Proponent Testimony on HB 463 Before the House Financial Institutions, Housing and Urban Development Committee by Tony Fiore on April 20, 2016

Proponent Testimony On HB 463 Before the House Financial Institutions, Housing and Urban Development Committee By Tony Fiore On April 20, 2016

Chairman Terhar, Vice Chair Hambley, Ranking member Kuhns and members of the committee. My name is Tony Fiore and I am a partner with Kegler Brown Hill + Ritter. I’m here today as one of the leaders that has been working on drafting this legislation for several years. I helped coordinate the OSBA Foreclosure Workgroup that met throughout 2015. In addition, since 2013 I met with nearly every House and Senate member to discuss foreclosure reform on behalf of our client, Manley Deas Kochalski (“MDK”), with one of its named partners, Brian Deas. MDK is one of the largest foreclosure law firms in the Midwest. MDK is headquartered in Columbus, Ohio, but operates in Ohio, Kentucky, Indiana, Illinois, and Pennsylvania. About 400 of MDK's employees are working in Ohio. MDK represents large, mid-size, and small mortgage servicing companies. The foreclosure reforms contained in HB 463 will: 1) reduce the number of vacant and abandoned properties in Ohio; 2) protect borrowers with every protection under existing law even though they cannot make their monthly mortgage payments; and 3) provide a model for other judicial foreclosure states to follow in the future. Background For the last four years Brian Deas and I have been discussing the foreclosure sale reforms included in HB 463. During these discussions we distributed the attached three page flow chart to help better understand what happens before and after the foreclosure process as well as what efforts are required to help individuals remain in their home. (See Exhibit A, B & C). The modernization provisions in the bill that we are specifically supporting only relate to the foreclosure sale process in Ohio - the part of the process that takes place after the court has entered judgment in the case.

Capitol Square, Suite 1800 + 65 East State Street + Columbus, OH 43215 Phone: (614) 462-5400 + Fax: (614) 464-2634 + www.keglerbrown.com

Ohio is one of about 21 states that use the judicial process to foreclose upon residential property1 when a borrow fails to make payments as agreed when they purchased their home. A majority of states use a non-judicial foreclosure process.2 When you take out a loan in a state that primarily uses a non-judicial foreclosure process, you sign a deed of trust or mortgage that typically contains a power of sale clause. If you have a power of sale provision in your mortgage contract, the lender can foreclose without going to court. The foreclosure process is much faster in a majority of states that do not need to go through the court first. HB 463 does not eliminate the court’s oversight of the foreclosure process in Ohio – it simply focuses on the sale process once the court has determined the home owner is in monetary default and the judgment creditor can proceed with a foreclosure and sale of the home to pay the outstanding debt. 1. The current process is slower than it needs to be. The process starts when the court enters the decree of foreclosure and ends when the sheriff's deed is recorded. It takes a long time for this process to be completed in Ohio – in some cases up to a year. A slow process creates problems.  It increases the risk that a property will be abandoned, which increases the risk of blight to the local community.  It makes it harder to sell the property to a third party, since many people aren't able to wait for the sheriff sale process to be completed.  It imposes costs on local communities. The Federal Reserve Bank in Cleveland described these costs in a report issued in May 2013 which recommended a faster foreclosure process in Ohio (See Exhibit D).  It creates backlogs. Although the number of foreclosure cases in Ohio is getting smaller, when the foreclosure volume was high we saw significant backlogs in some counties in holding sheriff sales. The private sector, rather than county government, is in a better position to staff-up or staff-down depending on the volume of foreclosed properties across Ohio.  The best way to reduce delays in the sale process without changing any of the safeguards that are currently in the Revised Code is to take advantage of the resources that are available in the private sector. There are more than 3,000 auctioneers in Ohio, and more than 1,700 licensed title insurance agents in Ohio. Together they are available to assist with foreclosure sales by conducting auctions of the properties and handle the closing aspects of these auctions. Ohio should take advantage of these professionals to eliminate the delays and backlogs that exist in some counties and to be ready for any future economic downturn.  The Revised Code already allows judges to appoint private auctioneers to sell foreclosed properties. HB 463 puts additional requirements on who judgment creditors can request to

1 States that use a judicial foreclosure process include: Connecticut, Delaware, Florida, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, New Jersey, New Mexico*, New York, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, Vermont, and Wisconsin. 2 States that use a non-judicial foreclosure process include: Alabama, Alaska, Arizona, Arkansas, California, Colorado, District of Columbia, Georgia, Idaho, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, North Carolina, Oregon, Rhode Island, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, West Virginia, and Wyoming

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have the property sold by a private individual. These individuals are called “private selling officers” and must be a licensed auctioneer, Realtor and resident of Ohio. This process is similar to how Illinois conducts sales. This allows the foreclosure process to benefit from the capacity and experience of the private sector. 2. The current process is antiquated. Foreclosed properties are sold in a live auction in a physical location. Most sales are held once a week, except in counties that hold sales only once a month. The process is costly and inefficient. It dates back to the 1800's.  HB 463 would require properties to be sold through an online auction website. The bill proposes that the Ohio Department of Administrative Services solicit bids for a vendor to build and maintain this online auction at no cost to local or the state government, but for a per foreclosed home flat fixed fee. Each county sheriff would be able to provide their own look and feel to the website while all controls are maintained on the back end at the state level.  Some of the larger counties in Florida conduct foreclosure sales online. (See Exhibit E) Online sales have many benefits over live, on-site auctions. Counties save money and can sell properties more quickly. More people can bid, since sales can be held open for days and are open to a bigger audience. And the requirements of the sale can be made more transparent. All of this results in a better auction.  It also creates a great opportunity for the state and counties to work together under a shared services agreement to make the foreclosure process more efficient and to provide a better experience to people who want to buy foreclosed properties. A website in which all foreclosed properties in Ohio would be auctioned to the public would further the goals of cooperation and efficiency outlined in the Shared Services Action Plan for Ohio Schools and Governments, a report that was issued to Governor Kasich and Members of the General Assembly in June 2012 (See Exhibit F). It could also make Ohio a leader in how to improve the foreclosure process without sacrificing the due process that is owed to the parties and the protections owed to the homeowner.  Sales are also not well advertised, which makes it difficult for people to find properties for sale. The rules of the sale vary from one county to the next, and they can be difficult for people to understand. The result - less interest in bidding from third parties and an auction market that is not as robust as it could be. The bill maintains existing requirement to advertise in the paper of circulation that sheriff’s use today, but the online advertisement on the online auction site will be live 24/7 prior to the auction.  In addition, Ohio does not allow judgment creditors or third parties to bid remotely. Everyone who wants to bid on a property in foreclosure must appear and bid in person at the auction. This increases the cost of bidding and reduces the number of persons who are able to bid. Ohio would benefit from a process that allows remote bidding.  We support HB 463 because it would eliminate these problems. I think it also could make Ohio a model state in selling foreclosed properties.

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 HB 463 takes pieces of the process from other judicial foreclosure states and combines them into a single, integrated approach.  HB 463 creates more flexibility in the process. For example, it allows sales to be postponed instead of cancelled. Ohio does not allow scheduled sales to be postponed. Sales can only be cancelled. Cancelling sales increases the out-of-pocket cost of sales and the time it takes to complete the sale process. It also requires the use of additional judicial and sheriff resources if the sale is rescheduled. Many states allow scheduled sales to be postponed for a short period of time. Ohio would benefit from allowing sales to be postponed instead of cancelled. Postponing sales would also help in circumstances where a loss mitigation option is being explored with the existing homeowner to potentially keep them in their home. 3. Accountability – There have been foreclosure problems in every Ohio House and Senate district, whether the effects were felt in the past 8 years or if they are still felt today. But, the foreclosure problem is hard to quantify. HB 463 contains an ongoing mechanism to track and ensure progress is being made once these foreclosure reforms are enacted. The bill will require sheriffs and private selling officers to provide ongoing information to the Ohio Attorney General’s office in order to ensure all counties are conducting sales within all statutory timeframes and reasonable benchmarks. If all counties were able to operate within these timeframes both in good times with fewer foreclosures and times when the number of foreclosures can be overwhelming there would be no need to advocate for such alternatives to the current process. In summary, I think Ohio should take advantage of the resources that are available in the private sector to improve the foreclosure sale process. This would create important benefits to the public and the parties to the foreclosure case without creating any detriments to the homeowners who are in foreclosure. The benefits include the following:  All existing borrower protections are maintained during the foreclosure process.  More selling capacity; faster sale process.  Less blight from abandoned properties.  An improved housing market.  More resources for local law enforcement.  Quicker payment of property taxes.  More third-party bidding.  Ability to postpone a sale.  Accountability that such changes are making a positive impact across Ohio. Mr. Chairman and members of the committee, thank you for allowing me to provide proponent testimony on HB 463. I would be happy to answer any questions.

Page 4 of 4 Exhibit A Prepared by OHIO’S HOMEBUYING PROCESS Tony Fiore: Kegler, Brown, Hill + Ritter THE BORROWER > > Borrower obligated to repay debt Security interest created in property Promissory Note Not recorded Recorded with county recorder Mortgage

Lender (Bank) Mortgage Servicer (borrower’s point of contact) • Prepares monthly statements to borrower (Loans Money) • Processes monthly payments Sells Note & • Pays property taxes out of escrow accounts Mortgage to: • Makes sure property is insured • Manages process when/if note/mortgage goes into default A borrower is not in foreclosure when: a. the servicer starts to make a Investor collection call after a missed (Often a trust) payment b. they receive an official notice Issues Mortgage Borrower Misses of default (usually comes Borrower Pays on Time Payments after 3rd missed payment) Backed Securities 10/15/20/30 In Foreclosure: Securities Purchased What Happens Next? c. the foreclosure complaint is by Institution Years Fixed Term filed against them in court (Investors like insurance d. they are served with a companies, mutual summons and complaint funds, pensions) Note Paid in Full e. the court enters judgment f. the sheriff sale takes place Property Deed Transferred to Borrower & Recorded Why Modernize Electronic Filing, Signature and Recording Procedures Across the State? We all know that our world and everyday lives are becoming more and more electronic based. Retailers have incorporated technologies that allow individuals to electronically sign on a touch screen display with a stylus or finger and the Internal Revenue Service has permitted electronic filing of tax returns for over a decade. Therefore, we are not talking about the future anymore; we are talking about safe and secure methods to e-sign and file that have been around for several years. Unfortunately, today there are only five to six counties that currently require e-filing (such as, Franklin, Summit, Cuyahoga, Hamilton and Montgomery). In 2000, the Ohio Revised Code (“ORC”) was amended by HB 488 that created Ohio’s Uniform Electronic Transactions Act. The UETA was enacted to apply to electronic records and electronic signatures relating to nearly all transactions in Ohio. But, there was a provision adopted in §1306.22 of the ORC that states nothing shall be construed to require the general assembly, any legislative agency, the supreme court, the other courts of record or any judicial agency to use or permit the use of electronic records and electronic signatures. This exemption is not forward thinking that would put all governmental agencies on a path to modernizing operations to make e-filing and e-signatures acceptable statewide.

The following three areas can be modernized to require acceptance of e-filing and e-signatures in the future: • Create a transition plan for all 88 counties to utilize e-filing/e-signing of documents • Documents signed under oath • Permit E-recordings with title documents

Prepared by Tony Fiore: Kegler, Brown, Hill + Ritter Exhibit B OHIO’S FORECLOSURE PROCESS

Pre-Foreclosure Review Period Foreclosure Action 145 Days

> 30 Days 60 Days 90 Days 120 Days Judgment Entry

1st Missed 2nd Missed 3rd Missed Loan Referred Payment Payment Payment to Foreclosure Firm

36th Day: Servicer MUST Formal Notice of Default Servicer not permitted to file complaint in a judicial establish or make good Mailed to Borrower; Period foreclosure action until 120 days delinquent. Servicer faith effort to establish live can be extended by servicer if may file foreclosure complaint if: the servicer has contact with borrower and looks like borrower eligible for sent the borrower a notice that the borrower is not inform borrower of loss loss mitigation, but more time eligible for any loss mitigation option and the appeal mitigation options. needed to make determination. process is not applicable, the borrower has not timely requested an appeal or the borrower’s appeal has been denied; the borrower has rejected all loss mitigation options; or the borrower failed to perform 45th Day: Servicers MUST assign personnel to delinquent borrower to under a agreement on a loss mitigation option. help with loss mitigation options and give written notice to borrower that includes: a statement encouraging the borrower to contact the servicer; the telephone number for servicer personnel and mailing address; a brief description of examples of loss mitigation options that might be available; application instructions or a statement informing the borrower how to obtain more information about loss mitigation options; and the website to access either CFPB’s list or the HUD list of homeownership counselors or counseling organizations, and the Prepared by HUD toll-free telephone number. Tony Fiore: Kegler, Brown, Hill + Ritter FORECLOSURE ACTION STEPS NEW FEDERAL REGULATIONS Related to Loss Mitigation

1. Title Examination - Preliminary Judicial Report (PTR) January 17, 2013: Federal Consumer Financial 2. Foreclosure Complaint Protection Bureau (CFPB) issued final rule: 3. Service of Summons and Complaint on Defendants 4. Mediation (in many countries) - multiple • Real Estate Settlement Procedures Act of 1974 5. Judgment • Codified 12 C.F.R. Part 1024 (Regulation X) 6. Equity of Redemption period (3 days) • Effective January 10, 2014 (But mortgages 7. Order of Sale Issued to Sheriff follow most procedures already) 8. Appraisal 9. Newspaper Advertisement of Sale Goals: 10. Sale of Property Standardize loss mitigation process for mortgage 11. Statutory Redemption Period (varies by case) servicers and give borrowers multiple opportunities to 12. Return of Sale and Confirmation submit a loss mitigation application to find a way to 13. New Deed stay in their home. Exhibit C CURRENT SALE + DEED RECORDING PROCESS

Foreclosure Action Post Sale Deed Recording Timeframe (Average Time to Complete in Ohio: 177 Days) Anywhere from 60-223 Days See Foreclosure Action Step Process Sheet > Date of 60 Days Judgment Precipe for Foreclosure Entry Order of Sale The targeted post-sale deed recording timeframe in the Ohio Revised Code is around Sale 60 days after the foreclosure sale based on the following provisions/assumptions: • Sale date to return of sale: 5 days (estimated, since there is no statutory Up to deadline for the return of sale) • Return of sale to confirmation: 30 days (Section 2329.31) • Confirmation to deed sent to sheriff: 7 days (Section 2329.36) 223 • Deed to sheriff to record deed: 18 calendar days (14 business days – Section 2329.36) Days!

While only 4 of 88 counties (Allen, Athens, Wyandot, and Fayette) meet the Revised Code’s targeted timeframe statutory deadlines don’t really solve the problem. ALTERNATIVE PROCESS 90 Days 60 Days > Judgment Foreclosure Entry Sale

Prepared by Tony Fiore: Kegler, Brown, Hill + Ritter CURRENT SALE & DEED RECORDING PROCESS 45 Days 37 Days 30 Days Before Sale Before Sale Before Sale

45 days or more before sale, the servicer Servicer not permitted to file a motion Within 30 days of receiving must: promptly review loss mitigation for judgment, ask court for order of a complete loss mitigation application to determine if complete sale, or conduct the foreclosure sale application, the server must: and notify the borrower in writing within if borrower submits complete loss evaluate the borrower for all 5 days after receiving the loss mitigation mitigation application 37 days before available loss mitigation options; application and that the servicer has sale unless: the servicer has sent the and provide the borrower with determined that it is either compete borrower a notice that the borrower a written notice stating the or incomplete. If the application is is not eligible for any loss mitigation servicer’s determination of which incomplete, the notice must state the option and the appeal process is not loss mitigation options, if any, it additional documents and information applicable, the borrower has not timely will offer to the borrower. the borrower must submit to make the requested an appeal, or the borrower’s application complete and deadline for appeal has been denied; the borrower submission. has rejected all loss mitigation options; or the borrower failed to perform under an agreement on a loss mitigation option. Exhibit D

Executive Summary Housing markets across the United States are showing signs of real stability. Prices, new construction, and sales are all improving from their recessionary lows. While this is good news for the economic recovery, the fallout from the housing crisis is still with us. Many communities carry scars from rampant foreclosures and vacant properties. Restoring the health of the housing sector is an effort that continues.

This assessment is especially relevant in Ohio. Some of the state’s older industrial cities are struggling with housing troubles whose roots predate the recent crisis. These weak markets require policies tailored to fit their specific needs.

At the heart of Ohio’s housing woes are two long-running trends: decades of population loss and economic stagnation in many of Ohio’s older industrial cities that have given rise to a supply of housing in excess of local demand, too much of which stands vacant and abandoned; and spillover effects from a foreclosure rate that was elevated long before the recent recession. Together, these developments make Ohio a special case that does not fit neatly into the more familiar boombust narrative observed on a national scale.

In this report, we outline some of the main findings from the Federal Reserve Bank of Cleveland’s years of research and outreach with Ohio bankers, community development practitioners, and other market participants.1 We offer this white paper as an Ohio-centric companion to the nationally focused housing market report issued by the Board of Governors of the Federal Reserve System in January 20122, and we offer it in the same spirit—as providing a framework for weighing the pros and cons of programs aimed at stabilizing the housing sector. We hope that our analysis can help inform more effective housing policies for Ohioans.

1 The Federal Reserve Bank of Cleveland’s empirical research focuses almost exclusively on Cuyahoga County —home to Cleveland—because it is the only county in Ohio that has consistently made its housing market data readily available. However, after sharing this research through outreach in other cities and counties in Ohio, practitioners have informed us that the conditions in Cuyahoga County mirror housing market conditions in many of Ohio’s counties. 2 Board of Governors of the Federal Reserve System, “The U.S. Housing Market: Current Conditions and Policy Considerations” (Jan. 4, 2012).

Research and outreach conducted by the Federal Reserve Bank of Cleveland has pointed to five policy areas that merit careful consideration in Ohio:

 A foreclosure fast-track for vacant and abandoned properties: It takes a long time— an average of one to two years—for mortgage loans to go from delinquency through the foreclosure process in Ohio. When a home is vacant and abandoned, efforts to protect homeowners may unintentionally create costs with no corresponding benefits. These “deadweight losses” resulting from a lengthy foreclosure process include legal costs, physical damage to properties, crime, and downward pressure on neighboring property prices. Many states have moved to speed up the mortgage foreclosure process in cases where the owner has abandoned the home.

 Elimination of minimum-bid requirements: Ohio law currently requires minimum bids of at least two-thirds of a foreclosed property’s appraised value at the first auction. Although this may tamp down some unhealthy speculation at foreclosure auctions, it may also price some well-meaning property rehabbers out of the market. There are ways to offset the tradeoff between opening auctions to more investors and inadvertently encouraging unhealthy speculation. Eliminating the minimum-bid requirements could also enhance market efficiency by lowering transaction costs and reducing the amount of time properties sit empty.

 Addressing harmful speculation: In extremely low-value housing markets, some entities engage in “harmful speculation,” or the purchase of distressed property with no intent to invest in improving it or paying property taxes. Two features of Ohio law help this business model to persist: The ability to become the new owner of property through a corporation without being registered to do business in Ohio, thus hampering the ability of code enforcement officials to pursue the owner for violations; and the ability to transfer the property without paying back taxes or correcting code violations. Requiring registration with the Secretary of State and the payment of back taxes or corrections of code violations before low-value properties could transfer to new owners could go a long way toward empowering local governments to tackle this problem, with carefully crafted exemptions preventing undue delays in property transfers.

 Expanded access to land banks: Nonprofit land banks have done significant work since the 2009 legislation that established their missions of acquiring, remediating, and putting into productive use vacant and abandoned properties. Property demolitions by land banks can help reduce oversupply of housing, the underlying cause of widespread vacancy and abandonment. Eliminating the populations requirement would make land banks available to all Ohio counties.

 Improved data collection and access: Good data helps inform decisions made in the public, private, and nonprofit sectors. Understanding Ohio’s housing markets is especially difficult because of the dearth of standardized, electronically stored data. Data storage practices vary across Ohio counties, and are determined by inertia and budget constraints. With reliable data, policymakers, businesses, and community development practitioners can better identify what works and what doesn’t, allowing them to allocate resources more efficiently. The payoff from a small investment in housing data standardization could be substantial.

We begin this report with a recap of recent trends in Ohio housing markets. We focus on the twin trends of the oversupply of legacy housing relative to demand and a persistently high foreclosure rate. We then highlight the specific complications with the foreclosure process across Ohio counties, including the lengthy period of time that it takes to complete a foreclosure. Finally, we lay out five areas where state-level policy might be especially effective in addressing Ohio’s housing problems.

The Nature of the Problem Housing markets are struggling in many of Ohio’s older industrial cities. Property values are low, the foreclosure process is lengthy, and some houses stand vacant for extended periods of time. Given that much of the housing stock in central cities and inner-ring suburbs is very old, the combination of these conditions creates an environment conducive to property abandonment and urban blight. Whether foreclosed, vacant, or abandoned, each type of distress lowers surrounding property values.3 This in turn erodes neighbors’ equity and municipalities’ property-tax bases. Community development practitioners working in Ohio neighborhoods report that vacant and abandoned structures are magnets for crime and vermin, and become fire hazards. Taken together, distressed properties pose serious threats to neighbors, communities, and local governments. Moreover, they inhibit future development of the most affected areas. The problems of foreclosure, vacancy, abandonment, and low-value property are interrelated. Addressing just one aspect will not make a substantial difference in the overall problem. For example, a large share of the properties that enter the foreclosure process are vacant, and remain vacant during the foreclosure process.4 Ohio’s judicial foreclosure process is lengthy, taking an average of 9.5 months from the foreclosure filing to the sheriff’s sale.5 This process is prolonged even further with additional lengthy periods of loan delinquency (before foreclosure filing) and time spent as real-estate owned (REO) property,

3 For example, see Stephan Whitaker and Thomas J. Fitzpatrick IV, “The Impact of Vacant, Tax-Delinquent, and Foreclosed Property on Sales Prices of Neighboring Homes,” Federal Reserve Bank of Cleveland Working Paper no.11-23r (2011) (noting that foreclosed, vacant, and tax-delinquent properties all have different impacts on surrounding property values). 4 Safeguard Properties, the largest field servicer in the country, reports that 25% of homes it inspects when loans are delinquent but not yet in foreclosure have already been vacated by their owners or (in the case of rental properties) tenants. 5 According to sample data obtain from Lender Processing Services from 2007-2012 and the Bank’s calculations.

5 during which time the lender attempts to sell the property to an end user.6 On top of that, homes sold at foreclosure auctions, especially in low-income areas, remain vacant at much higher rates than homes sold in arms-length transactions between willing buyers.7 This period of extended vacancy, sometimes beginning even before the foreclosure is filed, provides ample opportunity for homes to fall into substantial disrepair due to lack of maintenance or vandalism (including homes stripped of metal to sell for scrap). The more damaged the home, the less it is worth, and the more likely it will be abandoned. This deterioration likely contributes to the fact that a substantial portion of property sold out of REO sells for only a fraction of its prior estimated market value.8 This pattern—foreclosure leading to prolonged vacancy, and sometimes abandonment—might seem to suggest that preventing foreclosures is the best way to combat abandonment. But this does not appear to be the case: the majority of vacant and abandoned properties have not been through a recent foreclosure.9 Recognizing that low-value property, foreclosure, vacancy, and abandonment are related but distinct issues, and the macro trends influencing them, is a critical step towards crafting effective policy interventions.

How We Arrived Here Ohio’s current housing market woes are largely driven by two trends. The first is the supply/demand imbalance in housing markets due to decades of new housing construction that has outpaced household growth. The second is the long-term effect of the elevated foreclosure rate in many of Ohio’s neighborhoods since well before the recent recession.

6 The average time loans spend in delinquency is between 6 and 14 months, depending on how you measure delinquency. If you start counting from the last time a loan payment is 30 days delinquent (meaning a second payment is missed and it will transition to 60 days delinquent), the average time is six months. If you start counting the first time a loan payment is thirty days delinquent (though many of these become current again), the average is 14 months. 7 Stephan Whitaker, “Foreclosure-Related Vacancy Rates,” Federal Reserve Bank of Cleveland Economic Commentary No. 2011-12 (2011) (demonstrating that foreclosures in higher-poverty areas, which tend to be in the central city, remain vacant after foreclosure at a much greater rate than foreclosures in lower-poverty areas, which tend to be in the outer-ring suburbs). 8 Thomas J. Fitzpatrick IV and Stephan Whitaker, “Overvaluing Residential Properties and the Growing Glut of REO,” Federal Reserve Bank of Cleveland Economic Commentary No. 2012-03 (2012); and Claudia Coulton, Michael Schramm, and April Hirsh, “Beyond REO: Property Transfers of Extremely Distressed Prices in Cuyahoga County, 2005-2008,” Case Western Reserve University, Mandel School of Applied Social Sciences, Center on Urban Poverty and Community Development. 9 For example, see Stephan Whitaker and Thomas J. Fitzpatrick IV, “The Impact of Vacant, Tax-Delinquent, and Foreclosed Property on Sales Prices of Neighboring Homes,” Federal Reserve Bank of Cleveland Working Paper no.11-23r (2011) (noting that the number of vacant and tax-delinquent properties in Cuyahoga County far exceeds the number of recent foreclosures).

The Supply/Demand Imbalance in Housing Markets Every one of Ohio’s largest MSAs has more housing units than households to occupy them, a trend almost always exacerbated in the central city.10 The figure below illustrates the ratio of total housing units to total households in 2010. A ratio greater than one means there are more housing units than households to occupy them. Each MSA is divided between its central county (the one containing the central city) and its surrounding counties. In most cases, the central county ratio is higher than the surrounding county ratio because households tend to move ‘up and out’ of the older housing stock in central cities into newer housing stock in suburbs and exurbs.11 In that sense, the excess supply of housing in central cities (and thus their counties) is less likely to be absorbed by future households than the excess supply of housing in surrounding counties is, due to the housing stock being older, and thus closer to the end of its life cycle, and the fact that households are migrating away from central cities.

10 Generally, depopulation tends to happen most rapidly in the urban core. See Kyle Fee and Daniel Hartley, “The Relationship between City Center Density and Urban Growth or Decline,” Federal Reserve Bank of Cleveland Working Paper No. 12-13 (2013) (In the Cleveland MSA from 2000 to 2010, for example, population density declined most substantially in the central city, while some suburbs saw increases); and Kyle Fee and Daniel Hartley, “Urban Growth and Decline: The Role of Population Density at the City Core,” Federal Reserve Bank of Cleveland Economic Commentary No. 2011-27 (2011). 11 Thomas Bier and Charlie Post (2006). “Vacant the City: An Analysis of New Homes v. Household Growth,” in Alan Berube, et al. (ed.) Redefining Urban and Suburban America Washington, D.C. The Brookings Institution.

The ratios are useful for illustrating the trend across counties and MSAs, but the raw numbers give a better sense of the size of the supply/demand imbalance. The above graph illustrates the excess supply of housing units relative to households in the central and surrounding counties of Ohio’s largest MSAs in 2010. It demonstrates, for example, why Cleveland is well known for abandoned property: In 2010 Cuyahoga County, home to the central city of Cleveland, had more than 70,000 more housing units than it had households. It is worth noting that in areas with very large numbers of students not living in dorms, such as Cincinnati (Hamilton County) and Columbus (Franklin County), the estimate of the excess number of housing units to households may be overstated due to the difficulty of counting students. But community development practitioners report problems with vacancy and abandonment, albeit to a lesser extent, in those areas as well.

This supply/demand imbalance is the result of a long-running trend. Ohio has long been building more housing units than its households can fill. From 2000 to 2010, 175,000 more housing units were built than households formed in Ohio. The charts above illustrate these trends since 1980 in Ohio’s largest MSAs. In both the central and surrounding counties, more new housing units were constructed than new households formed. This supply/demand imbalance also helps explain why Ohio’s largest MSAs did not see much housing price appreciation during the pre-recession boom experienced by the nation, but are now experiencing price declines. During the boom, the large availability of housing stock in Ohio put downward pressure on prices, while localized demand and the modest housing price appreciation that was experienced at the MSA level encouraged the construction of new housing in suburban and exurban markets. During the bust, this supply/demand imbalance has continued placing downward pressure on housing prices. Still, the overall price movements at the MSA level during this period were muted relative to national movements.

Even so, some neighborhoods have experienced quite large price movements. The housing stock in the central city and inner-ring has experienced greater price declines than the MSA-level measure suggests.12 This is partially driven by the steadily growing supply of

12 Francisca G.-C. Richter and Youngme Seo, “Inter-Regional Home Price Dynamics through the Foreclosure Crisis,” Federal Reserve Bank of Cleveland Working Paper No. 11-19 (2011) (finding price declines were steeper in the central city and inner-ring suburbs than area averages); and Thomas J. Fitzpatrick IV and Mary Zenker, “Municipal Finance in the Face of Falling Property Values,” Federal Reserve Bank of Cleveland Economic Commentary no. 2011-25 (2011) (finding that in 2010 homes in the central city and inner-ring suburbs of Cuyahoga County (home to Cleveland) sold for 30% to 50% of their tax-assessed values, while homes in Cuyahoga County (containing those areas) sold for 82% of their tax-assessed values).

legacy housing relative to the current population’s demand, which puts downward pressure on prices.13 But the price difference is also driven by unoccupied housing that has fallen into severe disrepair and eventually has been abandoned, often becoming an eyesore that further lowers surrounding property values.14 The differences between housing markets in the central city and some inner-ring suburbs and those in outer-ring suburbs can be seen in much of the housing market research conducted on weak markets: In general, home prices are lower and vacancy rates higher in older industrial central cities than in their suburbs.15

Foreclosure Measurement Although vacancy and abandonment are caused by aging housing and a supply/demand imbalance in housing markets, recent increases in foreclosures have only compounded these problems. There are many ways to measure foreclosures. Here we focus on two statistics. The first is the foreclosure inventory (sometimes described as the “foreclosure rate”). Foreclosure inventory is a ratio of all of the residential home mortgage loans currently in the foreclosure process (between foreclosure filing and foreclosure auction) to all residential home loans. This tells us the share of loans that is currently in foreclosure. The second measure is the 90-day delinquency rate. This is the share of residential home loans that has missed at least three consecutive payments, but upon which the lender has not yet foreclosed. Once a loan becomes 90 days delinquent, the delinquency is rarely cured (through payment of the arrearage or a loan modification, for example), and these loans tend to transition to foreclosure. Together, these measures give us an idea of not only current foreclosure activity, but probable future activity. We look at prime mortgages and subprime mortgages separately. We do this to illustrate the issues Ohio was having before and after the recent housing crisis with these

13 Glaeser, Edward L., Matthew E. Kahn, and Jordan Rappaport, “Why Do the Poor Live in Cities? The Role of Public Transportation,” Journal of Urban Economics 63(1): 1-24 (2008). 14 Daniel Hartley, “The Effect of Foreclosures on Nearby Housing Prices: Supply or Disamenity?” Federal Reserve Bank of Cleveland Working Paper, no. 10-11R (2010). 15 For example, see Francisca G.-C. Richter and Youngme Seo, “Inter-Regional Home Price Dynamics through the Foreclosure Crisis,” Federal Reserve Bank of Cleveland Working Paper No. 11-19 (2011); Stephan Whitaker and Thomas J. Fitzpatrick IV, “The Impact of Vacant, Tax-Delinquent, and Foreclosed Property on Sales Prices of Neighboring Homes,” Federal Reserve Bank of Cleveland Working Paper No.11-23r, Figure 2, p.39 (2011) (mapping the median home sales price in Cuyahoga County, Ohio); Stephan Whitaker, “Foreclosure-Related Vacancy Rates,” Federal Reserve Bank of Cleveland Economic Commentary No. 2011- 12 (2011) (demonstrating that foreclosures in higher-poverty areas, which tend to be in the central city, remain vacant after foreclosure at a much greater rate than foreclosures in lower-poverty areas, which tend to be in the outer-ring suburbs); and Thomas J. Fitzpatrick IV and Mary Zenker, “Municipal Finance in the Face of Falling Property Values,” Federal Reserve Bank of Cleveland Economic Commentary no. 2011-25 (2011) (noting that housing in outer-ring suburbs tends to hold its value relative to county-estimated taxable market values).

different mortgage products. It is important to note that the vast majority of home loans are prime, but the exact ratio of prime loans to subprime loans changes over time. We also only look at 16-30 year amortizing loans, as loans amortizing over less than 15 years are a very small portion of the market from 2000 to 2012. What is clear is that Ohio has been suffering from elevated levels of foreclosure since well before the national housing crisis and subsequent recession, which began in late 2007. Ohio saw an early jump in subprime mortgage foreclosure rates in 2002 (when more than 6 percent were in foreclosure), but these rates did not peak until nearly a decade later (when nearly 20% of subprime loans were in foreclosure). While the subprime foreclosure inventory has dropped from its peak, it still remains uncomfortably high at more than 12 percent. Subprime 90-day delinquency rates also remain high, despite a noticeable drop from their peak in 2010. Beginning in 2006, our data covers a large portion of the market—over 80%. According to this sample (which underestimates the total), there were an average of 1,600 subprime loans at least 90 days delinquent and 3,140 subprime loans in foreclosure in any given month in 2006. By 2012, there were an average of 4,200 subprime loans at least 90 days delinquent and 6,160 subprime loans in foreclosure in any given month. Declining rates of 90-day delinquency suggest that lenders are beginning to work through their backlogs, but they remain high, suggesting that subprime loan foreclosures may remain elevated in the coming years.

Ohio’s inventory of prime loans in foreclosure peaked in early 2012 at more than 4 percent. Since then the inventory has dipped below 4 percent, but still remains elevated compared to pre-recession levels of less than 1 percent. Using our sample to give an estimate of the magnitude of the problem, beginning in 2006 there were an average of 9,260 conventional prime loans at least 90 days delinquent and more than 9,580 loans in foreclosure in any given month. In 2012, the monthly average had grown to 32,070 conventional prime loans at least 90 days delinquent and more than 40,480 prime loans in foreclosure. Recently, the share of prime loans in 90-day delinquency has increased, although it remains below its 2010 peak. However, it seems to be diverging from foreclosure starts. This strongly suggests that elevated prime foreclosure rates will continue in Ohio for the foreseeable future.

Another factor that may contribute to elevated 90-day delinquency rates is selective foreclosure, where a lender decides not to foreclose on a property because it would cost more to foreclose than could be recovered from the sale of the property. This naturally happens most often when properties are of very low value to begin with. The negative consequence from a decision to not foreclose is that remaining liens inhibit redevelopment by substantially increasing acquisition costs. Compounding the problem is that selectively unforeclosed, low- value properties may be geographically concentrated. Research by the U.S. Government

Accountability Office suggests this situation is most prevalent in markets with extremely distressed housing prices, such as Cleveland.16 Our research and outreach suggest that in high-poverty housing submarkets, lenders and servicers are selectively foreclosing on the “best of the worst” properties.17 Before a recent change in law requiring sheriffs to do it, lenders would not always take the steps necessary to become the new owner of record of low-value foreclosed property. This resulted in local governments being unable to identify the actual owner of a property when they needed to contact that owner to address a code violation or property tax bill, for example. There have also been reports of lenders not triggering foreclosure auctions after receiving the foreclosure judgment on a low-value property. In other cases lenders seek to vacate foreclosure judgments rather than take possession of the low-value property. These situations may result in the borrower’s moving out of the home and ceasing maintenance and tax payments, believing ownership has transferred to the lender. Likewise, the lender would not maintain the property or make tax payments, as it is not the owner. Because the economics create an incentive to not take possession of a property, and because there are now many local efforts to force the completion of the foreclosure process once it has started, it makes sense that some lenders would simply not foreclose at all. The Board of Governors of the Federal Reserve System recently released guidance for lenders who choose to discontinue foreclosure proceedings.18 Unfortunately, these practices impact only homes that are already in the foreclosure process, and do not address the problem created by the decision to not foreclose. In sum, Ohio’s housing markets face some unique challenges, including population loss, low-value legacy housing, selective foreclosure, and spatially concentrated abandonment. Solutions to address these challenges are necessarily different from those in states where the housing boom and bust were more pronounced and where population has increased. In the next section of this report, we walk through five key policy ideas whose impact on Ohio housing markets could be especially beneficial.

16 Government Accountability Office, “Additional Mortgage Servicer Actions Could Help Reduce the Frequency and Impact of Abandoned Foreclosures,” GAO-11-93 (2010), available at http://www.gao.gov/products/GAO-11-93. 17 Stephan Whitaker and Thomas J. Fitzpatrick IV, “The Impact of Vacant, Tax-Delinquent, and Foreclosed Property on Sales Prices of Neighboring Homes,” Federal Reserve Bank of Cleveland Working Paper No.11- 23r (2011) (Noting the positive coefficient on foreclosures in high-poverty areas). 18 Board of Governors of the Federal Reserve System, “Guidance on a Lender’s Decision to Discontinue Foreclosure Proceedings” (July 11, 2012), available at http://www.federalreserve.gov/bankinforeg/srletters/sr1211.pdf.

Policy Considerations Ohio’s troubled housing sector is only one component of the state’s overall economy. Additionally, there are national and local forces that operate independently of state policy and have a substantial impact on Ohio’s housing sector.19 Nonetheless, there are real short- and long-term gains that can be realized by addressing the issues that face Ohio’s housing markets. The policy actions we focus on in this section fall into two categories: 1) addressing the foreclosure process, and 2) addressing the low-value property problem. We also comment on the importance of quality data in helping to inform the decisions of market participants. To help illustrate how the challenges discussed above and the policy considerations discussed below tie to the path homes take to vacancy and abandonment, please review the figure in Appendix A, titled “Policy Considerations for Improving Ohio’s Housing Market.”

Addressing the Foreclosure Process, Part One: A Foreclosure Fast-track for Vacant and Abandoned Properties Between 2007 and 2012 in Ohio, the average time it took for a residential home loan to go from an uncured 30-day delinquency through foreclosure auction was between 15.5 and 23.5 months.20 The judicial foreclosure process has its strengths, but speed is not one of them. It takes much longer on average to foreclose on a mortgage in states like Ohio that require judicial foreclosure than in states that do not. This is due to a number of factors, including statutorily prescribed periods (the time the borrower is given to respond to a foreclosure filing, for example), the additional opportunity that borrowers have to challenge the lender’s right to foreclose in court, overburdened court dockets, and the numerous steps in the process that create opportunities for bottlenecks. These factors arguably are counterbalanced by the protection afforded to consumer interests and the greater potential for uncovering illegal foreclosure practices.21 But there are cases when these protections create a cost with no corresponding benefit—a deadweight loss. The costs of foreclosing on a vacant and abandoned property are numerous: legal fees associated with the time spent on the judicial foreclosure process, for example; physical damage done to the property by the elements or looters; additional crime; and the damage done to surrounding property values. When the owner’s interest in the

19 For example, local governments utilize code enforcement and foreclosure or vacancy registries to help manage housing blight, and federal subsidies impact local housing construction and demolition activities. 20 According to sample data obtained from Lender Processing Services from 2007-2012 and the Bank’s calculations. 21 One of the earliest judicial opinions in the recent crisis identifying unlawful foreclosure practices was in Ohio. In re Foreclosure Cases, 2007 WL 3232430 (N.D. Ohio, Oct. 31, 2007).

14 property has been abandoned and the property is already vacant, the extra protections offered by judicial foreclosure do not benefit anyone. The Ohio legislature has already mitigated these deadweight losses in the case of property tax foreclosure. In 2006, Ohio’s General Assembly passed House Bill 294, which allows for an accelerated tax foreclosure when the property is deemed vacant and abandoned.22 This provision has been a boon to municipal efforts to gain control of vacant and abandoned properties and return them to productive use. A fast-track provision for non- tax foreclosures does not yet exist in Ohio. It would help eliminate these deadweight losses. Colorado, Illinois, Indiana, Kentucky, New Jersey, and Wisconsin have enacted laws that expedite the process for non-tax foreclosures if property is vacant and abandoned.23 Most of these bills and statutes apply only to residential real property. They authorize sale of the property within 35 to 120 days after a court determination that it is vacant and abandoned, substantially shortening the ordinary time periods. Several of the statutes also shorten the statutory redemption period—the time after a completed foreclosure during which a borrower may repay the foreclosed debt and retake the property—for abandoned property.24 These experiences suggest that a carefully crafted law could significantly reduce the foreclosure timeline for vacant and abandoned homes in Ohio, perhaps by as much as one-half. It is not easy to define abandonment in a way that expedites foreclosure but does not create an opportunity for abuse. Some states allow one or two circumstances—such as overgrown vegetation or boarded-up doors—to determine whether a property is officially vacant or abandoned. Other commonly used circumstances include accumulation of trash, disconnection of utilities, absence of window coverings or furnishings, police reports of vandalism, unhinged doors, multiple broken windows, uncorrected violations of housing codes, and a written statement clearly expressing the debtor’s intent to abandon the property. Some states require a single observation of the circumstance, while others require observation over a period of time. Buildings undergoing construction, buildings unoccupied seasonally, and property used in agricultural production are often given exemptions.25 Two of the statutes require clear and convincing evidence of abandonment.26 (Pragmatically, this means lenders have to do more to prove abandonment than ordinarily required.)

22 Ohio Rev. Code §323.65 et seq. 23 Colo. Rev. Stat. §§ 38-38-901 et seq. (2010); 735 ILCS 5/15-1108, 15-1200.5, 15-1200.7, 15-1219, 15- 1504, 15-1504.1, 15-1505, 15-1505.8, and 15-1508 (2013); Ind. Code Ann.. §§ 32-29-7-3 and 32-30-10.6-1 et seq. (2012); Ky. Rev. Stat. § 426.205 (2012); N.J. Stat. § 2A:50-73 (2013); and Wis. Stat. §846.102 (2012). 24 Minn. Stat. § 582.032 (2010); N.J Stat. § 2A:50-63 (1995), and Wash. Rev. Code. §61.12.093 (2012). 25 Minn. Stat. § 582.032 (2010); N.J. Stat. § 2A:50-73 (2013); and Wash. Rev. Code. § 61.12.095 (1965). 26 Colo. Rev. Stat. § 38-38-903(3) (2010) and N.J. Stat. § 2A:50-73 (2013).

Another consideration is who can file a motion or petition to expedite the foreclosure process. Current laws fall along a spectrum: Colorado’s statute is more restrictive, limiting those who may request the accelerated process to the holder of a senior lien on a residential mortgage loan.27 Indiana’s law is more expansive, allowing a government official to intervene in foreclosure proceedings to establish abandonment.28 This provision recognizes the impact of abandoned property on its surrounding neighborhood and the larger community. Speeding up foreclosures raises important due process considerations for homeowners. But in cases of abandonment, a growing number of state legislatures have judged the benefits as outweighing the potential costs. Borrowers who have truly walked away from their homes do not benefit from a long and protracted foreclosure process. Nor do lenders, whose ability to take possession of and sell the property is unnecessarily impeded. Furthermore, the community and market impact of delay is significant. Fast-tracking the foreclosure to transfer property into the hands of a new owner could greatly benefit the lender, community, and market without incremental cost to the borrower. However, it is up to policymakers to determine the best way to respond to these issues in Ohio.

Addressing the Foreclosure Process, Part Two: Elimination of Minimum-Bid Requirements State law requires that the minimum bid at the first foreclosure auction on a foreclosed property be set at two-thirds of the property’s appraised value. Community development practitioners report that this provision is an effective way to keep harmful speculators (discussed below) out of the market, because it removes the potential for ultra-cheap purchases at auction. Unfortunately, minimum bids may have the unintended consequence of pricing some helpful property rehabbers out of the market. The median loss taken by purchasers at foreclosure auctions who sell their property the following quarter is 35 percent.29 This makes it more likely that lenders will purchase properties at auction because they need not expend new cash to do so—they can simply credit bid, based on the unpaid loan amount they were due. Removing the minimum-bid requirement would open foreclosure auctions to more

27 Colo. Rev. Stat. §§ 38-38-902(1)(a) and 38-38-901(2) (2010). 28 Ind. Code § 32-30-10.6-3(b) (2012). 29 Thomas J. Fitzpatrick IV and Stephan Whitaker, “Overvaluing Residential Properties and the Growing Glut of REO,” Federal Reserve Bank of Cleveland Economic Commentary No. 2012-03 (2012).

16 property investors and helpful rehabilitators, assuming that lenders adjust their bidding strategies. Provided unhealthy speculation can be prevented, removing the minimum bid requirement would be more efficient than the status quo in two ways: First, it would lower the cost of moving property back into productive hands by eliminating the middle man and associated transaction costs. Instead of the bank buying the property and then selling it to an end-user, the end-user would have a better chance of directly buying the property at auction. Second, the amount of time it takes from foreclosure to reoccupancy by an owner or tenant would be reduced, thus shortening the time property sits vacant in neighborhoods. The trade-off, as noted, is that eliminating the minimum bid requirements would create opportunities for additional unhealthy speculation. We discuss a policy direction that could more finely screen out speculative purchasers below.

Addressing the Low-Value Property Problem, Part One: Harmful Speculation on Low-Value Property The abundance of low-value residential property in Ohio’s central cities invites housing speculation. We classify “unhealthy speculators” as those who invest nothing, or as little as possible, in maintaining the properties they purchase and often avoid paying property taxes. This type of speculator exists in markets throughout Ohio, and most local housing and code enforcement officials can provide examples. These speculators often own multiple properties, which they hold either in the hope of future home price appreciation or to rent out to tenants. In either case, the property is rarely maintained, often in violation of building and housing codes, and sometimes property taxes are not paid. To get a better sense of who the unhealthy speculators are, we broke down purchasers into three categories: 1) large investors (who purchased or sold property 11 or more times in a two year period), 2) small investors (four to 10 times), and 3) individuals (three or fewer times). Lenders and Government Sponsored Enterprises (Fannie Mae, Freddie Mac, the FHA and VA) were examined separately. Our study encompassed vacancy rates and tax delinquency of properties owned by these different types of purchasers in Cuyahoga County between 2007 and 2009. Looking only at foreclosed homes sold by lenders, we found that homes purchased by large investors remained vacant at more than twice the rate as homes

purchased by individuals.30 Large investors were more likely than small investors or individuals to allow their property to become property tax-delinquent after purchase, or to allow the pre-existing property tax delinquency to grow. They were also the least likely to pay past-due property taxes after purchase. And these patterns all become more pronounced with extremely low-value properties (those selling for $10,000 or less). There is more than one way to address unhealthy speculation. Vigorous housing code enforcement may help, especially when used strategically. The problem with housing code enforcement is that it is a labor-intensive, expensive process. And if investors can sell their properties to another investor, a shell company, or an unsuspecting purchaser before they can be brought to court over the code violation, code enforcement becomes less effective. It appears that some large investors are aware they can sell properties to one another and avoid or delay legal repercussions. Eight out of 10 times, large investors sell low-value, tax- delinquent properties to other large investors, and the property-tax delinquency grows.31 Additionally, there are times when it can be impossible to bring owners into court. Sometimes they are not registered to do business in the State of Ohio, nor is the company name they are operating under registered in their alleged state of incorporation. There are two rather simple ways to address this problem. The first is to require that corporate entities purchasing property at foreclosure sale be registered to do business in the State of Ohio before the property can transfer to them. The Ohio Secretary of State’s website has a searchable database of all registered businesses. Thus, determining whether the potential purchaser is registered in Ohio should not substantially delay the purchase and sale of homes. Although this will not make all unhealthy speculators comply with local codes, it should enable enforcement authorities to know where to find owners who are not maintaining their properties in accordance with the law, thus making local efforts such as code enforcement more effective. The second change that could more directly address the problem would be a requirement that taxes be paid and the property brought up to code before it could be transferred to a new owner. This ought to provide a powerful incentive for purchasers to properly maintain their homes and pay property taxes. Similar laws already exist in a number

30 31% of the properties purchased by investors were vacant, while only 15% of the properties purchased by individuals were vacant. O. Emre Ergungor and Thomas J. Fitzpatrick IV, “Slowing Speculation: A Proposal to Lessen Undesirable Housing Transactions,” Forefront Vol. 2 No. 1 (2011). 31 O. Emre Ergungor and Thomas J. Fitzpatrick IV, “Slowing Speculation: A Proposal to Lessen Undesirable Housing Transactions,” Forefront Vol. 2 No. 1 (2011).

of states.32 Interestingly, properties that are purchased with a home loan already have a similar system in place. Lenders want to make sure there will not be any outstanding charges that could become liens that supersede their mortgage, so they make sure any that exist are corrected before they lend against the property. Crafting this law in a way that has minimal negative unintended consequences is no easy task. Even well-meaning property owners may occasionally fall behind on property tax payments or fail to maintain their homes in accordance with the local housing code. Fortunately, there are a number of ways negative unintended consequences can be avoided. For example, the law could be crafted in such a way that counties would have to opt-in. That way, the law would only be in effect in counties where harmful speculation was a problem, and counties could wait to adopt it until they have the infrastructure to efficiently check for outstanding code violations or back taxes. A number of exemptions may make sense to facilitate the voluntary transfer of property to entities capable of caring for it, such as Community Improvement Corporations,33 public entities, County Land Reutilization Corporations (land banks),34 and similar entities. It may also make sense to allow transfer when the purchasing party has agreed to pay past-due taxes or make necessary repairs according to a mutually agreeable schedule. An exemption may also make sense when transfers are truly involuntary, such as in cases involving death, divorce, bankruptcy, or foreclosure. Finally, homes purchased with credit already have this requirement in place, and could be exempted.

Addressing the Low-Value Property Problem, Part Two: Expanding Access to Land Banks Ever since the original enabling legislation passed in 2009, Ohio’s County Land Reutilization Corporations, or modern land banks, are proving to be an effective and efficient tool to address vacant and abandoned properties. Land banks are nonprofit entities formed by county governments with statutorily defined missions to acquire vacant and abandoned housing, remediate it, and put it back into productive use. They operate independently, are overseen by boards of directors composed primarily of public officials, and enjoy a stable revenue

32 For example, Maryland, Minnesota, and South Dakota all have similar laws in place. Md. Code, Real Property §3-104 (2012), Minn. Stat. §272.12 (2008); S.D. Codified Laws §§10-21-37 & 38 (1999). 33 Organized under Ohio Revised Code § 1724.01 et seq. 34 Created under §5722.01 et seq.

stream—all of which gives them the flexibility, accountability, and capability to tackle the sometimes enormous problem of vacant and abandoned housing.35 The Cuyahoga County Land Bank, the first of its kind in Ohio, now acquires, on average, more than 100 vacant and abandoned properties a month. Since it acquired its first properties in September 2009, the land bank has acquired more than 2,000 vacant and abandoned properties, facilitated the rehabilitation of nearly 500 properties, and demolished more than 1,000 properties. Though property demolition may sound undesirable, it can be a very effective strategy where a substantial oversupply of housing has led to significant vacancy and abandonment. Ohio’s original enabling legislation allowed only Cuyahoga County to incorporate a land bank. In 2010 the General Assembly responded to the requests of other communities who wanted access to land banking and altered the population requirement to allow 41 additional counties to create land banks.36 To date 15 counties have established, or are in the process of establishing, modern land banks to address vacancy and abandonment. Many of these counties are much smaller than Cuyahoga County, demonstrating that land banks can be effective tools even when operating on much smaller scales. While not every county in Ohio needs a land bank, removing the population requirement would allow each county access to a tool to combat vacancy and abandonment, which they could use should the need arise.

Data Collection and Standardization Housing data in Ohio is almost literally all over the map—there is no statewide standard, and different counties store data differently. We learned this lesson firsthand when trying to gather data on housing transactions and characteristics, parcel lists, and property tax information in electronic form. Storage practices seem driven by inertia and budget constraints. This poses a large problem. Without standardized, electronically stored data, it is difficult for market participants to fully evaluate programs and opportunities. Data adds an important dimension to the decision making process by framing an individual’s market experience. This can be seen clearly in Cuyahoga County, where Case Western Reserve

35 For a general description of Ohio’s land banks based on the bill creating them (but not accounting for amendments since then) see Thomas J. Fitzpatrick IV, “Understanding Ohio’s Land Bank Legislation,” Federal Reserve Bank of Cleveland Policy Discussion Paper No. 25 (2009). 36 Current law allows any county with a population of greater than 60,000 according to the most recent decennial census to incorporate a land bank. Ohio Rev. Code § 1724.04 (2010).

University’s Center on Urban Poverty and Community Development maintains a free and publicly accessible social and economic data system.37 The Northeast Ohio Community and Neighborhood Data for Organizing, or NEO CANDO, data system is the product of a longstanding collaboration among nonprofit organizations, foundations, government agencies, and the university. Housed in a single location, NEO CANDO regularly acquires, standardizes, and updates data from federal, state, and local governments, which users can download or access through its website. The benefit of making this data accessible in an electronic format is that it helps the private, public, and nonprofit sectors understand local market conditions and make business decisions, craft policy, and undertake revitalization efforts. Private enterprise uses NEO CANDO to download clean, electronic local government data to use in their analytics. Local governments and community development practitioners use NEO CANDO in a variety of ways—from deciding where to focus revitalization efforts to applying for grants. Researchers also use it to better understand local market conditions in a way that would not otherwise be possible. Much of the data used in the research cited in this paper was accessed through NEO CANDO. Data-driven decision making leads to more efficient allocation of resources, and easily accessible electronic data is a tool that benefits everyone. A first step toward better data would be to consult with businesses, local governments, housing economists, community development practitioners, and city planners to identify the types of data and storage methods needed to enable more applied housing research. This effort could lead to a template for local governments to follow, and perhaps provide incentives for adopting the template. While this may not result in NEO CANDO-like systems being set up across the state, it will nudge local governments towards providing the standardized, electronic data necessary for market participants to make better-informed decisions.

37 Data is made available via the internet, at http://neocando.case.edu/.

Conclusion The housing boom and bust has played out differently throughout the country. Difficulties in dealing with foreclosed, vacant, and abandoned properties have hindered the pace of the economic recovery. The pace of recovery can also be importantly affected by the statutes that pertain to distressed properties within the states. The states have opportunities to alter these frameworks in ways that can enhance public welfare.

With the benefit of research and data analysis, we have identified some opportunities for Ohio to improve its ability to deal with foreclosed, vacant, and abandoned properties. This report has observed that Ohio’s housing troubles are the result of forces that have been at work long before the recent financial crisis and recession. The issues are numerous and interconnected, and can only be addressed through sustained and carefully considered programs.

Understanding the tradeoffs inherent in any policy is a good first step. We hope that this report provides the analysis and information necessary to help continue efforts to restore strength and stability to Ohio’s housing sector.

22 Appendix A

23 Exhibit E Beyond Boundaries A Shared Services Action Plan June 2012 for1 Ohio Schools and Governments June 13, 2012

To the Honorable John R. Kasich, Governor and Members of the General Assembly:

Pursuant to H.B. 153, section 267.50.90, the director of the Governor’s Office of 21st Century Education, assisted by the Office of Budget and Management, conducted a shared services survey of Ohio schools, other educational service providers and local political subdivisions. This information was to be used to prepare legislative recommendations improving government cost savings.

Ohio’s local schools and governments have reached a critical juncture. Service expectations continue to grow and costs are rising faster than the economy. Our school systems and government entities must find ways to reduce costs and improve efficiency. The status quo simply can’t continue. Shared services provide hope.

To help address this challenge, and fulfilling our obligation under section 267.50.90, we are pleased to present the results of the survey and recommendations for action as well as auxiliary documentation to support the plan’s findings and recommendations. Beyond Boundaries: A Shared Services Action Plan for Ohio Schools and Governments reflects the work of numerous participating partners, representing a wide cross-section of education and local government professionals from across Ohio.

Beyond Boundaries is a comprehensive study of public policy recommendations, potential collaborations and needed changes to the overall way of doing business in Ohio’s public sector. This plan is based on a statewide shared services survey, which collected baseline data on existing shared services arrangements and identified future opportunities for local entities to share staffing, equipment and facilities across jurisdictions.

Beyond Boundaries presents ten recommendations for action, including:

• Local government and education leaders need to utilize existing authority to enter into simple agreements;

• The State should continue to seek legislative approval, when necessary, to further remove identified barriers to shared services;

• Formation of regional shared service centers must become a priority; and

• The State should continue developing tools to assist local collaboration and shared services

The objective of this plan is to provide leaders a roadmap for a more cost-effective, collaborative way of doing business, including strategies that reduce costs, improve efficiency and deliver improved government and educational services. Achieving those goals will require strong, concerted leadership at every level of government. Ohioans deserve action. And the time for action is now.

Respectfully submitted,

Richard A. Ross, PhD – Director Timothy S. Keen – Director Governor’s Office of 21st Century Education Office of Budget and Management

www.beyondboundaries.ohio.gov Beyond Boundaries: A Shared Services Action Plan for Ohio Schools and Governments Table of Contents

Executive Summary and Highlighted Recommendations page 1

Section 1: Introduction page 8 Section 2: Shared Services Is a Solution page 9

Section 3: Proposals of Bold Action to Accelerate Local Efforts page 11

Section 4: Regional Shared Service Center System page 13 Section 5: Keeping the Momentum of Shared Services page 17

Section 6: Ohio Shared Services Survey page 22 Section 7: Shared Services Model page 24 Section 8: Promising Practices and Examples page 26 Technology page 26 Administration page 27 Economic Development page 29 Health and Human Services page 29 Educational Instructional Support Page 31 Public Works page 32 Public Safety/911 Systems page 32 Fleet Management page 33 Facilities page 33 Section 9: Call to Action page 34 Appendix I. Survey Methodology page 35 II. Survey Results Summary page 40 III. Detailed Survey Findings page 44 Endnotes page 53 Acknowledgements page 54 Executive Summary and Highlighted Recommendations

“Ohio’s individual cities and townships have taken on expenses that are unsustainable, and the state’s ability to assist them is limited. Regional approaches to collaboration and coordination are necessary to preserve services to Ohioans and achieve affordability” – Recommendations for Redevelopment and Smart Growth in Ohio, Compact with Ohio Cities Task Force, 2010

With government in Ohio growing faster than the economy, and experiencing increasing public demand for services, the need to identify efficiencies has become urgent. In separate studies, the Ohio and Regional Chambers of Commerce, the Compact with Ohio Cities Task Force and the Commission on Local Government Reform each pointed to the state’s fragmented service delivery system and recommended further pursuit of shared services to create these efficiencies and improve service delivery.

The plan presented here is based on similar research and conversations as earlier studies and comes to the same conclusion. It has also used a survey of government entities and leadership to assess the current status of shared services in Ohio. Results of this study were then used to identify new or expanded opportunities for shared services, along with an action plan for legislators, local leaders and stakeholder organizations whose active support is essential to this effort. The result is ten specific recommendations, several of which are highlighted in this summary. Cumulative Growth Rates 1993 to 2009 Ohio Government Spending, Gross State Product, Population Govt Spending: $47.8 billion (1993) $107.2 billion (2009)

Gross State Product: $268 billion (1993) $462 billion (2009)

Population: 11.1 million (1993) 11.5 million (2009)

1 To understand the need for shared services, it was necessary to first identify the problem. “The per capita cost of government As shown in the chart above, the U.S. Census in Northeast Ohio rose nearly 70 Bureau reported that total government spending percent between 1992 and 2002, more in Ohio was $47.8 billion in 1993 and had than twice the rate of inflation for the grown to $107.2 billion in 2009, far outpacing Midwest (29 percent). Data from the 2007 government census shows the rate growth in Ohio’s population and gross state of growth continuing, with close to $20 product. billion, almost 15 percent of our region’s total economy, being spent on government. Public services in Ohio are provided by more That’s up from $16 billion, or 10 percent than 3,900 units of local government and public in 2002. Of the regions studied by CGR, education, which are governed by more than the two with the highest governmental 20,000 elected officials. expenditures – the Minneapolis-St. Paul region and Northeast Ohio – also had the Federal, state and local governments, including greatest number of governmental units.” – schools, employ more than 780,000 Ohioans – A Cost of Government Study for Northeast fully 13 percent of the state’s total workforce Ohio, Center for Governmental Research, in 2011. The size and fragmented nature of 2008. Ohio’s governmental structure creates inherent inefficiencies in service delivery to citzens and back-office functions. These inefficiencies make it more difficult for citizens and businesses to interact with government.

The solution is not to just perpetuate these inefficiencies with new or increased sources of revenue. In a state with a very high tax burden already – and just recently recovering from an $7.7 billion state budget shortfall – now is not the time to raise taxes. Rather, it is the time for state and local leaders to think creatively, challenge the status quo and find new ways to deliver services at the same or reduced costs.

Shared services is a collaborative strategy designed to optimize public resources – including staff, equipment and facilities – across jurisdictions. Because of its repeated demonstrated, effectiveness in reducing costs, improving service and increasing efficiencies, shared services approaches have been gaining support among policy makers.

To help address these challenges, the twin goals of this Shared Services Plan are to create recommendations for integration of services into a shared services model for local governments and schools, and to recommend educational support organizations be integrated into the regional shared service center system. The expansion will: ▪▪Secure the most efficient government services for Ohio taxpayers; ▪▪Create greater accountability and transparency of government costs and potential savings, so that current or potential job creators see that Ohio is serious about running a highly efficient government; ▪▪Make Ohio a leader in providing shared services and in breaking down intergovernmental barriers to efficiency.

2 Highlighted Recommendations

The following recommendations are highlights of six of the ten recommendations found in the main body of Beyond Boundaries. These six were selected for this summary because they provide the foundation upon which the other recommendations are based and are key state actions required to facilitate the use of shared services in Ohio.

Sharing Services Should Be Simple

Through the Jobs Budget (Am. Sub. H.B. 153), the State’s operating budget for fiscal years 2012 and 2013, a new section of Ohio Revised Code was created to clearly allow intergovernmental shared services. Section 9.482 of the Ohio Revised Code allows any local government or school in Ohio to enter into an agreement with another political subdivision to provide a service.

Too often in the past, new regional councils of government or other additional bureaucracies were formed for the purpose of implementing shared services and other forms of cross- jurisdictional cooperation. With the creation of section 9.482, draft agreements – often in the form of memorandas of understanding or simple contracts – are now in development for local government officials to use as templates to more easily complete shared services projects. RECOMMENDATION: Local governments and school systems should use this new tool [section 9.482] to sign simple agreements to execute a shared services arrangement. (page 11)

Creating a Network of Regional Shared Services Centers

Today, the education community is served by 55 educational service centers (ESCs), 22 information “What the state has generally technology centers (ITCs) and eight education not done, is step back and technology centers (ETCs) that, together, have more redesign major systems and than 13,000 employees and a combined annual budget their governance and finance in excess of $1.2 billion. Together, they have the structures with a goal of experience and capacity to efficiently deliver extensive improving program and policy shared services offerings. These centers are the logical effectiveness.” - Redesigning starting place for the regional provision of shared Ohio: Transforming services for schools and local governments in core Government into a areas of technology, administration and educational 21st Century Institution, Ohio support. The survey, stakeholder meetings and research Chamber of Commerce, 2010. conducted during development of this plan confirmed the appropriateness and capacity of these centers to expand beyond their traditional customer base of schools.

3 The following recommendation builds upon the consolidation that began in Ohio almost 20 years ago, when there were 181 separate organizations providing regional support to schools. Since 1995, that number has been reduced to 85. The following recommendation and its resulting process will ensure further optimization of the network and delivery of quality services.

RECOMMENDATION: The State should make a thorough review of Ohio’s existing network of educational service, information technology and education technology centers and provide recommendations on the necessary structure and governance that will provide an integrated system of regional shared service centers (RSSC) using implementation strategies detailed in this plan. (page 14)

Applying Market Forces to Ensure Positive Results

Many of the existing ITCs and ESCs have formed councils of government to extend services offered or to include government and non-profit entities. H.B. 153 modified the Ohio Revised Code to provide clear authority for ESCs to directly enter into agreements and provide services to local governments in Ohio. Many of the services already offered by ESCs and ITCs fall in the shared services categories of administration, technology and instructional support. The results of the survey indicates how prevalent those services are used by schools and, in many cases, local governments in Ohio.

The required, or at least expected, standard offerings provided through regional shared service centers can be more fully developed through the review process proposed. Once fully developed, identified services can then be the foundation for competitive funding awarded by the Ohio Department of Education and the starting point for contracted services by local governments and schools.

RECOMMENDATION: Apply additional market forces to encourage the use of shared services and ensure the quality of services provided by:

•• Reviewing the remaining direct state funding for ESCs and ITCs to define which funds can move from a subsidy payment to competitive bidding for services through the FY 14-15 budget process; •• Establishing benchmarks for performance and review process prior to contract renewal for purchased services. (page 17)

4 Keeping the Momentum of Shared Services

The survey indicated that shared purchasing is currently the most common shared services activity in Ohio. However, the concept is loosely coordinated and not fully utilized. There are dozens of established programs, vendor and government websites and points of contact that provide an overabundance of choices and decisions that can overwhelm purchasing officials. It was repeatedly noted in meetings that too many choices make any decision difficult. Saving money should not become a staff burden requiring extensive research, numerous web searches and multiple phone calls.

Local governments and schools have just begun to pursue shared staffing, shared space and other shared administrative functions, but the list of examples is slowly growing and savings are being verified in this area. Templates and access to examples of successful collaboration will help get initiatives started and catalyze the use of shared services in Ohio. In stakeholder meetings and survey responses, local government and school leaders have asked for additional tools like a database of collaboration examples, sample agreements, and savings estimates to help them expand the use of shared services.

RECOMMENDATION: The State should continue developing tools to assist local governments and schools in implementing collaboration and shared services. The State should support information portals related to shared services. (page 19)

•• The Auditor of State’s Skinny Ohio.org should be expanded to serve as an Online Clearinghouse of information, sample materials and tools that aid in determining when savings may exist through shared services. •• The Department of Administrative Services should develop an Online Portal of services and products available through existing shared purchasing programs and/or state contracts.

RECOMMENDATION: The State should develop benchmarks for spending and/or financial reporting that provide public transparency around cost effectiveness and create the capacity for state reporting necessary to evaluate performance and cost effectiveness. (page 21)

•• The State should create “triggers” encouraging the use of shared services by districts and/or local governments designated to be in fiscal distress or those with substantial performance audit recommendations.

5 Following the Shared Services Model

The Shared Services Survey provides baseline data on existing shared services arrangements and identifies future shared services opportunities. Survey responses from 1,789 local governments and school systems indicated that they have begun to utilize shared services, but not to an extent that permits them to realize significant savings or to make substantive improvements in service delivery. That said, a number of exciting shared services examples and promising practices have been identified.

During development of this Shared Services Plan, excellent examples of successful collaboration were found. The term shared services model is used to describe the components that support successful collaboration programs or determining optimum service levels for collaboration. This model was used within the development of this plan to identify existing programs and promising practices that are scalable or have existing capacity through which additional schools and local governments can participate.

RECOMMENDATION: The Shared Services Model should be used by state and local leaders to determine opportunities for shared services and the optimum manner for individual entities to join together for the provision of a specific shared service. (page 25)

Some of the promising practices and examples identified through application of the Shared Service Model include:

▪▪The Management Council of the Ohio Education Computer Network estimates that regional coordination of shared technology services, along with development of regional datacenters and shared “cloud services” could yield at least $91 million in accumulated savings over the next five years.

▪▪A 2010 study by RCC Consultants indicates that utilizing MARCS (Multi-Agency Radio Communication System) at a statewide level through coordination of a “system of systems” could yield over $500 million in savings to ongoing capital and operating expenses for the state and local governments between now and 2020.

▪▪A study by the Mercer Group indicated potential savings from pooling healthcare insurance purchases among Ohio school districts and institutions of higher education could result in savings of up to $318 million, or about six percent in costs, over a two-year period.

6 One important factor should be mentioned early in this plan. More than technology, processes, “The Commission, as a whole, laws or policies, people and their way of thinking concluded from testimony and have to change. The way governments do business research that the citizens of Ohio, needs to evolve with changing times and must be in numerous cases, already enjoy brought up to modern efficiencies. The private some of the benefits of collaboration sector has made process improvements a priority currently permissible under current for decades. Now is the time for governments to law. It also determined, however, that put aside “the way it has always been done” and in many cases, it wasn’t the ‘rules make way at long last for better, more modern and of the game’ that inhibited cost- cost-effective alternatives. saving collaboration, but rather the ‘players in the game.’” – Building a We know the steps – and the mind-set – needed Better Ohio: Creating Collaboration to make progress: working across boundaries in Governance, Ohio Commission schools and communities must set aside on Local Government Reform and differences and acknowledge that another Collaboration, 2010. operation does something better. Both are necessary to ensure a bright and prosperous future for Ohio. Assuring that future will require strong, concerted leadership in the present.

One guiding principle behind the recommendations in this report is seeking out “centers of excellence” and/or “leading providers” to serve as examples for the most efficient expansion of the shared services concept across Ohio. An important element to success will be the development of a public sector marketplace among shared services providers, supported by informed local government decision makers. Through creativity, innovation, and choice the shared services concept will lead to continuous improvement, not just substituting one way of doing things for another. By sharing services, we are being smart with taxpayer monies thus saving funds that can be used elsewhere. Sharing services is fundamentally a matter of sharing savings.

Three important steps are necessary for this effort to succeed. First, the administration and legislature must continue making the statutory and policy changes needed to expedite the use of shared services across Ohio. Second, information and tools are needed by local leaders to realize the shared services opportunities available to them. Local leaders need state-level comparable data to help them determine where shared services opportunities make sense. Third, local leaders have to take immediate, broad action. This requires leadership and vision from all. The overriding objective of this plan is to provide leaders a roadmap for taking these next steps.

7 Section 1: Introduction

“Ohio is facing an unprecedented fiscal crisis. Although we’re not alone, we would be remiss in not taking this opportunity to transform our state government to one that is sustainable and provides greater value to our citizens. Getting more for less is both the best response to our current crisis and a necessary step toward building a strong state economy that can compete in the 21st century. The time for action is now. Our state government must become more flexible, adaptable and innovative – searching constantly for new ways to improve services and heighten productivity.” – Redesigning Ohio: Transforming Government into a 21st Century Institution, Ohio Chamber of Commerce, 2010.

In recent years, with every level of government in Ohio facing the repercussions of a poor economy and increasing public demand for public services, the need for shared services strategies has become more and more apparent.

Section 1: Public services in Ohio are provided by more than 3,900 units of local government and public education, which are governed by more than 20,000 elected officials. Federal, state and local governments, including schools, employ more than 780,000 Ohioans – fully 13 percent of the state’s total workforce in 2011. According to the U.S. Census Bureau, total government spending 1 in Ohio was $107.2 billion in 2009. Units of Government and

Elected Officials in Ohio For Northeast Ohio alone, government spending was estimated in a 2007 report to total $20 Type Number Elected Officials billion, or 15 percent of the region’s total economy. Counties 88 960 That report also estimated the region’s rate of Cities and Villages 932 9,514 government spending growth at 70 percent over Townships 1,308 5,231 the ten years between 1992 and 2002. Public Schools (1) 668 3,803 Courts (2) 266 724 The magnitude and fragmented nature of Libraries 251 n/a Ohio’s governmental structure creates inherent Special Districts 449 n/a inefficiencies in service delivery, for back-office TOTAL 3,962 20,232 functions as well as direct services to citizens. (1) Including Joint Vocational Schools These inefficiencies add an additional burden of (2) Does not include the 320 Mayor’s Courts local taxes and make it more difficult for citizens and businesses to interact with government. In a state with a very high tax burden – and just recently recovering from a $7.7 billion state budget shortfall – now is not the time to raise taxes.2 Rather, it is the time for state and local leaders to think creatively, challenge the status quo and find new ways to deliver services.

8 Section 2: Shared Services Is a Solution

Often when discussing the shared services concept with education and government leaders, there was no common frame of reference or perception of the meaning of shared services. For our purposes, and in communications with stakeholders and survey participants, the following definition was consistently applied:

Shared services is a collaborative strategy that is fundamentally about optimizing staff, equipment and facilities and other corporate or public resources across jurisdictions to improve operational efficiencies and related outcomes.

This approach, because of its potential in the areas of cost reduction, improved services and increased efficiencies, has quickly gained attention and support among policy makers.All of the recommendations in this report are intended to fulfill one of two stated purposes: to improve service delivery and achieve administrative cost savings. In some accomplished cases, a shared service initiative may not yield cost savings; however, it provides the mechanism for an efficient delivery of a required service or allows for an improvement in the quality of service delivery.

In June 2011, the Office of Budget and Management (OBM) identified individuals familiar with existing promising practices within existing shared services to form a “deliverables team.” Chaired by Controlling Board President Randy Cole, this team included representatives from OBM, Department of Education, Department of Administrative Services, educational service centers and information technology centers. Support for the team’s work and preparation of its report was provided by Andy Shifflette, Tom Betti, Rachel Baxter and Dave Pagnard of OBM and Barbara Mattei-Smith, the governor’s assistant policy director for education.

The deliverables team considered research and analysis and received public input, including:

▪▪A variety of local government data from Ohio and around the nation; ▪▪An extensive range of white papers and research regarding local government reform in Ohio; ▪▪Best practice reports and analyses from other states; ▪▪Meetings with representatives of public, private and non-profit organizations with an interest in various aspects of Ohio’s local government.

9 In the end, it was determined that the twin goals of this Shared Services Plan should be to create recommendations for integration of services into a shared services model for local governments and schools, and to recommend educational support organizations be integrated into the regional shared service center system. The expanded use of shared services in Ohio will:

▪▪Secure the most efficient government services for Ohio taxpayers; ▪▪Create greater accountability and transparency of government costs and potential savings, so that employers see that Ohio is serious about running a highly efficient government; ▪▪Make Ohio the nation’s leader in providing shared services and in breaking down intergovernmental barriers to efficiency.

10 Section 3: Proposals of Bold Action to Accelerate Local Efforts

“Local government efficiency would benefit from a general ‘home rule’ statute that empowers local political subdivisions to freely and voluntarily collaborate on service delivery.” – Building a Better Ohio: Creating Collaboration in Governance, Ohio Commission on Local Government Reform and Collaboration, 2010.

Government and education leaders have the opportunity to provide better services at lower cost. This plan provides ten recommendations and identifies promising practices related to the use of shared services. RECOMMENDATION (1): Local government and education leaders need to use their authority to enter into simple agreements with one another to simplify the process of creating shared services opportunities.

All political subdivisions in Ohio, including schools and local governments, were provided intergovernmental shared services authority through a change in the State’s fiscal year 2012-13 biennial operating budget (H.B. 153). Section 9.482 of the Ohio Revised Code was created and states:

“a political subdivision may enter into an agreement with another political subdivision whereby a contracting political subdivision agrees to exercise any power, perform any function, or render any service for another contracting recipient political subdivision that the contracting recipient political subdivision is otherwise legally authorized to exercise, perform, or render.”

Too often in the past, new regional councils of government or other additional bureaucracies were formed for the sole purpose of implementing shared services and other forms of cross- jurisdictional cooperation. With the creation of section 9.482, draft agreements – often in the form of memorandas of understanding or simple contracts – are now in development for local government officials to use as templates to more easily begin shared services projects. Governments and schools need to view the nature of their relationship with shared services partners as contractors.

From meetings and presentations conducted during the course of this study, it became clear that few local government leaders seemed aware of section 9.482’s existence. In one broad stroke, H.B. 153 significantly reduced the largest reported barrier to shared services. However, 39.8 percent of survey respondents indicated that legal and policy barriers were the main obstacle to sharing services. It is important for stakeholder associations, county prosecutors, school legal counsels and local government legal teams to familiarize themselves with the new statute and to utilize it in the broadest terms possible. In addition, those same groups should reevaluate local ordinances and polices that may remain barriers to expanding the use of shared services.

11 Identified Barriers to Collaboration

Barriers/Obstacles % Selected Legal/policy barriers 39.8% No financial sense 28.5% Budget difficulties 27.6% Negotiated agreements 26.4% Geographic obstacles 23.0% Governance 21.9% Organizational inertia 18.9% Cost model for service 14.6% Job sercurity/employee cooperation 13.8% Issues related to competition 8.9% Lack of public support 2.9% Source: Shared Services Survey, October, 2011

The financial and internal barriers identified in the table above should be assessed in the development of each shared services initiative. Change is difficult; community perceptions and concerns about losing identity are understandable. Clear communication about shared services initiatives is vital. However, while local leaders reported a perceived barrier of lack of public support in the survey results, polling data from the Center For Government Research’s A Cost of Government Study for Northeast Ohio, reveal strong public support for the shared services concept and government collaboration: ▪▪87% support collaboration on roads, sewers and highways; ▪▪82% support regional coordination on land use; ▪▪82% support fire and police collaborations; ▪▪76% support public schools collaborations.3

RECOMMENDATION (2) The State should continue the process to further remove identified barriers to shared services and collaboration, including legislative approval when necessary.

The Kasich Administration and 42 statewide associations representing all types of state and local education and government entities have agreed to meet monthly through 2012 to continue addressing challenges related to implementing shared services. These meetings will review the barriers identified during development of the plan to work toward ways to remove them and create additional tools to expand shared services.

12 Section 4: Regional Shared Service Center System

The shared services concept was introduced to the education community in Ohio with the creation of 88 County Boards of Education in 1914. The boards were assigned the task of “elevating the state’s system of education to a proper standard” by creating curriculum for school districts, providing in-service training for teachers and assuring quality classroom instruction through supervision and evaluation. In 1979, twenty-seven datacenters were established to provide financial accounting support to school districts. The County Boards of Education were consolidated into Educational Service Centers (ESCs) in 1995 and the role of the datacenters expanded beyond accounting systems to include the information collected by the Ohio Department of Education in the Educational Management Information System (EMIS).

Today, the education community is served by 55 educational service centers (ESCs), 22 information “In the end, the state needs to technology centers (ITCs) and eight education work with local governments to technology centers (ETCs) that, together, have more promote and, when necessary, than 13,000 employees and a combined annual budget require system redesigns that in excess of $1.2 billion. Together, they also retain the will lower the cost and increase experience and capacity to efficiently deliver extensive the quality of local government shared services offerings. These centers are the logical services.” – Redesigning Ohio: starting place for the regional provision of shared Transforming Government into services for schools and local governments in core a 21st Century Institution, Ohio areas of technology, administration and educational Chamber of Commerce, 2010. support. The survey, stakeholder meetings and research conducted during development of this plan confirmed the appropriateness and capacity of these centers to expand beyond their traditional customer base of schools.

RECOMMENDATION (3) The State should make a thorough review of Ohio’s existing network of educational service, information technology and education technology centers and provide recommendations on the necessary structure and governance that will provide an integrated system of regional shared service centers (RSSC) using implementation strategies detailed in this plan. •• The State should complete a comprehensive review of current statutes and policies related to ESCs and ITCs to ensure the centers have the flexibility required to facilitate shared services.

13 “In FY 2008, K-12 education comprised the largest share of state spending – 39 percent or $8.65 billion. It appears from projections in other states and from actual experience in Ohio that school district consolidation, or at the very least more aggressive shared services agreements between existing districts, could free up money that can be reinvested in classrooms.” – Restoring Prosperity: Transforming Ohio’s Communities for the Next Economy, Greater Ohio Policy Center – Brookings Institution Metropolitan Policy Program, 2010.

The Evolution of Ohio’s Educational Support Network

Organization Original 19951 20062 Change process 2012 2016 Regional Shared Service Centers 0 0 0 Governance overlay and transition 0 TBD

88 1995 legislative mandate, voluntary Educational Service Centers (ESCs) 72 63 55 0 (1914) since 27 Information Technology Centers (ITCs) 23 23 Established 1979, voluntary 22 0 (1979) 8 Education Technology Centers (ETCs) 8 8 Integrate into RSSCs 8 0 (1967) 25 Funding discontinued, closed and Area Media Centers (AMCs) 23 23 0 0 (1972) merged 8 Professional Development Centers (RPDCs) 12 0 Replaced by RSITs 0 0 (1991) Services transferred to 16 of the 56 School Improvement Teams (RSITs) 0 0 12 0 0 ESCs Special Education Regional Resource Centers Services transferred to 16 of the 56 16 16 16 0 0 (SERRCs) ESCs Total 181 161 152 85 TBD 1 In 1995, S.B. 140 was passed requiring the merger of those ESCs that served 8,000 ADM or fewer. 2 Am. Sub. H.B. 115, 126th General Assembly created the Educational Regional Service System (ERSS) which consolidated many of the functions of Ohio Department of Education (e.g., RSIT, SERRC) into the new system through a performance contract with 16 ESCs.

Through a redefined purpose statement, a reconstructed governance structure, state-level oversight and leadership, and performance measures and accountability, this network of providers can be used to develop the regional shared service centers. Shared services can assist schools and local governments in upholding the integrity of their individual missions while reducing the overhead of administrative services and other general operating costs. Future geographic regions and the number of regional shared service centers (RSSCs) should be determined by the provider network (ESCs and ITCs) and the marketplace – schools and local governments – not the State.

14 Services Provided by Regional Shared Service Centers

Many of the existing ITCs and ESCs have formed councils of government to extend services offered or to include government and non-profit entities. H.B. 153 modified the Ohio Revised Code to provide clear authority for ESCs to directly enter into agreements and provide services to local governments in Ohio. Many of the services already offered by ESCs and ITCs fall in the shared services categories of administration, technology and instructional support. The results of the survey indicate how prevalent those services are used by schools and, in many cases, local governments in Ohio.

The required, or at least expected, standard offerings provided through regional shared service centers can be more fully developed through the review process proposed in Recommendation 3. Once fully developed, identified services can then be the foundation for competitive funding awards from the Ohio Department of Education and the starting point for contracted services by local governments and schools.

“Push school districts to enter aggressive shared services agreements. ODE does not determine the balance of administrative versus classroom spending in each district: That is a local decision. But ODE should encourage and ultimately require school districts to share services, ranging from personnel to health care. A study of several New York school districts in the Binghamton region suggests that creating a ‘federation model’ could save $12 to $16 million a year for the 15 districts involved. The model posits centralizing services, such as transportation management, maintenance garages, bus routing and dispatching, facilities management, energy management, and core building operations and joint strategies for reducing health care and special education costs. If this strategy were replicated across the state of New York, taxpayers could realize $87 to $137 million a year. Presumably similar savings can be found in Ohio.” – Restoring Prosperity: Transforming Ohio’s Communities for the Next Economy, Greater Ohio Policy Center – Brookings Institution Metropolitan Policy Program, 2010.

RECOMMENDATION (4) Apply additional market forces to encourage the use of shared services and ensure the quality of services provided by:

•• Reviewing the remaining direct state funding for ESCs and ITCs to define which funds can move from a subsidy payment to a competitive bidding for services through the FY 14-15 budget process; •• Establishing benchmarks for performance and a review process prior to contract renewal for purchased services.

The Ohio Department of Education currently contracts with ESCs and ITCs to provide regional services such as support for under-performing schools and bus driver training in addition to the services funded through subsidy payments. Through this contracting approach, the ESCs and ITCs competitively bid to provide services for the state to regional customers. RSCCs can serve as conduits for funding and coordination for various regional activities and be required to work with the ITCs, ESCs and other providers within their respective regions to demonstrate uniform and consistent delivery of services and ensure equitable access to essential services.

The Department of Education should create educational service provider and regional shared service center performance metrics along with appropriate accountability systems including performance agreements relating to the administration of state and/or federal programs by the newly formed regional shared service centers.

Successful application of the Shared Services Model requires the continued search for “These new marketplace enterprises must “centers of excellence” and/or “leading compete to earn their keep, based on their providers” to serve as examples for the most quality and cost,” efficient expansion of the shared services – Redesigning Ohio: Transforming concept across Ohio. An important element Government into a 21st Century to success will be the development of a Institution, Ohio Chamber of Commerce, public sector marketplace among shared 2010. services providers, supported by informed local government decision makers. For local governments, utilization of RSSCs is not mandatory and they have full consumer choice. At least under current law and funding mechanisms, schools face some constraints in their choices related to using ESCs and ITCs. The General Assembly should work with the Department of Education and school district leaders to review and refine the school district transfer process developed under H.B. 153.

16 Section 5: Keeping the Momentum of Shared Services

Identified Success Factors

Conditions for Success % Selected Projected cost savings 64.9% Willing partners 59.5% Quality product/ service 44.9% Well researched plan of action 31.9% Geographic proximity 23.0% Prior relationships 19.5% Employee buy-in 9.7% Shared governance 7.6% Resources from external sources 6.7% Privacy security 2.9% Source: Shared Services Survey, October, 2011

Local government leaders identified a number of factors necessary if a shared services agreement is to be attractive to the parties entering the agreement. Listed above are the success factors and the percentage of participants who identified the factors as critical to the success of the agreement.

Many of the success factors related to individual arrangements are determined by the participants in a project. Potential savings was identified as the leading factor for success. However, shared services projects can also extend or improve service delivery which also serves as an impetus for collaboration and is a condition for success. The survey results indicate that prior relationships are three times more important than resources from external sources for realizing success. In addition, employee buy-in is an important factor for success and participants are encouraged to utilize employees at all levels of the organization to help develop shared services initiatives.

Early communication in the development of a project is essential, so employees, citizens and participants have a clear understanding of the project’s objectives. Quality and plan of action are both determined by the participants and can be achieved through careful development of service level agreements. Through survey results, other research and meetings during the development of this plan, it is evident that collaboration begets collaboration.

17 RECOMMENDATION (5) The State should continue developing tools to assist local governments and schools in implementing collaboration and shared services.

•• The State should support information portals related to shared services:

── The Auditor of State’s Skinny Ohio.org should be expanded to serve as an Online Clearinghouse of information, sample materials and tools that aid in determining when savings may exist through shared services.

── The Department of Administrative Services should develop an Online Portal of services and products available through existing shared purchasing programs and/or state contracts.

One example of supporting local governments in implementing shared services is skinnyOhio.org, a website designed by Ohio Auditor of State David Yost to help local leaders seeking innovative ways to do business. This website offers examples, templates, reference documents and other resources to help Ohio communities that are looking for ways to jump-start sharing services with other entities. It also includes a searchable database of best practices and recommendations from performance audits – all of which could lead to greater efficiencies.The website is regularly updated with the latest news and information concerning performance audits, shared services and cost-saving initiatives.

The Auditor of State’s Office and the Center for Public Administration and Public Policy have collaborated in identifying hundreds of examples and case studies of successful collaborative projects. Many of the projects can be found via the web in the Auditor of State’s Shared Services Idea Center, which is within SkinnyOhio.org.

H.B. 153 created a $45 million Local Government “Create a clearinghouse of Innovation Fund to be administered by the Ohio information and educational Department of Development and a recently appointed programs on best practices in 15 member Local Government Innovation Council. joint purchasing and shared The fund is being established to provide financial services for citizens and public assistance to Ohio political subdivisions for planning officials.” – Building a Better and implementing projects to create more efficient and Ohio: Creating Collaboration in effective service delivery. The department and council Governance, Ohio Commission have committed to providing the public with access on Local Government Reform and to all projects submitted for consideration under the Collaboration, 2010. Local Government Innovation Program.

18 The Auditor of State, General Assembly and Kasich Administration are collaborating to ensure any information about the program that is posted on individual websites is also included in the more comprehensive online portal of information and resources related to shared services, SkinnyOhio.org.

Through the development of this plan, ten separate statewide joint purchasing programs were identified. Many more exist regionally. The survey indicated that shared purchasing is the most common existing shared services activity in Ohio. However, the concept is loosely coordinated and not fully utilized. There are dozens of established programs, vendor and government websites and points of contact that provide a myriad of choices and decisions that can overwhelm purchasing officials. It was repeatedly noted in meetings that at some point, too many choices become overwhelming for new entrants into the market and a barrier. Saving money should not become a staff burden requiring extensive research, numerous web searches and multiple phone calls.

For services and products that can be purchased by entities anywhere in Ohio, the State Department of Administrative Services (DAS) should create an online searchable portal of services and products available for procurement by local entities through existing joint purchasing programs or state contract. The database will pull information from other websites along with information about established programs to allow purchasing officers to compare prices across various sources (councils of government, consortia, state contract, etc.) and allow jurisdictions easy access to identify and contact officials from established programs appropriate for their intended purchase. This database can be created by DAS, or for the State, by a vendor.

Examples of shared administrative services that would be available through the purchasing portal include: ▪▪Grant administration; ▪▪Purchasing; ▪▪Printing services; ▪▪Human resources and benefits management; ▪▪Staff contract negotiation; ▪▪Business services; ▪▪Insurance; ▪▪Food service.

19 RECOMMENDATION (6) The Local Government Innovation Council should create and award bonus points to applicants for submitting projects that are consistent with recommendations or promising practices identified in this Shared Services Plan.

While the Local Government Innovation Program encourages “out of the box” thinking and supports innovation, an important goal of the program is action, not studies. Each of the recommendations and promising practices identified in this Shared Services Plan has been thoroughly researched. In addition, examples identified with many of those recommendations have yielded proven results. Projects submitted that are consistent with these recommendations have a higher probability of successful implementation and achieving the desired outcomes.

RECOMMENDATION (7) The State should take the lead in developing benchmarks and access to information that aids local government and school officials in determining when savings opportunities may exist through shared services.

Much of this Shared Services Plan is dedicated to explaining what local government and school leaders can do to be more efficient. In other cases, information is provided about ways to develop a program. The missing element, most often, is when? Data should drive these decisions: cost benefit/ ROI and simple addition/subtraction. Can they receive or provide the same level of service to their citizens or employees for less money?

Unfortunately, comprehensive, comparable data to allow benchmarking among and between local governments is not currently available. While local governments are currently required to file annual financial reports with the Auditor of State, these reports are filed in various media, and comparisons are difficult due to the use of many different accounting systems. In addition, the Auditor of State’s Office includes peer comparisons as part of performance audits, but these comparisons are limited to a select few and represent only a snapshot in time. However, the Auditor of State’s Office is currently working with local government stakeholders to build upon these requirements and make available comparable data related to local government revenues and expenditures. It is hoped that local governments will be able to use these data to compare their operations with peers.

20 RECOMMENDATION (8) The State should create “triggers” for districts and/or local governments in fiscal distress (categorized as fiscal caution, fiscal watch or fiscal emergency) or those with substantial recommendations coming out of performance audits.

The use of shared services as detailed in this plan is not mandatory. It is a tool that local leaders are strongly encouraged to use especially in these tough economic times. In those cases where a school or local government is not able to produce a balanced budget to sustain its operations and is declared in a condition of fiscal distress, or where an Ohio Auditor of State performance audit reveals excessive spending, the use of shared services should be strongly encouraged.

RECOMMENDATION (9) State associations that have participated in developing this Shared Services Plan should take a leadership role in developing draft agreements; educating their members; facilitating the relationships regionally – both within and across their memberships; training their members in using the tools available to them and communicating about shared services consistently over the next few years.

One important factor should be mentioned in this plan. More than technology, processes, laws or “Our business model has changed policies, people and their way of thinking have permanently. In order for us to to change. The way governments do business maximize our service to students and needs to evolve with changing times and must be our impact on the community, we need brought up to modern efficiencies. The private great partners. If shared services sector has made process improvements a priority with like-minded partners enables for decades. Now is the time for governments to us to do something better, faster, and put aside “the way it has always been done” and, cheaper, we’re compelled to consider at long last, make way for better, more modern it. My guess is in some cases we’ll be and cost-effective alternatives. The 42 statewide buyers, in other cases we’ll be sellers.” associations that participated in providing – David T. Harrison - President, stakeholder input throughout the development Columbus State Community College. of this plan and ensuring success of the Shared Services Survey by distributing it to their members can play a vital role in expanding the use and effectiveness of shared services.

21 Section 6: Ohio Shared Services Survey

A Shared Services Survey was sent to 5,867 local government and school leaders including Ohio’s school districts, chartered non-public schools and local political subdivisions. The 15-question survey was provided to the stakeholder associations to inventory the current state of shared services in 91 different topic areas and collected information on the future of shared services. Of these examples, 1,789 completed the survey, for a 30.5 percent rate of return. The deliverables team analyzed the survey data to develop recommendations for this plan.

Because there are differing opinions as to how the term shared services is applied, the Shared Services Survey and model identified broad categories of shared services opportunities and almost 100 shared services examples that represent thousands of ongoing collaborations across Ohio. Shared services opportunities exist not only in back-office functions such as administration, purchasing, human resources, payroll and benefits, insurance pooling and information technology, but also in public service delivery such as public safety, public works, educational services, and health and human services. Beyond the examples of shared core technology, purchasing and instructional support services, the rate of shared services adoption by survey respondents often is 10 percent or lower.

In summary, the survey indicates that schools and local government in Ohio have begun to utilize shared services as an approach to cost saving and efficiencies, but they are not utilizing the strategy across the board or to an extent that significant savings or service delivery improvements have been achieved. Below, the “reported shared services utilization table” provides a more detailed view of the utilization of shared services by specific types of entities.Again, these data are only reflective of the information provided by the 1,789 respondents to the survey. However, nothing would suggest utilization rates are higher by those who did not respond. In fact, it may be a safe assumption that those most interested in shared services responded to the survey and rates of utilization among the remaining entities may be lower.

22 A data validity check was made in several instances to compare survey results to information previously collected about local government and schools collaboration, and the results were similar. For example, the School Employees Health Care Board determined that about 62 percent of schools were participating in healthcare pooling, while this survey indicated a 56 percent participation rate. For a complete review of the Ohio Shared Services Survery, including an analysis of results, see the Appendix.

Reported Shared Services Utilization All K-12 Only Server, storage or network deployment, management, or operation 46% 73% Telephone, VoIP and/or internet services 42% 64% Datacenter or colocation of technology infrastructure 37% 68% Pooled healthcare 37% 56% Insurance - workers’ compensation 36% 53% Computer and software licensing and subscription fees 35% 61% Joint purchasing 34% 62% Data recovery, disaster recovery 33% 59% Special education 32% 67% PT, OT, speech and other therapy services 32% 67% Application development and support & database administration 32% 55% Teacher professional development 31% 64% Application hosting 31% 55% End-user device management and support (computer, computer labs, imaging, 31% 47% helpdesk, training) Insurance - general liability 30% 43% Purchasing of electricity 29% 47% Purchasing of office supplies 29% 45% Purchasing of natural gas 26% 46% Curriculum development 25% 53% Purchasing of educational supplies 25% 44% Vocational educational services 23% 49% Purchasing of maintenance supplies 23% 37% Website design, maintenance, or hosting 23% 33% Audio-visual, copier or facsimile equipment purchasing or management 22% 32% Teacher coaching or mentoring 20% 43% Ohio Improvement Process or other school improvement services 19% 43% School-based Medicaid health services billing 16% 35% Source: Shared Services Survey, October, 2011

23 Section 7: Shared Services Model

“Governments spend a considerable amount on support services, such as recruiting, hiring, training, information technology, data entry and processing, vehicle maintenance, facility management and maintenance, custodial services, travel services, security, accounting and telecommunications. Many governments have turned some of their internal service operations into competitive enterprises, which must sell services to their customers to get revenue. Iowa, Minnesota, Milwaukee, Phoenix, the Edmonton school district in Canada, the U.S. federal government, Australia and the United Kingdom have all used this approach in significant ways.” – Redesigning Ohio: Transforming Government into a 21st Century Institution, Ohio Chamber of Commerce, 2010.

During development of Beyond Boundaries, A Shared Services Action Plan for Ohio Schools and Government the term shared services model is used to describe the components that support successful collaboration programs or determining optimum service levels for collaboration.

In developing the Shared Services Model, two fundamental questions were asked: At what level or scale should a service be provided? The teams evaluated shared services models at local, county, regional and state levels. The second question was to define which entity(ies) should lead in providing the shared service. Additional considerations included assessing whether an existing collaborative effort is scalable or replicable to or by other government entities; legal mandates for a specific entity to provide a shared service; geographic constraints that limit economies of scale; and whether or not a program has been evaluated for effectiveness.

The deliverables team used centers of excellence and leading providers to identify and define the common elements in successful shared services collaborations already in existence to define a shared services model which can be used as a template for the development of shared services agreements.

RECOMMENDATION (10) The Shared Services Model should be used by state and local leaders to determine opportunities for shared services and the optimum manner for individual entities to join together for the provision of a specific shared service.

24 The Shared Services Model was used to analyze survey results, in meetings, through research, and to review recommendations from stakeholder associations. The application of the model during the development of this plan resulted in the list of “Promising Practices and Examples” found in Section 8.

Examples where a shared services model seems to be working will be identified in more detail in a companion document, Beyond Boundaries: A Practical Guide to Implementing Shared Services in Ohio, that is in development. This resource guide also provides contact information that local leaders can utilize to find out more about participating in existing initiatives.

By no means is the compiled list exhaustive or conclusive. It is, however, an excellent snapshot of existing opportunities for shared services in Ohio and the model serves as a guide for state and local leaders to evaluate new shared services initiatives.

25 Section 8: Promising Practices and Examples

Several promising practices and examples are identified on the following pages.The examples contained in this section are from various reliable sources of research compiled by the deliverables team and submitted by external advisors. For a complete listing of people and organizations that have contributed, see the Acknowledgments at the end of the document. Specific savings calculations and references from other published sources are endnoted.

Technology

A discussion of technology related to shared services is important for three reasons. First, the amount of money schools and local government spend on technology warrants attention. Second, technology has been one of the first places local leaders have pursued shared services. The survey results revealed that ten of the top 30 shared services opportunities being pursued are in an area of information technology. Third, standardization of technology platforms and equipment and the consolidation of datacenters will accelerate opportunities for cloud computing techniques and facilitate shared service opportunities in administration, human resources, purchasing, facilities, fleet maintenance, staffing, and capital planning. Technology findings and recommendations are discussed in detail in the companion documents to this Shared Services Plan. A thorough inventory of technology assets reported through the Shared Services Survey can be found in the Appendix. Beyond Boundaries: A Practical Guide to Implementing Shared Services in Ohio will include an explanation of cloud computing and a description of the impact of technology on expanding the use of shared services. The guide is currently in development

Microsoft estimates that the purchase and maintenance of servers and storage devices represent 45 percent of all datacenter costs, excluding labor costs associated with staffing the centers.4 When costs for datacenter floor space, power and cooling, and network connections are added to server costs, a four-year total cost of ownership for Ohio’s local government computing infrastructure is estimated to range from $377 to $629 million.

▪▪The Management Council of the Ohio Education Computer Network estimates that regional coordination of shared technology services along with development of regional datacenters and shared “cloud services,” could yield at least $91 million in accumulated savings over the next five years.5

26 Administration

▪▪In a 2011 benchmarking study, Ohio Education Matters estimated that Ohio school districts could save $488 million annually in administrative costs if they were to emulate the best practices of their best-in-class peers. This would result in an estimated annual savings of 27 percent in school-level administration and 23 percent in central administration by sharing best practices of the highest performers.6 ▪▪A recent report by the Youngstown/Warren Regional Chamber of Commerce urged moving district-level administrative functions to the county level. The chamber’s report compared county-based district administration models in Virginia with three demographically similar counties in Ohio in terms of educational costs and academic performance. The report estimated the three Ohio counties could achieve $36 million in administrative savings.7

Business Services:

▪▪The Ohio School Boards Association has partnered with Emerald Data to offer paperless agenda services that give governing bodies turn-key electronic solutions for processing virtually any type of governance document. The partnership reports that 25 Ohio school districts are now using the software, and the service is applicable to any governmental entity. OSBA estimates participating districts save over $600,000 in combined expenses a year. ▪▪The Ohio Department of Administrative Services launched a statewide public notice website available for use by all public entities in February, 2012. According to DAS, this permissive program applies to all public notices and bid notices, and is available at no charge. Legal notices are still required to be published in their entirety one time; subsequent notices can be made through the public notice website. As a result, DAS estimates that reduced newspaper publishing costs could save schools and local governments millions of dollars annually.

Management Staff Sharing:

▪▪In Hamilton County, the Reading City Schools and Three Rivers Local School District share a treasurer, for a reported annual saving of about $55,000 to $66,000 in each school district. In addition, the Wyoming City Schools and the Oak Hills Local School District share a treasurer, which the districts report saves $45,000 for Oak Hills and $60,000 for Wyoming. ▪▪In Lake County, Perry Local Schools and the Fairport Harbor Exempted Village School District share a treasurer, with reported savings of $37,000 for Fairport Harbor and $15,000 for Perry.

27 ▪▪ In Fairfield County, Walnut Township Schools and Berne-Union Local Schools share a superintendent and treasurer. The districts report this saves $40,000 for Walnut and $60,000 for Berne-Union. ▪▪In Fulton County, Patrick Henry Schools and Holgate Schools share a treasurer, resulting in an estimated saving of $76,000.

Joint Purchasing and Office Supplies:

▪▪The State of Ohio Cooperative Purchasing Program (Co-op) serves more than 2,000 political subdivisions, which purchased more than $177 million in supplies and services. According to Co-op reports, over the past year and a half, the State’s office supply contract was used by 462 different cooperative members – cities, counties, school districts, etc. – and state agencies to purchase nearly $19.6 million in office supplies at a discounted price of anywhere between 10 percent to 70 percent. At the 10 percent savings level, the governmental entities would save $1.96 million over 18 months – or nearly $109,000 a month – on the purchase of office supplies. ▪▪The Jefferson Co/OMERESA Cooperative Purchasing Consortium, which serves 63 entities, reports purchases totaling more than $1.3 million in a year, with savings averaging 40 percent. ▪▪The Sourcing Office, which serves 296 governmental entities, reported to save 10 percent to 30 percent on purchases, or about $2 million this year. ▪▪Montgomery County has negotiated a purchasing agreement with Staples, which the county reports will benefit counties, cities, villages and townships throughout Ohio.

Workers’ Compensation:

▪▪Ohio SchoolComp, offered by the Ohio Association of School Business Officials and Ohio School Boards Association, serves 444 entities in two group rating programs. The associations report that its members saved nearly $195 million in one program over ten years and more than $8.5 million in the second program since 2009. ▪▪The County Commissioners Association of Ohio reports it has saved members more than $36 million in premiums over the past 20 years and a 15 percent rebate this year on its rating program.

Pooled Healthcare:

28 Economic Development

▪▪ In 2009, Summit County and City of Akron entered into an agreement to consolidate Akron’s building department into the county’s Division of Building Standards. In 2011, the City of Cuyahoga Falls, City of Tallmadge and Village of Silver Lake followed suit. As a result, Summit County reports that it now performs building permit and inspection services in 25 of the county’s 31 communities and estimates an accumulated savings of nearly $1.2 million. At the same time, Akron, Cuyahoga Falls and Tallmadge report they have been able to save money by not funding separate operations. ▪▪The Regional Income Tax Authority (RITA) started as 38 communities in northeastern Ohio looking to achieve efficiencies of scale and uniformity in the collection of municipal income taxes in Ohio. Today, RITA encompasses 187 member communities in 59 counties throughout Ohio. RITA reports they have achieved efficiencies that allow them to operate at a cost to members of just three percent of their revenues. ▪▪The State of Ohio has begun a significant collaboration and coordination effort through the development of the “JobsOhio Network.” This network creates the catalyst for local government collaboration in the area of economic development through a partnership with six regional organizations; Columbus2020, Team N.E.O, Regional Growth Partnership, Ohio Appalachian Business Council, Cincinnati USA Regional Chamber, and the Dayton Development Coalition.

Health and Human Services Developmental Disabilities:

▪▪The 18 counties of Ohio Developmental Disabilities (DD) Region V have formed a planning collaborative to standardize processes and share duplicative administrative services. Fifteen counties in Ohio report they are reducing local costs by sharing DD superintendents and other key staff members. ▪▪The counties of Westcon (Auglaize, Darke, Hardin, Logan, Mercer, Miami, Preble, Shelby and Union) have reported joining together to expand training for early intervention and autism therapy, which the counties say empowers parents to have access to effective, family-focused and affordable therapy and intervention for young children with autism.

29 County Jobs and Family Services Departments:

▪▪The Ohio Job and Family Services Directors Association reports that many county jobs and family services departments have merged with public children’s services, child support enforcement, and workforce development agencies. From the most recent accounts, there currently are 41 agencies that combine all four functions, 29 agencies that combine three functions and 15 agencies that combine two functions. ▪▪ Lucas County Job and Family Services reports it will be merging with the county child support enforcement agency in January, 2012.

Local Health Departments:

▪▪In 1985, there were 153 local health departments in Ohio. Today, through mergers, there are 126. ▪▪The City of Akron Health Department and the City of Barberton Health District joined Summit County Health District, creating a united, countywide public health district that has been recognized with a 2011 Crown Communities Annual Excellence Award from American City & County magazine. The new district reports that through realignment of personnel and regionalization of inspections, food safety sanitarians have increased the number of inspections from 170 to 300 per sanitarian, while licensing fees charged to restaurants have been reduced.

Aging:

▪▪The Ohio Department of Aging reports it provided local PASSPORT administrative agencies significant savings in process improvements related to hospital discharges to nursing facilities through the recent development and implementation of the Hospital (Convalescent) Exemption from Preadmission Screening Notification (HENS) system. The department reports this technology solution replaced a manual process and has achieved great efficiencies.

Case Management:

▪▪Under Project Collabor8, seven counties (Delaware, Knox, Wood, Hancock, Marion, Morrow and Sandusky) function as one, pooling applications for Medicaid, food stamps and cash assistance. These counties say they expect to see efficiency improve by 30 percent and point to a virtual call center and case management system that allows applications to be completed nearly instantaneously over the phone. Project Collabor8 partners also report a number of other initiatives to share scanning and other administrative functions.

Educational Instructional Support

Employee Recruitment, Training and Deployment:

▪▪The Educational Service Center of Central Ohio provides a shared substitute teacher scheduling network to 11 school districts and a substitute teacher recruitment network to three districts. Olentangy Local Schools reports an estimated savings of about $540 per day, or $81,000 per year. ▪▪ The Ohio 8 Council, representing the state’s eight major urban school districts and its teachers’ unions, plans to share the recruitment of teachers across their districts, which represent more than 200,000 students. ▪▪The Medina County ESC employs eight registered nurses and licensed practical nurses, and 11 part-time health aides at 20 buildings in four participating districts. The ESC says that charges to the four districts total $270,085, or approximately 65 percent of what the districts would otherwise have to pay if these employees were on the districts’ pay scales ▪▪The ESC of Central Ohio has developed a shared services model for 14 of its member districts designed to recruit, train, process, deploy, and pay substitute teachers and other personnel. The consortium has over 5,000 employees who require a substitute when absent, supported by a pool of approximately 1,800 substitutes. Participating districts are reported to enjoy a 98.5 percent fill rate for absent employees who require a substitute. ▪▪The Medina City Schools and Brunswick City Schools joined together in 2010 to hire substitute teachers through the Medina County Educational Service Center. The ESC says it averaged 50 substitute teachers per day for each of the districts, saving at least $500 daily on substitute teacher costs. ▪▪The Hamilton County ESC reports that it employs three full-time professionals to support districts in attendance services. According to the ESC, these personnel make attendance and truancy-related home visits, do residency checks, operate a diversionary court for first-time offenders, and represent districts in juvenile court.

Library and Media Center Staffing:

▪▪INFOhio provides core services including library management software, curricular resources, and educational technology services to support academic content standards and effective instruction for all schools. INFOhio serves 2,400 public schools and 150 nonpublic schools representing 1.2 million students. According to INFOhio, it currently provides an annual cost savings of $43,500,000 to the State of Ohio.

Staff Contract Negotiation:

▪▪The Stark County Educational Service Center offers a general counsel to its 18 affiliated districts to reduce overall legal expenditures and to eliminate overlapping work and expenses among districts when they seek legal assistance. The ESC reports the program has resulted in an average annual savings of $8,000 per participating district.

Food Service Operation: ▪▪ Buckeye Local School District in Jefferson County and the Harrison Hills City School District in Harrison County have partnered to raise efficiency and effectiveness of food and transportation services. Each district reports saving an estimated $50,000 a year. ▪▪A study by Ohio Education Matters, Benchmarking Ohio’s School Districts: Identifying Districts That Get More for Their Money in Non-instructional Spending, estimates that Ohio school districts could save $141 million (22 percent) in food service if they were to emulate the best practices of the best-in-class peers.

Public Works

▪▪The Summit County Engineer’s Office opened their paving bid process to other communities in Summit County in 2011. The office estimates that purchasing power created by bidding for pavement maintenance items as one unit leads to a smaller per unit cost for all participants, while the municipalities still maintain local control over the projects.

Equipment Purchasing: ▪▪Ohio Department of Public Safety (DPS) administers a federal program that allows local public safety departments to purchase vehicles at lower cost. In 2011, according to DPS, 26 Ohio police departments, fire departments, park districts and county sheriff’s offices purchased a total of 64 public safety vehicles through this program at an estimated savings of almost $500,000.

Public Safety/911 Systems

▪▪ MARCS is a statewide first-responder radio system; however, there are still 1,337 discrete radio systems that could utilize MARCS as their primary platform if investments are made to transform MARCS into a P-25 network. A 2010 study by RCC Consultants indicates that $500 million to $1 billion in savings to ongoing capital and operating expenses could be achieved through migration to the MARCS platform and creating a statewide system of systems.9

32 Fleet Management

▪▪The Meigs County Highway Department, three Meigs County school districts and three Athens County school districts report they are studying shared fuel purchasing through the Athens-Meigs Educational Service Center. These entities purchase a total of 280,000 gallons of fuel annually. ▪▪The City of Hamilton and Butler County are considering a shared fuel depot with an annual usage of 150,000 gallons. ▪▪Swanton, Providence and Waterville townships in Lucas County have reported they have joined together to purchase road maintenance equipment.

Vehicle Purchases: ▪▪The State’s Cooperative Purchasing Program is used by many local governments to purchase passenger vehicles, vans, trucks, ambulances and law enforcement vehicles. In FY 2011 this amounted to total purchases of $4.8 million, according to the Department of Administrative Services. ▪▪According to information provided by the ESC of Central Ohio, existing consortia such as the Metropolitan Education Council (MEC) account for approximately 50 percent of the school buses purchased annually.

Facilities

▪▪The Power 4 Schools program – a partnership of the Buckeye Association of School Administrators, Ohio Association of School Business Officials, Ohio School Boards Association and Ohio Schools Council – reports a 16 percent savings on electricity purchases and offers a natural gas purchasing pool as well. ▪▪County Commissioners Association of Ohio (CCAO) has a pooled electric purchasing service and a pooled natural gas program. CCAO reports an average savings of 18 percent on electricity purchases. ▪▪The Sourcing Office, a regional council of governments, has separate electricity purchasing pools for small and large organizations. ▪▪The State of Ohio’s natural gas purchasing program currently includes 219 political subdivision participants including counties, cities, townships, school districts, libraries, metro parks and villages, with a reported annual savings of over $4 million. ▪▪The City of Green opened its new 53,671-square-foot central administration building in September 2009, which houses both City of Green and Green Local School administrative offices. ▪▪In Wadsworth, the new high school includes space for a community athletic pool/gym, a local library, and healthcare services. 33 Section 9: Call to Action

We know the steps – and the mind-set – needed to make progress: school and community leaders working across boundaries and sometimes acknowledging a different entity could do something better. Both are necessary to ensure a bright and prosperous future for Ohio. Assuring that future will require taking strong, concerted leadership now.

One guiding principle behind the recommendations in this report is seeking out “centers of excellence” and/or “leading providers” to serve as examples for the most efficient expansion of the shared services concept across Ohio. An important element to success will be the development of a public sector marketplace among shared service providers, supported by informed local government decision makers. Through creativity, innovation and choice, the shared services concept will lead to continuous improvement, not just substituting one way of doing things for another. By sharing services, we are being smart with taxpayer monies, thus saving funds that can be used elsewhere. Sharing services is fundamentally a matter of sharing savings.

Make no mistake, three important steps are necessary for this effort to succeed. First, the administration and legislature must continue making the statutory and policy changes needed to expedite the use of shared services across Ohio. Second, information and tools are needed by local leaders to realize the shared services opportunities available to them. Local leaders need state-level comparable data to help them determine where shared services opportunities make sense. Third, local leaders have to take immediate, broad action. This requires leadership and vision from all. The overriding objective of this plan is to provide leaders a roadmap for taking these next steps.

34 Appendix: I. Survey Methodology

“Shared Services” is frequently interpreted differently by government bodies. Some see shared service as a strict monetary/contractual agreement while others see it as a broader relationship between government entities. As the policy initiative was being discussed during the budget process, it became apparent that these variances in definitions made it difficult to assess the frequency and strength of shared service agreements across the state. Thus, the legislature called for a survey of shared service practices prior to the development of this report.

The Shared Services Survey identified broad categories of shared services opportunities and almost 100 types of shared services examples to represent thousands of ongoing collaborations across Ohio.

The survey was designed to:

▪▪ Identify how publically funded organizations across Ohio are currently sharing services and/or have plans to share services; ▪▪ Identify best practice shared services delivery models with the potential for cost savings and/or improved service delivery if replicated; ▪▪ Identify the conditions for success that characterize successful shared services initiatives; ▪▪ Identify obstacles and barriers to successful sharing of services.

Discussions regarding the parameters of the survey instrument began in September 2011, when drafts were circulated among deliverables team members and the leadership of various stakeholder associations. Meetings with stakeholders were held to allow for additional survey input, finalize respondent lists and provide updates on project timelines so that all could ask clarifying questions or provide additional feedback. Survey questions were edited and finalized in early October 2011. Questions were organized into four categories:

▪▪ Respondent demographic information; ▪▪ Current state of shared services in Ohio; ▪▪ Plans for future shared services; ▪▪ Public policy.

35 The Shared Services Survey was sent to 5,867 local government and school leaders across Ohio. The 15-question survey was provided to the stakeholders to inventory the current state of shared services in 91 different topic areas and collected information on the future of shared services. 1,789 completed the survey, for a 30.5 percent rate of return. In November and December, the deliverables team analyzed the survey data and developed recommendations for Beyond Boundaries- A Shared Services Action Plan for Schools and Local Government. Associations that participated in the development and distribution of the survey included:

▪▪Buckeye Association of School ▪▪Ohio Clerk of Courts Association Administrators ▪▪Ohio Fire Chiefs’ Association ▪▪Buckeye State Sheriffs’ Association ▪▪Ohio Hospital Association ▪▪Catholic Conference of Ohio ▪▪Ohio Housing Authority Conference ▪▪County Auditors’ Association of Ohio ▪▪Ohio Judicial Conference ▪▪County Commissioners Association of Ohio ▪▪Ohio Library Council ▪▪County Engineers Association of Ohio ▪▪Ohio Municipal League ▪▪County Treasurers Association of Ohio ▪▪Ohio Parks and Recreation Association ▪▪Inter-University Council of Ohio ▪▪Ohio Prosecuting Attorneys Association ▪▪Ohio Alliance of Public Charter School ▪▪Ohio Public Transit Association ▪▪Ohio Association of Career-Technical ▪▪Ohio Recorders’ Association Superintendents ▪▪Ohio Sanitary Engineers Association ▪▪Ohio Association of Community Colleges ▪▪Ohio School Boards Association ▪▪Ohio Education Service Centers Association ▪▪Ohio State Coroners Association ▪▪Ohio Association of Independent Schools ▪▪Ohio Township Association ▪▪Ohio Association of Municipal Court Clerks ▪▪Organization of Solid Waste Districts of ▪▪Ohio Association of Regional Councils Ohio ▪▪Ohio Association of School Business ▪▪The Success Group (OPTA) Officials

The Ohio Department of Education also distributed the survey link to treasurers of traditional public school districts, joint vocational school districts, and community schools and principals of chartered non-public schools. The following pages provide a summary of procedures and rules for cleaning the data and information related to the survey respondents.

36 Data Cleaning and Reconciliation for Ohio Shared Services Survey

When the Ohio Shared Services Survey closed on 10/31/11, the survey data set included 3,971 responses (1,690 completed surveys and 2,281 partially completed surveys). Partially completed surveys for which no shared service data existed were removed from the survey data set. Partially completed surveys which had only junk, or “dummy”, data beyond the required fields were also removed from the data set. Duplicate surveys (both partially completed and completed surveys) were evaluated for duplicate name and address information within an organization type. If the survey duplicates included a completed survey, then any respective partially completed surveys were removed. If there was more than one completed survey, the respondent contact information was compared and the survey completed by the individual with the highest level/role was kept. If an organization did not select one of the predetermined organization types, the organization type reported was reviewed to determine if a new organization type was needed (such as the boards of developmental disabilities) or if the reported type should be included in one of the predetermined categories. Surveys submitted by respondents who were out of scope (i.e. non-profit organization) were removed from the data set.

37 Upon completion of this review, a total of 1,789 survey responses were analyzed and summarized for this report. Below is a list of the organization types participating in the survey, the number of potential survey responses and the number of actual survey responses: Table a1 Survey Respondents Information Government Entities Entities Responses % of Survey % of Entity a. Traditional school district 614 598 33.4% 97.4% b. Joint vocational school district 49 49 2.7% 100.0% c. Community schools 356 66 3.7% 18.5% d. STEM School 1 1 0.1% 100.0% e. Chartered non-public (Private) school 826 120 6.7% 14.5% f. Educational service center (ESC) 56 56 3.1% 100.0% g. Information technology center (ITC) 22 22 1.2% 100.0% h. Education technology center (Ed Tech) 8 6 0.3% 75.0% i. County office (Commissioner) 88 35 2.0% 39.8% j. County office (Auditor) 88 32 1.8% 36.4% k. County office (Engineer) 88 48 2.7% 54.5% l. County office (Sheriff) 88 12 0.7% 13.6% m. County office (Recorder) 88 53 3.0% 60.2% n. County office (Treasurer) 88 10 0.6% 11.4% o. County office (Coroner) 88 7 0.4% 8.0% p. County office (Prosecuting Attorney) 88 10 0.6% 11.4% q. Country office (Clerk of Courts) 88 37 2.1% 42.0% r. Municipality or village 932 73 4.1% 7.8% s. Court 720 72 4.0% 10.0% t. Township 1308 148 8.3% 11.3% u. Hospital 17 2 0.1% 11.8% v. College or university 37 37 2.1% 100.0% w. Joint fire or ambulance district 130 1 2.1% 0.8% x. Library district 251 145 8.1% 57.8% y. Metropolitan housing authority 15 10 0.6% 66.7% z. Park district 90 15 0.8% 16.7% aa. Solid waste management authority 52 31 1.7% 59.6% bb. Transit authority 46 10 0.6% 21.7% cc. Water and sewer district 42 5 0.3% 11.9% dd. Metropolitan planning organization 23 11 0.6% 47.8% ee. Council of government (COG) Unknown 7 0.4% n/a ff. Other (please specify) Unknown 9 0.5% n/a gg. Board of developmental disabilities 88 51 2.9% 58.0% TOTAL 5,867 1,789

38 The survey respondents provided an expansive dataset representative of geography, types of government entities, and breadth of shared services activity to date in Ohio and, to the extent of our research, in the nation. Map a1 is a geographic representation of the headquarter locations of the survey respondents organized into the six economic regions of the state used in the Auditor of State’s Shared Service Idea Center.

Map a1 Geographic Location of the Survey Respondents

39 II. Survey Results Summary

Respondents were asked to identify specific shared services agreements in which they were participating. Table a2 reflects the total reported shared services projects by county. There is potential for significant duplication in these numbers, because projects with multiple entities may have been reported by each of the participants responding to the survey.

Table a2 Reported Shared Services Projects by County and Region

Central (1) Northwest (3) Northeast (4) South (5) County Total County Total County Total County Total Delaware 185 Allen 663 Ashland 193 Brown 146 Fairfield 412 Auglaize 234 Ashtabula 374 Butler 420 Fayette 89 Defiance 209 Carroll 75 Clermont 321 Franklin 848 Fulton 282 Columbiana 412 Clinton 90 Hocking 116 Hancock 328 Crawford 213 Hamilton 1040 Licking 435 Hardin 116 Cuyahoga 1286 Highland 67 Logan 183 Henry 149 Erie 377 Warren 383 Madison 179 Lucas 535 Geauga 407 Southeast (6) Marion 306 Mercer 273 Holmes 91 County Total Morrow 97 Ottawa 246 Huron 309 Adams 118 Perry 177 Paulding 85 Lake 451 Athens 194 Pickaway 160 Putnam 290 Lorain 578 Belmont 261 Ross 293 Sandusky 142 Mahoning 558 Coshocton 100 Union 152 Seneca 195 Medina 464 Gallia 108 West Central (2) Van Wert 172 Portage 476 Guernsey 127 County Total Williams 179 Richland 388 Harrison 37 Champaign 162 Wood 389 Stark 1178 Jackson 91 Clark 358 Summit 994 Jefferson 206 Darke 209 Trumbull 879 Lawrence 206 Greene 570 Tuscarawas 235 Meigs 35 Miami 433 Wayne 348 Monroe 32 Montgomery 917 Morgan 27 Preble 346 Muskingum 328 Shelby 166 Noble 84 Pike 122 Scioto 270 Vinton 33

40 Table a3 identifies the types of entities who most often deliver shared services. In addition to the entities listed Table a3 here, the survey and other stakeholders identified Entities Delivering Shared Services many othe entities activity as the lead or provider of shared services. Over 50 examples are provided as School District 38.00% bullet points in Section 8 of Beyond Boundaries. In ESC 32.80% addition, information portals recommended in this report will expand on those points and provide contact Municipality 19.00% information, enabling readers to follow their specific ITC 15.90% interests and seek opportunities to begin participating University 14.30% in one or more of the programs. Township 10.70% The survey confirmed Ohio’s existing 55 educational JVSD 9.50% service centers (ESCs), 23 information technology Commissioners 6.10% centers (ITCs) and eight education technology centers Council of Governments 5.90% (ETCs) have the capacity and are appropriate to Library 5.40% function as the provider network for the regional provision of shared services for schools and local governments. Created to function as regional shared service centers, they retain the experience and capacity to efficiently deliver or broker extensive shared services offerings in core areas of technology, administration and educational support.

41 Map a2 Reported Shared Services Spending

Source: Shared Services Survey, October 2011

Survey respondents reported combined annual operating expenses of $36 billion, of which about $2.6 billion is spent through shared services arrangements. Map a2 depicts the shared services expenditures by county and region. Again, it is very likely that these amounts may include duplicate accounts for some collaborative projects.

42 Map a3 Reported Shared Services Savings

Source: Shared Services Survey, October 2011

Total savings from the reported shared services projects is $176 million, however many respondents reported no savings, which is counter to many of the individual examples compiled during the preparation of this report. It is also true that collaboration can be used to avoid costs or to extend or provide new services with greater efficiency, which may create a benefit to taxpayers and citizens, but not necessarily provide an opportunity for reported savings.

43 III. Detailed Survey Findings

The following pages detail survey findings in specific areas of shared services activity. The findings are grouped in the nine broad categories used in the Auditor of State’s Shared Service Idea Center. These categories are technology, administration, public works, public safety/911 systems, education-instructional support,economic development, health and human services, fleet management, and facilities. The percentages shown in the tables are calculations made from the 1,789 responses which are identified in table a1.

Technology A discussion of technology related to shared services is important for three reasons. First, the amount of money schools and local government spend on technology warrants attention. Second, technology has been one of the first places local leaders pursued shared services.The survey results revealed that ten of the top 30 shared services opportunities being pursued fall within the information technology catagory. Third, standardization of technology platforms and equipment and the consolidation of datacenters will accelerate opportunities for cloud computing techniques and facilitate shared service opportunities in other areas such as administration, human resources, purchasing, facilities and fleet maintenance, staffing, and capital planning.Table a4 summarizes the types of shared services activities in the area of technology reported by local jurisdictions.

Table a4: Reported Shared Services Activity Received Services Provide Services Planning Services TECHNOLOGY Audio-visual, copier or facsimile equipment 22.4% 4.9% 0.6% Server, storage or network deployment 46.5% 6.8% 4.6% Datacenter or collocation of technology infrastructure 37.5% 8.0% 2.8% End-user device management and support 31.1% 4.5% 1.5% Application development, database administration 31.7% 5.5% 2.2% Application hosting 30.6% 4.9% 1.0% Website design, maintenance, or hosting 23.4% 5.4% 1.0% Telephone, VoIP and/or hosting 42.5% 5.5% 3.0% Computer and Software licensing and subscription 35.1% 5.0% 1.5% Data recovery, disaster recovery 32.9% 4.2% 1.0% Other technology 17.9% 5.6% 2.05%

44 The 1,789 respondents to the Shared Services Survey indicate that, together, they have 14,842 computer servers. Table a5 provides a detailed breakdown of the types of equipment by type of government entity. Table a5 Local Governmental Entities Ranked By Virturalization Density

Entity Physical Virtual

g. Information technology center (ITC) 487 1,244 c. Community school 78 149 y. Metropolitan housing 18 26 v. College or university 5,810 6,285 b. Joint vocational school district 565 571 dd. Metropolitan planning organization 47 41 e. Chartered non-public (Private) school 143 93 m. County office (Recorder) 88 57 f. Educational service center (ESC) 240 153 gg. Board of developmental disabilities 189 114 cc. Water and sewer district or autority 43 25 p. County office (Prosecuting Attorney) 2 1 x. Library district 735 348 i. County office (Commissioner) 308 141 h. Education technology center (Ed Tech) 32 13 j. County office (Auditor) 115 42 a. Traditional school district 5,171 1,872 r. Municipality or village 145 50 t. Township 150 42 ff. Other (please specify) 4 1 q. County office (Clerk of Courts) 71 17 k. County office (Engineer) 42 10 bb. Transit autority 54 12 aa. Solid waste management authority 19 4 l. County office (Sheriff) 20 4 s. Court 157 26 ee. Council of governments (COG) not listed above 16 2 z. Park district 18 2 o. County office (Coroner) - - u. Hospital 71 - w. Joint fire or ambulance district - - d. STEM school 3 - n. County office (Treasurer) 1 - All 14,842 11,345 K-12 6,735 4,097 Local Government 2,297 963 45

Administration

Ohio has the potential for substantial savings through pooled purchasing and shared services. Table a6 summarizes the types of shared services activities reported by local jurisdictions in Ohio and clearly shows a great deal of administrative shared services currently exists. However, less than half of the entities surveyed participated in a shared service arrangement; even among traditional school districts which have an established system for shared programming. The survey provides insight into the potential for growth in shared services across all administrative services, including services like purchasing where there are ample providers now offering discounted prices through joint or shared purchasing agreements. For instance, only 49 percent of traditional Ohio school districts reported purchasing office supplies through shared services arrangements.

Table a6: Reported Shared Services Activity Received Services Provide Services Planning Services ADMINISTRATION Administration office space 11.9% 9.2% 0.8% General administration staff 13.3% 7.4% 1.9% Grant administration 10.2% 7.3% 0.4% Managememt staff 7.7% 4.9% 1.2% Joint purchasing 34.3% 7.1% 4.0% Human resources 14.9% 4.4% 1.0% Staff contract negotiation 6.0% 1.2% 0.0% Purchasing of heating fuel 7.2% 0.7% 0.1% Purchasing of natural gas 26.3% 1.8% 0.4% Purchasing of electricity 28.7% 2.0% 1.3% Purchasing of alternative energy 1.5% 0.2% 0.4% Purchasing of gasoline and diesel fuel 17.3% 3.0% 1.2% Purchasing of office supplies 28.7% 2.5% 0.6% Purchasing of maintenance supplies 22.9% 2.2% 0.3% Food service operation, hiring, purchases 13.0% 3.6% 0.8% Food service RFP and contract award 6.0% 1.0% 0.2% Business services such as payroll, accounts 13.4% 6.1% 2.3% Benefits management 22.9% 3.4% 0.3% State or federal grant administration and reporting 10.5% 5.6% 0.3% Insurance - general liability 30.2% 2.9% 0.4% Insurance - worker’s compensation 35.7% 2.5% 0.3% Pooled heathcare 37.1% 4.0% 2.9% Printing services 9.7% 3.1% 0.1% Audit RFP and contract 11.9% 0.9% 0.0% Other Administration 8.6% 4.5% 0.8%

46 Economic Development Based on the survey data, as summarized in table a7, it would appear that few Ohio entities currently participate in or plan on pursuing additional shared services in the area of economic development. This is concerning, given the need for every competitive advantage in pursuing economic development. Further investigation is needed to determine how best to catalyze local and municipal government into pursuing shared services in ways that help ensure Ohio’s economic growth and taking advantage of the Jobs Ohio Regional Network.

Table a7: Reported Shared Services Activity Received Services Provide Services Planning Services ECONOMIC DEVELOPMENT Staffing 2.6% 1.8% 0.4% Databases/technology 4.7% 1.7% 0.3% Marketing/advertising/outreach 5.1% 1.8% 0.3% JEDD/revenue sharing 2.7% 0.8% 0.3% Land use planning 5.9% 3.1% 0.2% Corporate/industrial park 1.2% 0.8% 0.0%

Tax incentives 8.1% 2.9% 0.2% Other economic development 4.8% 3.2% 0.5%

Health and Human Services The survey data, as summarized in table a8, did not reveal significant utilization of shared services in the area of health and human services, however, some excellent promising practices and individual examples of collaboration are identified in Section 8 ofBeyond Boundaries. To further understand the use of shared services in this category, the Governor’s Office of Health Transformation (OHT) and the health and human services (HHS) state agencies encouraged participation by the local entities’ representative organizations in the regional shared services stakeholder meetings. OHT will also conduct focus sessions with local HHS agencies to identify specific objectives for their participation in regional initiatives with other types of entities.

Table a8: Reported Shared Services Activity Received Services Provide Services Planning Services HEALTH AND HUMAN SERVICES Executive/administrative staff 2.5% 1.2% 0.2% Client services staff 3.5% 0.9% 0.2% Client services equipment 1.1% 0.6% 0.1% Client service delivery 3.6% 1.2% 0.3% Other health and human services 7.9% 2.2% 0.5%

47 Education Instructional Support The Shared Services Survey data, as summarized in table a9, indicate that schools actively participate in a variety of collaborative and shared educational service initiatives. The highest participation rates are in the areas of special education, special education related services, teacher and administrator professional development, curriculum development, school- improvement, early childhood, vocational education and alternative school programs. For example, 97.45 percent of school districts receive shared services through an ESC. Participation rates in shared services for educational instructional support services tend to be higher among small (annual budget of $0-9,999,999) and medium- sized ($10,000,000 - $49,999,999) districts. These high participation rates are the result of state requirements for local districts, which tend to be smaller, to team with ESCs and indicate a high reliance on educational service providers. According to Shared Services Survey responses, over 90 percent of ESCs provide teacher and administrator professional development. However, only 56.4 percent of districts indicated they receive administrator professional development through a shared services arrangement while 70.4 percent utilize outside resources for teacher professional development.

Table a9: Reported Shared Services Activity Received Services Provide Services Planning Services EDUCATION INSTRUCTIONAL SUPPORT Purchasing of educational supplies 24.9% 5.5% 1.1% Textbook selection and purchasing 13.5% 3.3% 0.4% Special education 32.4% 13.2% 3.2% PT, OT, speech and other therapy services 34.9% 7.7% 1.8% School-based medicare health services billing 15.9% 2.2% 0.1% Alternative education programs 23.6% 7.5% 2.0% Pre-K programs 22.2% 9.1% 0.9% After school programs 9.4% 6.3% 0.5% Counseling services 17.6% 4.1% 0.7% School nurses or other health services 17.3% 4.5% 0.4% Administrator professional development 24.2% 6.4% 0.6% Teacher professional development 31.7% 9.4% 2.3% Curriculum development 24.7% 7.0% 1.3% Teacher coaching or mentoring 19.8% 5.8% 0.8% School improvement services 19.5% 3.7% 0.85 Supervision/evaluation of staff 7.7% 4.0% 0.6% Vocational education services 22.6% 5.8% 0.8% Music/art/physical education teaching staff 4.2% 2.6% 0.2% Reading specialist 5.6% 2.8% 0.1% Library and/or media center 5.1% 2.6% 0.3% Other education - instructional support 14.8% 10.3% 2.5%

48 Public Works Although representatives of all 32 types of local governmental entities reported some level of participation in shared services in the area of public works, four types of governmental entities responded in both numbers and percentages that were significantly greater than all others. The data, summarized in table a10, for these four types of governmental entities – county engineers, municipalities, townships and traditional school districts – indicate that, for them, shared services in public works are both normative and sustained. Survey data for county engineers, municipalities, townships and traditional school districts point to an important role played by county engineers. The average percentage response by municipalities, townships and traditional school districts to the question of whether they received shared services in the nine categories was 19 percent, while for the same three types of governmental entities the average percentage response to the question of whether they provided shared services was just five percent. This difference indicates that these three types of governmental entities are far more likely to be receivers of shared services rather than providers of shared services. However, for county engineers the responses indicated a very different role. The average percentage response by county engineers to the question of whether they received shared services was 15 percent, while the average percentage response to the question of whether they provided shared services was 45 percent. This indicates that county engineers are far more likely to be providers of shared services than receivers of shared services. It is reasonable to conclude also that county engineers are providing the shared services that municipalities, townships and traditional school districts are reporting as receiving.

Table a10: Reported Shared Services Activity Received Services Provide Services Planning Services PUBLIC WORKS Paving 11.1% 3.3% 0.6% Infrastructure maintenance 9.2% 3.9% 1.0% Capital improvements 9.2% 2.9% 0.9% Stormwater 6.5% 2.1% 0.6% Planning 6.7% 3.3% 0.3% Equipment of vehicle purchase 14.9% 2.0% 0.6% Salt purchase or storage 19.2% 4.5% 0.8% Snow removal 12.1% 5.5% 0.9% Other public works 5.8% 3.4% 1.0%

49 Public Safety/911 System

Public safety is a fundamental service provided by most local governments in Ohio. As a result, it has an inherently fragmented service delivery system, with functions residing at multiple levels of government: municipal, township, county and statewide. This offers extensive opportunities for leveraging assets and systems for greater efficiency and improved service delivery. The Shared Services Survey, as summarized in table a11, shows that the highest areas of shared services activity center around combined communication systems with additional activity in joint staffing and equipment purchasing. The creation of joint districts is reported as being pursued to a lesser degree. Townships and municipalities each report participation in shared dispatching at over 20 percent and park districts leading in the use at 46.7 percent. Shared communication systems are reported by almost all local government respondents at rates between 20 and 40 percent. Shared staffing and equipment purchasing are frequently reported at rates between 10 and 30 percent.

Table a11: Reported Shared Services Activity Received Services Provide Services Planning Services PUBLIC SAFETY Consolidated/joint district 3.5% 1.1% 0.7% Joint dispatch 5.5% 1.8% 1.0% Communications system 10.7% 2.3% 0.3% Equipment purchase 7.2% 2.2% 0.4% Staffing 9.0% 2.7% 0.8% Other public safety 10.3% 5.4% 0.9%

50 Fleet Management Table a12 summarizes the types of shared services activities in the area of fleet management reported by local jurisdictions.In the fleet management category, the highest area of shared services participation is in vehicle purchasing, where cooperative or consortium purchasing is used quite extensively to acquire vehicles for the various public entities. With a participation rate of 18.6 percent of all survey respondents, shared vehicle purchasing is nearly twice as popular as the next two most-cited shared services – vehicle maintenance (9.9 percent) and transportation operations (8.8 percent). Park districts, traditional school districts and colleges/universities were the most frequent users of shared vehicle purchasing with participation rates of 40.0 percent, 35.1 percent and 32.4 percent respectively. The highest participation rates for entities receiving shared services were among transit authorities, boards of developmental disabilities and traditional school districts. The most frequent providers of shared services were transit authorities and county commissioners. The entities most interested in developing fleet shared services were transit authorities, boards of developmental disabilities and ESCs.

Table a12: Reported Shared Services Activity Received Services Provide Services Planning Services FLEET MANAGEMENT Transportation operation 8.8% 6.3% 3.5% Transportation contract RFP and contract award 3.3% 0.9% 0.1% Vehicle Purchase 18.6% 2.0% 0.8% Vehicle Maintenance 9.9% 3.7% 1.3% Vehicle routing and dispatch 4.6% 2.3% 1.6% Other fleet management and operations 4.3% 3.0% 0.6%

51 Facilities Table a13 summarizes the types of shared services activities in the area of facilities reported by local jurisdictions. In this category, public entities indicated shared services in the areas of public meeting space (17 percent), custodial and maintenance staff (12 percent), grounds maintenance (11 percent), athletic fields and gyms (11 percent), administrative space (11 percent) and facility maintenance (10 percent). Generally, school entities had a much higher level of participation as purchasers/receivers than non-school entities in this category. However, schools were less likely to have shared services in custodial and maintenance staff than other entities and the reported participation in facility maintenance was about equal. The very low response in the area of shared capital planning indicates that future initiatives to share space are limited.

Table a13: Reported Shared Services Activity Received Services Provide Services Planning Services FACILITIES Administrative space 10.5% 9.1% 0.6% Client services 2.2% 2.6% 0.2% Public meeting space 17.0% 19.5% 0.9% Athletic fields, gymnasiums 11.3% 9.4% 0.6% Custodial and maintenance staff 11.5% 4.7% 0.6% Auditoriums, theatre space 7.6% 7.2% 0.25% Facility maintenance 9.9% 4.2% 0.8% Facility maintenance RFP and contract award 2.3% 1.0% 0.1% Capital planning 2.9% 1.6% 0.3% General security services 9.7% 1.8% 0.1% Grounds maintenance 10.6% 4.5% 0.6%

52 Endnotes

1. United States Census Bureau and the United States Department of Commerce, Bureau of Economic Research

2. Special Report: State-Local Tax Burdens Fall in 2009 As Tax Revenues Shrink Faster Than Income, Tax Foundation, February, 2011

3. A Cost of Government Study for Northeast Ohio, Center for Government Research (CGR), June, 2008

4. The Cost of a Cloud: Research Problems in Datacenter Networks, Albert Greenberg, James Hamilton, David A. Maltz and Parveen Patell, Microsoft Research, 2009

5. The deliverables team created this estimate using VMWare ROI TCO Calculator, Version 3.0

6. Benchmarking Ohio’s School Districts: Identifying Districts That Get More for Their Money in Non-instructional Spending, Ohio Smart Schools Initiative, Ohio Education Matters and KnowledgeWorks, March 2011

7. Economic Report, Youngstown/Warren Regional Chamber of Commerce, January, 2012, using data from the National Center for Education Statistics, Common Core of Data website

8. Analysis of School Employee Health Benefits, Mercer Group study for School Employees Health Care Board, February 28, 2011

9. MARCS Steering Committee P-25 analysis, CCR, June 2010 Acknowledgements Shared Services Deliverables Team

Eric Bode Lisa Duty Ohio Department of Education Knowledgeworks

Kelly Weir Sam Orth Ohio Department of Education Management Council, Ohio Education Computer Network

Dean Reineke Mike Grace Ohio Department of Education Executive Director, Educational Service Center of Central Ohio

Richard A. Ross, Phd Dr. Michael Fuller Office of 21st Century Education Director of Data Services, Muskingum Valley ESC Andy Benson Barb Mattei-Smith Knowledgeworks Office of 21st Century Education Tom Collins Craig Burford Hamilton County ESC Ohio Educational Service Center Association Paul DiNapoli Randy Cole Office of Budget and Management Office of Budget and Management Ben Boettcher Andy Shifflette Office of Budget and Management Office of Budget and Management Jeff Westhoven Tom Betti Department of Admistrative Services Office of Budget and Management Pete Japikse Dave Pagnard Ohio Department of Education Office of Budget and Management Rachel Baxter Katherine Nickey Ofifice of Budget and Management Office of Budget and Management Emily Buser Matthew Martin Ohio Department of Education Office of Budget and Management

Elena Lazarevska Office of Budget and Management External Advisors

Carolyn Jurkowitz F. Michelle Francis Ohio Catholic Conference Ohio School Boards Association

Dan Dodd Cheryl Subler Ohio Association of Independent Schools County Commissioners Association of Ohio

Bill Sims Kent Scarrett Ohio Alliance of Public Charter Schools Ohio Municipal League

Tom Applegate Edward Albright Ohio Association of Career-Technical Superintendents Ohio Municipal League

David Varda Matthew DeTemple Ohio Association of School Business Officials Ohio Township Association

Barbara Shaner Heidi Fought Ohio Association of School Business Officials Ohio Township Association

Jay Smith Kirk Hamilton Ohio School Boards Association Buckeye Association of School Board Administrators

54 External Advisors (Continued)

Kevin Futryk Jennifer Lynch Ohio Association of Regional Councils Ohio Clerk of Courts Association

Woody Woodward Fred Pausch Ohio Parks & Recreation Association County Engineers Association of Ohio

Lynda Murray Natalie Wise Ohio Library Council County Auditors’ Association of Ohio

Damon Asbury Fran Lesser Ohio School Boards Association County Auditors’ Association of Ohio

Doug Bowen John Murphy Ohio Sanitary Engineers Association Ohio Prosecuting Attorneys Association

Jim Troike Mark Schweikert Ohio Sanitary Engineers Association Ohio Judicial Conference

Chief Mike Warner Donna Childers Ohio Fire Chiefs’ Association Ohio Judicial Conference

Bill Steiner Ron Abrams Organization of Solid Waste Districts of Ohio Ohio Association of Community Colleges

Judith Will Fleming Mike Suver Ohio Public Transit Association Inter-University Council of Ohio

Rick Ayish Jolene Thompson The Success Group (OPTA) AMP Ohio

Jennifer Flatter Beth Bickford The Success Group (OPTA) Association of Ohio Health Commissioners

Rick Frank Aaron Ockerman Ohio Hospital Association Grant Street Consultants

Tom Pappas Kyle Kutuchief Ohio Housing Authority Conference Sourcing Office

Natalie Wise David Akers Ohio Housing Authority Conference Sourcing Office

Adam Hewit Michael Beirne Ohio Association of Municipal Court Clerks American Municipal Power (AMP)

Tony Brigano Cheri Walter Ohio Recorders’ Association Ohio Association of County Health Behavioral Authorities

Zach Holzaphel Joel Potts Ohio Recorders’ Association Ohio Job and Family Services Directors Association

David Corey Chad Hibbs Ohio State Coroners Association Ohio Family and Children First Coordinators Association

Michael P. Morrison Larke Recchie County Treasurers Association of Ohio Ohio Association of Area Agencies on Aging

Robert Cornwell Dan Ohler Buckeye State Sheriffs’ Association Ohio Association of County Boards of Developmental Disabilties

55 Exhibit F Online Auctions Cut Costs, Increase Revenues for Tax Liens, Tax Deed, and Property Foreclosure Sales

October 2011

Online Auction White Paper Executive Summary

Counties that conduct live auctions to sell delinquent tax liens, tax deed, and foreclosed properties regularly experience the shortcomings of that sales method. Live auctions require significant staff time, incur unique costs, and slow the process of generating revenues

for county budgets. The process also proves cumbersome for bidders, limiting bidder participation that results in fewer bids and lower revenues for the county. The live auction model provides ample opportunity for fraud through a variety of methods that shortchanges counties of significant revenue. Online auctions solve these problems and provide numerous additional benefits.

The Challenge: The Problems Inherent with Live Auctions

County governments nationwide sell millions of foreclosed properties and tax liens from unpaid property taxes each year through live auctions. The live auction method, however, proves costly to counties in a variety of ways. As a result of the recession, county governments nationwide have cut budgets and trimmed the number of staff they employ, stretching the remaining staff to accomplish numerous tasks. Yet, the process of conducting live auctions of tax liens and foreclosed property continues to require substantial staff time. County government staff spends a large portion of time each day on customer service for a live auction, answering questions and addressing issues. Live auctions of foreclosed property require weeks to complete, which often leads to a large backlog of properties waiting for auction. As a result, the staff struggles to conduct county business in addition to the auctions. Meanwhile, the number of foreclosed properties and tax liens from unpaid property taxes continues to increase as another symptom of the sputtering economy.

A successful auction requires a large pool of bidders and competitive bidding to generate significant revenue. Live auctions require that bidders are physically present, preventing the participation of interested parties who are unable to attend in person. Also, live auctions held in small towns or hard-to-reach locations often have a small pool of bidders. This provides fertile soil for collusion —

1 Online Auction White Paper bidders who meet in advance of the auction to divide the properties, keeping the winning bids low. Inclement weather may force county staff to reschedule a live auction or may lead to a small number of bidders participating.

Since each live auction requires weeks of staff work, the revenues generated by an auction are delayed in reaching county coffers. Counties also frequently incur additional costs when conducting live auctions, such as the need to rent facility space and to hire security when bidding tensions threaten the safety of bidders. The live auction process does not typically require bidders to make a deposit before bidding, which may translate into a number of bidders who do not follow through on their purchases. As a result, the auction must be rescheduled in the case of foreclosed property. For the sale of tax liens, the county may incur a shortfall in tax money for any unsold liens. Since each live auction requires weeks of staff work, the revenues generated The live auction process proves cumbersome for bidders by an auction are delayed in reaching as well, particularly for novices. Prior to a live auction, bidders perform due diligence on investments in tax liens county coffers. and foreclosed properties by visiting multiple government offices and searching various websites. For example, a bidder might visit the appraiser’s office to ensure the property’s appraised value, then visit the county clerk’s office to verify that the property did not have secondary or IRS liens, then visit the tax collector’s office to verify the number of outstanding tax liens, and so forth.

The integrity of the auction results can be compromised in a live auction. Participants may meet in advance to manipulate the bidding process. In addition, the personnel conducting the auction choose the winner of a bidding tie, which may lead to the impartiality of that decision being questioned. Tampering with auction results after the fact is easier in the case of a live event where results information is being recorded manually.

2 Online Auction White Paper The Solution: Online Auctions

Online auctions greatly simplify the auction process and require a few weeks to implement. Transition to an online auction format follows a straightforward step-by-step process.

Step 1 The vendor sets up the auction web site.

Prospective bidders receive instructions Step 2 and access the auction site.

Bidders register and make Step 3 deposits.

The county publishes a list of Step 4 tax liens or properties on the web site.

Bidders conduct due diligence Step 5 through resources on the auction site.

The auction opens and bidders Step 6 enter their bids.

Step 7 The auction closes. The system determines the winning bids and posts the results.

Within the county-specified time of the auction’s closing, bidders must pay their bid amounts, Step 8 minus their deposits, through the auction’s electronic funds-transfer system.

The system sends the auction data to the county. County staff includes the data in compliance reports Step 9 sent to the state.

3 Online Auction White Paper How Online Auctions Work

Tax Lien Sales In the months preceding the opening of the tax sale auction, a vendor that sets up online auctions creates a custom web site according to county rules and specifications. When the sale opens to the public, previous and prospective bidders receive a welcome package that explains the new sale procedures and provides the dates of scheduled training classes to be held at the county. Potential bidders can visit a demonstration site to test the system before the actual auction begins. Bidders may visit the site at any time to register to participate in the sale. The county publishes a list of the items for sale The online auction web sites feature the simultaneously in the local newspaper and on the web site. Automated Clearing House (ACH) wizard, Bidders access the auction through a web browser. which is an electronic funds-transfer Buyers then place their bids during the auction opening system run by the National Automated and closing times. In order to be eligible to participate Clearing House Association. in the auction, bidders must meet the county’s deposit requirements (different for every county and some may require no deposit) — typically 10 percent of their anticipated winnings. For example, if a bidder places a deposit of $1,000, the bidder cannot win more than $10,000 of tax liens without adding more to their deposit. Bidders make deposits through cash, wire transfers, or checks. The online auction web sites feature the Automated Clearing House (ACH) wizard, which is an electronic funds-transfer system run by the National Automated Clearing House Association.

For tax lien sales, which generally take place once or twice per year, tax liens sell in batches. The county decides the size of the batches, which are usually 500 or 1,000 tax liens each and arranged by subdivision. The county chooses the day when the online auction ends. At a specific time on that day, the first batch officially closes and the system determines winners. The system posts auction results on the web site within five minutes of a batch closing. Batch sales enable the bidder to see the auction results and quickly determine if they should adjust their bids for future batches. Bidders can make additional deposits at anytime during the sale. After all batches have closed, the bidder pays for the liens through the ACH wizard on the site. At the close of the auction, the system sends auction data to the county. County staff includes that data in reports to ensure compliance with state regulations.

4 Online Auction White Paper Foreclosed Property Sales In the months preceding the opening of the foreclosed property auction, a vendor that sets up online auctions creates a custom web site according to county rules and specifications. Two weeks prior to the first sale, potential bidders may register on the web site and view properties for sale. The county posts information about the properties in the local newspaper and auction web site, and lists property background information on the site. Bidders access the auction through a web browser.

The auction begins at a scheduled time and properties are sold one at a time. In order to be eligible to participate in the auction, bidders must make a deposit of 5 percent of their anticipated winnings. Bidders make deposits through cash, wire transfers, or checks. The online auction web sites feature the Automated Clearing House (ACH) wizard, which is an electronic funds-transfer system run by the National Automated Clearing House Association. At the close of the auction, the system sends auction data to the county. County staff includes that data in reports to ensure compliance with state regulations. The online auction automates the transmission of data between the county and the online auction vendor, such as importing updates on individual property cases and exporting auction results and payments.

The Benefits of Online Auctions Online auctions solve the myriad of problems inherent in live auctions. Online auctions greatly reduce the amount of time county government staff spends on advertising and setting up auctions, managing the bidding process, and wrapping up post-auction paperwork. This enables staff to spend more time attending to other assignments – a critical need since government offices must function with fewer staff members as a result of budget cuts. In addition, online auctions of foreclosed property conclude In addition to saving money through the in hours, rather than weeks, enabling county governments to reduced staff time required for the process, clear a backlog of cases. online auctions expedite the auction process from weeks to just a few hours. In addition to saving money through the reduced staff time required for the process, online auctions expedite the auction process from weeks to just a few hours. This enables governments to collect revenues on tax liens and property foreclosure sales more quickly. Online auctions also eliminate other costs such as the need to rent facilities for live auctions and the need to hire security to ensure the safety of bidders. Elements of the funding process become automated

5 Online Auction White Paper with online auctions, eliminating days of staff time required to accomplish a variety of tasks. Bidders receive refunds through a two-click process with an online sale.

Online auctions of tax lien sales enable more bidders to participate, which generally leads to more competition and higher winning bids, resulting in additional county revenue. Bidders on a foreclosed property sale who are unavailable during the auction can place bids in advance by proxy with an online auction, which further enlarges the pool of bidders. In addition, inclement weather does not prevent bidders from participating.

Through one web site, online auctions provide resources that will assist the bidder in conducting the necessary due diligence on a potential property or tax lien purchase. This enables the bidder to conduct research from the comfort of home, making it possible to easily bid on multiple properties or tax liens. Customer service improves through the online process as potential bidders receive online help and vendor-provided live customer service; this also eliminates the time government staff spends on these functions. Online auctions of foreclosed property also ensure secure sales transactions for bidders, as well as accurate and fast delivery of calculations and documents.

Live auctions provide opportunities for participants to meet in advance to manipulate the bidding process. Online auctions prevent this type of fraud and ensure competitive bidding. In addition, online auction software can employ electronic means to select the winner of a tie bid, preventing potential controversy over the choice of a winner in a tie situation. Online auctions also prevent government staff from tampering with bidding results.

6 Online Auction White Paper Online Auction Benefits

Enables County to Significantly Expedites Property Collect Revenues Reduces Staff Time Auctions and Clears More Quickly through Spent on Auctions Backlog of Cases Shortened Process

Eliminates Enables More Calculates Additional Costs Bidders to Participate, and Generates Such as Facility Rental Leading to Competitive Documentation and Hiring Auction Bidding Security

Improves Greatly Reduces Customer Service Bidders Can Bid the Possibility of and Ensures Secure in Their Pajamas Auction Fraud Transactions

Reduces Overall Increases Agency Administrative Cost Efficiency

7 Online Auction White Paper Two Counties’ Experiences Highlight Benefits of Automating Auction Processes

Miami-Dade County (property foreclosure sales) In 2009 and 2010, Miami-Dade County Clerk of Courts Harvey Ruvin and his staff were inundated with 7,000 property foreclosures to auction each month. The backlog reached epic proportions in January 2010 with 110,000 foreclosure cases waiting to be processed. The county tackled the workload by working with Realauction to implement an online auction system. Before deploying the online system, the clerk and his staff spent so much time managing the processes connected with live auctions that auctions were held just three times each week. The staff conducts online auctions five days a week, processing over 1,200 properties each week at its peak. Since the online auctions began in early 2010, the county has sold approximately 32,000 foreclosed properties as of September 2011.

When the county held live auctions, altercations often erupted between bidders, forcing the county to hire security staff and install security cameras. As a result, staff often spent valuable time watching surveillance footage to determine if onsite staff handled the altercations correctly as a legal precaution. Online auctions eliminate these security issues.

In a Government Technology article, Ruvin said that online auctions eliminate approximately 23,000 hours annually that staff devoted to live auctions. 1 Online auctions save the county approximately $750,000 annually in reduced staff time and other costs. 2 The county implemented online auctions at the same time that it cut its annual budget by 18 percent due to budget shortfalls. Ruvin added that putting the auctions online makes them available to a wider pool of bidders, which increases competitive bidding and tends to raise additional revenue.

Cook County-Chicago (tax lien sales) Before Cook County (IL.) automated many of the processes of its auctions, both county staff and investors underwent a time-intensive process for the annual sales. More than 300 bidders would converge on the county courthouse to fill out forms to participate in the auction. Then staff would rekey each of the forms. After the auction, the winning bidders stood in long lines

8 Online Auction White Paper to pay for their purchases and receive printed receipts. The county typically sold 20,000- 30,000 tax liens at each annual sale. About a dozen county staff members invested four weeks in the entire auction process.

Another aspect of the auctions proved cumbersome for both staff and bidders. Illinois statutes allow investors to purchase not just the initial year of taxes, but also subsequent years of taxes on a property if those taxes are also delinquent. The staff holds the auctions six months after the taxes are due on a property, making it likely that another tax installment is unpaid as well. Most buyers wish to purchase the original year of taxes so they can purchase the subsequent years, noted Cook County Treasurer’s Director of Operations Pat Nester. Illinois law guarantees a 12 percent interest rate on the subsequent years. As a result, buyers usually bid 0 percent on the lien that is for sale in order to obtain the subsequent years. Nester said that as a result, dozens of buyers would shout a bid of 0 percent at the same time. The auctioneer randomly picked a winner of the bid, often creating a hostile auction environment.

Automating portions of the auction process solved both of these problems. Illinois law requires that auctions are held in person, rather than online. Therefore, the Cook County staff automated as much of the process as possible. Now, buyers register for the auction and store their bids online in advance of the sale. Then on the day of the auction, the buyers go to the county courthouse, log on one of the computers in the county office, and submit their bids online. The system chooses the winning bid for each sale, the buyer pays online, and the staff prints the buyer’s receipt. The system also randomly chooses the winner of tie bids and an independent agency regularly confirms the results. Instead of spending numerous hours at the courthouse over the course of a month, the buyer spends just five minutes over the course of four days. A dozen county staff devoted more than a month to the live auction process; the newly automated process requires just two staff members.

Nester said that the number of tax liens sold has not increased through online auctions, due primarily to the economy. Cook County typically sells $100 million in tax liens annually, with about 12 buyers making 80 percent of those purchases. Those buyers must borrow at an increased interest rate because of the economy, which has leveled off sales.

9 Online Auction White Paper Realauction’s Best Practices

Realauction ranks as the largest provider of online auction technology for county government. The company’s online auction systems have processed the sale of more than 240,000 foreclosed properties and more than 2.5 million tax liens since the company began in 2004. Usually at no cost to the county, the company creates a customized web site through which the county hosts auctions and manages all auction processes. Realauction manages the data transfer from the county’s software system to its custom web site. Realauction staff also review the county’s auction process and advise them on how to streamline the process. For states with legislation that prevents online auctions, Realauction can As the largest provider of online auction automate the pre-auction and post-auction process, which technology for county government. The enables counties in those states to still realize significant efficiencies. To smooth the transition to an online auction company’s online auction systems have system, Realauction provides bidder orientation and back processed the sale of more than 240,000 office staff training. foreclosed properties and more than 2.5 million tax liens. In addition to automating a county’s auction processes, Realauction’s staff develops software to meet the needs of specific counties. For example, Realauction designed tax deed application software for use in each of the counties it serves. This software enables the county to process a tax deed application submitted by a tax lien investor in order to sell a property with two years of unpaid property taxes so that the tax lien owner receives the initial investment plus interest. Before Realauction designed this software, a county staff member invested one hour to process each tax deed application. Now, the county can process thousands of tax liens within minutes. As part of this software package, Realauction developed specific software modules. The module for tax collectors automatically calculates the amount due on each tax lien, tracks payments electronically, and notifies the user when funds have settled. The system processes receipts, notifications, and title orders on hundreds of tax liens simultaneously with one click, accomplishing these tasks in a matter of hours rather than days. Another module enables clerks of the court to process and manage thousands of tax deed applications. The system automatically calculates the amount due on each application for court fees, as well as costs associated with sheriff’s services, advertising, copies, postings, and certified mailings. Up-to-the-minute payment status from the tax collector module alerts the clerk when delinquent taxes have been satisfied. Using another module, title company

10 Online Auction White Paper staff can retrieve new tax deed applications electronically, with secure and immediate access to accurate parcel identification. Once title searches are completed online, they are transmitted securely to the tax collector. Another module enables investors to execute one or dozens of tax deed applications. In one transaction, investors can file their applications and pay off multiple tax liens for multiple bidder accounts. The alert feature automatically notifies the taxing authority when investors submit new applications and payments, speeding workflow. Each of these modules can function as one system or as stand-alone modules.

Realauction also created software that automates the county’s process to create a notice of sale for foreclosed property. Prior to automation, staff manually typed legal language from the hard copy version of the foreclosure judgment, as well as language from other documents. This process required significant time. For example, this process required the time of three Miami-Dade county staff members and just 250 notices of sale were processed each day. Through the automated process, the staff accesses the online form through the online auction site and the software snaps an image of the legal language from the judgment so there are no human typing errors. Then the information is electronically transferred to the county’s records and to the local newspaper to advertise the sale. Realauction also designs a web page as part of a county’s customized web site, on which the county can sell tax liens that remain unsold after an auction concludes. This enables a county to recoup additional tax revenue that would otherwise be lost.

Auction bidders pay a fee that covers the cost for Realauction’s services so the county does not incur any costs. Each county receives a Realauction coordinator who oversees the transition to online auctions from beginning to end. The transition typically requires two to four weeks. The company also hosts user groups so that participating counties can share ideas with other counties and further streamline their processes.

11 Online Auction White Paper Conclusion Counties nationwide must auction a growing number of tax liens, and tax-defaulted and foreclosed properties as many homeowners fail to make payments in tight economic times. Yet, counties must tackle the growing workload with fewer staff and smaller budgets. Live

auctions require considerable staff time, incur a variety of costs, and slow the process of getting needed tax revenue to county coffers. Many counties migrated to online auctions to solve these and other problems. Other counties, whose state laws require live auctions, have automated various portions of the process, realizing substantial benefits.

About Realauction Realauction is a market-leading provider of technology solutions for government agencies. Realauction helps governments reduce costs by providing consultation, design and implementation for online auctions of tax lien sales, tax deed applications and foreclosure sales. With over 50 years of combined experience in the delinquent tax and real estate data transfer industry, Realauction is committed to providing the software and customer service to help governments succeed.

For More Information: Realauction.com, LLC. Telephone: 954-734-7400 Corporate Headquarters Fax: 954-424-7601 861 SW 78th Avenue, Suite 102 [email protected] Plantation, FL 33324 www.realauction.com

12 Online Auction White Paper Endnotes

1 “Miami-Dade County Deploys Online Foreclosure Auction,” Government Technology, February 2010. http://www.govtech.com/e-government/Miami-Dade-County-Deploys-Online-Foreclosure- Auction.html

2 “Dade Begins Online Auctions,” Miami Herald, Jan. 12, 2010.

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