Online Transactions and Credit Cards
(from Maine Townsman, January 2003)
by Douglas Rooks, Freelance Writer

       Pay your property taxes with a credit card? Enter the moose lottery from your home computer? Cover a speeding violation after hours, just before your license could be suspended?

       All these scenarios, unimagined just a few years ago, are now reality in at least some places in Maine. Yet this does not mean that the municipal equivalent of online shopping and “easy” credit card payments is here yet for most communities, and serious questions remain about whether it will ever be feasible – or desirable – to create a fully electronic town hall.

       Thus far, the spread of electronic services to state and local government in Maine has been slow and somewhat uneven. The pace may pick up in the next year or so, however, thanks to a combination of customer preferences and budget austerity.

       Asked why Lewiston converted to having most city fees – almost everything except property taxes – payable by credit card, Paul Labrecque, treasurer and tax collector, said, “People kept asking if we accepted credit cards. After awhile, we began to think it might be a good idea.”

       Secretary of State Dan Gwadosky, who chairs the InforME board that oversees most electronic functions in state government, thinks Gov. Baldacci’s pledge to balance the state budget without a tax increase – and his emphasis on efficiencies and consolidation for both state and local government – will provide a renewed emphasis on using electronics to reduce workloads, and the consequent need for clerical staff. “We’re not at that point yet in most departments, but this will give us a push,” he said. “I know that every agency in state government is looking at this right now.”

       There’s little question that InforME and the biggest success story for state-local electronic cooperation to date — the Rapid Renewal vehicle registration program — have provided an impetus for towns and cities to consider electronic systems. [See “Online Services,” TOWNSMAN, 1/01].

       Paul Labrecque, who was initially skeptical about the conversion, served on the committee for the Rapid Renewal pilot project, and decided its implementation was the ideal time for the city to convert its own payment systems. “We had the system up and running a few months beforehand,” he said. “It’s done exactly what we expected.”

Leading the Way

       Lewiston and Portland are, as one might expect, the biggest users of electronic services and accepting credit cards. In Lewiston, you can use plastic to pay for recreational programs, water and sewer fees, parking tickets,  and motor vehicle excise taxes. “We have the four biggest departments online” – city clerk, taxation, code enforcement and water and sewer – “and that covers at least two-thirds of everything we charge for,” Labrecque said. In November, Lewiston processed 281 electronic transactions, checks as well as credit and debit cards, worth $44,382. Of the 1,300 motor vehicle registration renewals that month, 197 or about 15 percent were processed online. Lewiston has done so well with electronics that it’s decided to increase its outreach by offering pay-by-mail for vehicle registration renewals. Residents are sent a reminder and a payment form. The program began just a few months ago, so it’s too early to get a reading on the response, Labrecque said.

       But the big cities are thus far more the exception than the rule. Even municipalities with a reputation for being technologically up to date, such as Saco and Kennebunk, do not accept credit cards or use electronic transactions beyond those offered through the state.

       Biddeford has a somewhat different take on the matter. You can pay your water and sewer bills and property taxes with a credit card, but only if you’re willing to pay an extra fee, generally about 2 percent.

       Finance Director Richard Lagarde explains that the city contracts with a provider, Official Payments Corp., the same company that allows taxpayers to pay federal income taxes by credit card. In essence, the company pays the full amount of the tax or fee to the city, while keeping the fee assessed at the time of the transaction, which can be performed online or by phone; there’s a link on the Biddeford website.

       But because customers know they have to pay more to use a credit card, usage has been limited. “During tax time, we’ll probably get three or four payments a day,” said Lagarde. “At other times, probably less.”

       He doesn’t think the city council would be receptive to offering credit card services in the same way most merchants do: “In that case, we’d be effectively offering a subsidy to those who pay by credit card, and there’s a lot of concern about whether that’s appropriate.”

       Richard Ranaghan, a former finance director for Portland who’s now senior vice president of government banking at People’s Heritage, said that who pays the credit card fees is indeed an issue for some municipalities, but hardly the only one.  “In a small town hall, there may be a concern about acquiring the equipment, or where to put it,” he said. “Maybe there’s not space on the counter where you do business.”

       Volume is certainly a big factor in whether a municipality will accept credit cards, Ranaghan says. There’s the expense of the credit card machine, possibly a dedicated phone line, and bank fees that may be higher for a small number of transactions. So it’s no surprise that the state’s two largest cities were the leaders in accepting credit cards.

       Yet towns and cities can benefit from the experience of retailers who’ve been accepting credit cards for years, and thus have worked out most of the bugs. “It’s really quite an accurate, reliable and secure system now,” Ranaghan said.

       Customer convenience is probably the strongest motivation for taking plastic, he said. At the Knox County Airport, you can use a credit card to gas up your plane, and you can pay dockage fees in Rockland the same way. In both cases, visitors may not have cash and would find it hard to obtain easily. Just as most businesses, even quite small ones, have come around to credit cards, Ranaghan expects that the municipal market has significant growth potential.

       Even the issue of bank fees isn’t entirely black and white, Lewiston’s Paul Labrecque said. “We don’t actually budget anything to pay bank fees,” he said. “Everything we’ve done so far, from the card machines to the daily transaction fees, has come out of the compensating balance on our accounts.” As long as the city keeps a guaranteed balance, currently around $250,000, available to the bank, the fees are waived. “Of course you could argue that we don’t have use of that money,” he said, but the system seems to working to everyone’s satisfaction, including the city council’s.

       Ranaghan thinks that most communities will keep credit card use to the smaller fees and services, rather than property taxes. “That’s not really what credit cards were designed for,” he said. Labrecque agrees. “If you’re taking 2 percent of an excise tax fee of $200, that’s $4. But if you’re talking about a property tax bill of $2,000, that’s $40, and it starts to add up.”

State’s Online Progress

       State electronic programs involving towns and cities have generated perhaps the most intense discussion, and have shown varying results. Dan Gwadosky is particularly happy about the Rapid Renewal program, which has expanded from the original pilot group to 42 municipalities representing about 30 percent of the state’s population. With another contingent of communities coming on board, “We should be covering 60 percent of the people. This year I think will be the tipping point” where it becomes generally accepted statewide, he said.

       Rapid Renewal benefited from a simple, easy to use online program that has prompted few complaints from users. A second plus was the clear separation of state and local shares. The state gets the motor vehicle renewal fee, while the town collects the excise tax. The agent fee, a sticking point in some of the other discussions, has been less significant here.

       Towns can charge a $2 or $3 agent fee for registration. In the case of Rapid Renewal, the fee is $1 – meaning that the online customer gets at least a $1 discount, while the other $1 goes to InforME, which is a public-private consortium with no state employees, to cover its costs.

       Agent fees haven’t been a big issue with participating towns, Gwadosky said, mostly because they’re doing so well with excise taxes, which average about one-tenth of what most towns collect in property taxes. “They’ve kept up quite well,” he said. “With new vehicle prices still rising, municipalities should be happy with their revenues.”

       This has not always been the case with other state agencies. The Department of Inland Fisheries and Wildlife has taken some flak from town clerks who see the MOSES program (Maine Online Sportsman’s Electronic System), which will be required, not voluntary, as cutting in on their turf. But the bigger problem for DIF&W has been continuing technical glitches that have delayed the program’s planned startup several times, said Rick Record, director of administration.

       Two years ago, the department was hoping to be operational early in 2002; now, it looks like July of this year will be the earliest it can be used by agents – town clerks and sporting goods stores – to issue hunting and fishing licenses from remote locations. Right now, the only customers whose transactions can be entered directly into the MOSES computer are those who buy licenses at DIF&W headquarters in Augusta.

       The system, which will replace the department’s 25-year-old mainframe computer, has turned out to be more complex than anyone thought, including the provider, the now-bankrupt Worldcom. Actually, said Record, Worldcom has been providing better service since the company’s bankruptcy filing after a highly publicized accounting scandal: “They’re not able to find many new customers, so they’re paying more attention to those they have now.”

       The system actually works well in test transactions, Record said, but is still not providing all the necessary accounting functions. And the many licensing options and requirements only add to the complexity.

       “There’s a lot that has to go into this beyond what you might expect,” he said. “The system has to be able to verify, for instance, that you’ve taken a hunter safety course if you’re applying for a hunting license, or that you’re in the military if you request a military license.”

       Next month, the department is hoping to test a feature that will allow applicants, who can now pay for a license from their own computers, to print out their licenses at home. “That will be a big improvement over what we’re doing now,” he said. Currently, an online request generates an e-mail to DIF&W that has to be entered separately into MOSES, while a clerk must mail out the license.

       The holdup with the remote license locations hasn’t affected other online ventures; sportsmen can enter the moose lottery, and recently got the capability of applying for turkey permits as well.

       Ironically, agent fees could come under new scrutiny not so much from town clerks as from a different direction — the Legislature. “Under the old system, you’d fill out a separate piece of paper for everything, from the basic license to archery tags and any-deer permits,” Record said. “Now that we’ve got it all on one page, people are starting to question why there’s a separate fee for each line, and why they’re paying $8 or $10 in fees.” At least one bill has already been introduced which would reconsider how the department sets those fees, he said.

To the Dogs

       Another potential electronic system of interest to municipalities is the Department of Agriculture’s study of online dog licensing. About 50 towns and cities were invited to participate in a pilot program, and about 30 have said yes, according to Peter Mosher, acting director of the Animal Welfare Program.

       Some of the discussion has focused on how to ensure that dogs have been vaccinated against rabies. The best idea so far, Mosher said, seems to be spot checks with veterinarian’s offices, something some towns say they do already.

       Agent fees are also being discussed, and Mosher said it’s too soon to tell whether the department will actually go forward with the program. Ironically, one of the concerns about whether an online program will get much use is that compliance with the dog license law is so low.

       The state now sets two license rates. It costs $4 for a neutered male or female, with the towns getting $2, the state $1, and an agent fee of $1. Unneutered dogs cost $7.50, with the state getting $6.50 and the agent $1. “I don’t know if I could tell you the logic behind that,” Mosher said. “I do know it’s been that way for long, long time.”

       In the last completed fiscal year, towns registered 108,000 neutered and 24,000 unneutered dogs. The state estimates that only 50 percent of dogs are registered but, using national dog ownership rates as a guide, the actual proportion appears to be even less.

       Part of the problem is that, with license fees so low, towns have little incentive to provide enforcement or even reminders to residents. Based on the department’s analysis of town reporting, it appears some towns may not be selling any licenses at all, even though state law requires them to. “It’s not clear what we’re supposed to do about that,” Mosher said. “I know that bringing enforcement actions wouldn’t be very popular.”

       There is as yet no consensus about raising fees, but recent publicity and news stories about animal abuse cases might prompt legislative action. The state now gets about $460,000 annually for its fee-supported animal welfare program, from licenses and dog food registration fees. An advisory committee has recommended a program to provide better training and equipment for local animal control officers that would require about $1.2 million.

       That in turn would require raising the neuter license fee from $4 to $10, and the unneutered fee from $7.50 to $20. Mosher has no prediction about how that recommendation will fare, though the department is drafting legislation to implement it.

       As for the online program itself, he said, “If it works, great. If not, then at least we’ve showed that there wasn’t enough interest to launch the program.”

Wave of the Future?

       Once the Rapid Renewal program reaches the saturation point for municipal participation – which will remain voluntary – Dan Gwadosky would like to turn his attention to driver’s license renewals, which could be added to the program fairly quickly.

       The Secretary of State’s office is a leader in electronic transactions, with more than two-thirds of corporate searches and registrations taking place online. “That was a natural, given the way businesses operate,” he said.

       Maine’s motor vehicle system was a testimony to efficient operations even before the electronic option was introduced, Paul Labrecque believes. “I’ve testified before legislatures in Connecticut and Rhode Island about our system. I told them we put the cart in back of the horse,” he said. Some other New England states, he said, don’t require excise tax payment before registration, and send separate notices as much as six months later, with predictable compliance problems. And in Rhode Island, where a relative recently registered a car, “It took him all morning,” he said. “It was a nightmare.” So that part of government, in Labrecque’s view, has already been reinvented in Maine.

       Clearly, experiments will continue to take place in the electronic zone. Maine has allowed online filing of income tax returns for two years now, and about 30 percent are processed that way. The state is happy with the results. Processing an electronic return costs $1.25; a paper one, $3. And the online option is particularly popular with tax preparers. Refunds can be issued by this means, though most tax payments must be handled separately.

       Something might be learned from what other states are doing.  State officials in North Dakota recently announced they will allow taxpayers to pay state income taxes by credit card for the first time. In a comment that may sound familiar to town officials here, Gary Anderson, state director of income and oil taxes, said, “We’ve had taxpayers in the past ask if that service is available.”

       As North Dakota goes, so goes Maine?