A public alternative to commercial lockbox services: Clark County's joint remittance processing center.

• Author: Payne, John

For local governments, saving money has become much more than a platitude the last few years. Still reeling from the 2001 recession, local governments are pinching pennies wherever they can in order to balance their budgets. Perhaps one area in which governments could help their budgets is that of payment processing. Many governments pay banks or other providers of lockbox services to receive, open, and process payments on their behalf. But is this always the most efficient strategy?

Clark County, Washington, has found an innovative way to save thousands of dollars on payment processing. Instead of paying a third-party provider to open envelopes and record tax payments (34,000 on a peak day), the county formed a partnership with a local utility company to buy the necessary remittance processing and mail-opening equipment needed to do the job in-house. The key to the success of this venture was the decision to market the system's excess capacity to public sector customers in the two-state region. So far, the Joint Remittance Processing Center has eight customers and has made a profit of more than $500,000 for the county.

This article describes why two governments in Washington state decided to join forces in setting up a payment processing center and how they resolved the major issues involved in this type of operation. Hopefully, our story will be helpful to other jurisdictions looking to economize on their transaction processing costs.

BACKGROUND

GFOA recommends that local governments evaluate the costs and benefits of using lockbox services. According to a recently updated recommended practice, "lockbox services should increase payment and posting accuracy; improve cash flow by reducing processing time between delivery of the mail and depositing of payments; and increase staff productivity by freeing personnel from the labor intensive process of manually handling mail and payments." (1) The practice goes on to encourage governments to evaluate the use of regional lockbox processors.

In an effort to save money and become more efficient, Clark County began using modern equipment for processing tax and assessment payments in the late 1980s. Hardware-driven, this equipment used Microfilm document-capturing technology to process roughly 2,000 items per hour. The first tax season it was used, the Treasurer's Office reduced its temporary help budget by $35,000, cut banking services by nearly $8,000, and increased interest earnings by approximately $100,000.

In 1995, the county began using excess capacity to process water and sewer utility remittances for the City of Vancouver. As a result, Vancouver was able to stabilize its staff size, lower its banking fees, and earn, on average, an additional two days of interest per transaction. Then in 1997, the county was notified that its automated processing equipment would not be supported after the year 2000, either from a hardware or a software perspective. While this opportunity presented a challenge for the county, it also offered an opportunity to evaluate technological advances in the field of automated remittance processing.

QUESTIONS AND ANSWERS

As we began to explore our options, we identified a list of questions the county would have to answer before settling on a course of action for future lockbox processing. Do we want to outsource this project to a vendor? Can we find a way to finance the necessary equipment if we continue to process payments in-house? Can we attract other customers? How can we customize services for customers? How much should we charge? How do we limit liability? Can local government really compete with the private sector in providing lockbox services? This section describes how Clark County answered each of these questions.

Do we want to outsource payment processing to a vendor? The most fundamental decision to be made was whether the county would continue to perform payment processing in-house or outsource it to a third party. The question really boiled...