, if the school district has: entered into a valid contract with the delinquent tax attorney according to the provisions of Section 6.30 and the taxing unit delivers a notice of delinquency and penalty to the property owner at least 30 days but not more than 60 days before July 1.

The Texas Legislature changed the percentage allowed under Section 33.07, effective with the taxes that are delinquent on or after July 2002. The percentage amount is the amount set in the contract with the delinquent tax attorney (not to exceed 20 percent). Section 33.08 also contains provisions for collection of delinquent tax attorney costs on taxes delinquent at times other than as of July 1, yet the same two provisions noted in Section 33.07 apply.

While some may argue that a verbal contract is sufficient, most authorities agree that a written and well-defined contract is preferred. And, the absence of a contract invalidates the provisions of Sections 33.07 and 33.08 and makes the collection of these additional fees questionable. Attorney General Opinion No. JM-857 (1988) found that a taxing unit may not apply any of the Section 33.07 penalty to cover costs of collection that it incurs; it must use the entire penalty solely to compensate the attorney with whom it has contracted. So having a written agreement with the tax attorney is just prudent management.

While school districts are authorized to seek competitive bids for legal services, the law does not mandate competitive bids. Texas Education Code Section 44.031(f) specifically requires competitive procurement of contracts totaling more than $25,000. However, the permissible procurement method “does not apply to a contract for professional services rendered, including services of an architect, attorney, or fiscal agent.” Attorneys are not listed in the Professional Services Procurement Act, Texas Government Code Section 2254.002, as a professional service for which the use of competitive bidding is specifically prohibited. Therefore, districts may choose their method of procurement.

Written cost proposals may offer more flexibility and enable the district to identify reasonably priced alternatives; cost alone, however, should never be the sole factor used in selecting an attorney. Experience should also be considered. For example, a novice lawyer might charge a rate of $100 per hour versus an experienced lawyer who charges a rate of $200 per hour. The district might find, however, that it takes the inexperienced lawyer three hours to research an issue for a cost of $300 in contrast to the experienced lawyer being able to address the question in 15 minutes for $50. When selecting a lawyer, a district should evaluate the firm’s experience, training and reputation in the school law community, as well as the cost. The body of law is so vast that firms specializing in delinquent tax collection should be rated more highly than firms unfamiliar with debt collection.

When reviewing proposals, districts should check prospective attorneys’ references, their status with the State Bar of Texas to ensure their licenses to practice law are current and not suspended and whether any grievances have been filed against the attorneys. Districts should be cautious in hiring a firm that has never represented a school district in the past since the laws, rules and regulations under which school districts operate require an attorney with very specific knowledge. The district should also resist selecting counsel based on familial or political affiliations. The selected attorney must exercise independent legal judgment to represent the interests of the district, not to favor any one person or faction within the district.

In the Comptroller publication, Navigating the Legal Maze, written agreements or contracts protect both parties from lapses in memory, clearly define expectations and ensure appropriate payment.

Contracts should, at a minimum, contain:

Effective dates of the contract including a beginning date, an ending date and/or a provision for terminating the contract by either party with some reasonable notice;
Description of the fee structure, including the amount of any retainer and the activities that will be performed within the parameters of the retainer;
Attorney’s duties and responsibilities;
Parties (by title rather than name) within the district with whom the attorney is authorized to communicate and receive assignments;
Professional liability insurance requirements;
Billing and payment schedules, including the frequency and level of detail expected on each invoice for monitoring and verification purposes;
Terms and conditions under which the contract can be terminated by either party; and
any other agreed to terms or conditions of the relationship not otherwise noted above.

Any contract should provide for termination by either party with some reasonable notice. With a multi-year contract, the district may feel compelled to continue the relationship even when that relationship becomes strained. Both parties to the contract need to be comfortable and confident of the advice being given and taken. Therefore, whether the contract is for a set period of time or remains open-ended, it is in the district’s best interest to include a provision for termination with some reasonable notice and to conduct an annual review of the contract and the relationship with the law firm.

Not all contracts for debt collection are with independent attorneys. For example, in Tom Green County, the county tax-assessor has an interlocal agreement to collect delinquent taxes for several entities in the county. The county tax-assessor deposits all collections received on behalf of the school districts into the districts’ bank accounts and forwards a copy of the deposit slip to the district so that the deposits can be posted.

Even with a strong contract in place, the district must monitor collection rates and activities to ensure that everything is being done to bring delinquent dollars into the district and get foreclosed properties back on the rolls in a timely manner.

In 1998, the Comptroller’s office found that the Wimberley ISD (WISD) lacked a formal plan and policies for dealing with tax collections, foreclosures and the sale of delinquent properties. Although the delinquent tax attorney was filing suits, the collector could have been doing more. WISD had not adopted a district policy authorizing legal counsel to quickly resell properties foreclosed for tax delinquencies and to sell any and all parcels of real property that had been struck off the tax rolls because of non-payment of taxes to draw revenue from the sale and put the property back on the tax roll. WISD decreased its delinquency rate from 10.5 percent in 1997 to 8.8 percent in 1999 by working with the delinquent tax attorneys in taking a more assertive approach to collections.

Policies by themselves are not enough. The district must regularly communicate with its attorney to determine what obstacles exist for collection. In the case of the Houston ISD, the delinquent tax attorney was frustrated because the district would not routinely foreclose on certain properties. There was a fix for the problem, but communication between the district and the tax collecting entities had broken down. Don’t be afraid to ask why things are going as they are, and don’t wait for a full-blown problem to surface before asking questions. Regularly scheduling meetings once a quarter or every six months is one way to keep those lines of communication open and lets counsel know the administration is watching.