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Auditing for Inequality
Auditing for Inequality in the Application of Fines and Penalties
By Virginia Garcia
The fact that government fines and fees have greater impacts on low income individuals and people of color is not a new or surprising phenomenon. What I didn’t expect to find, as I work to wrap up an audit on Seattle’s enforcement of its labor standards laws, is a pattern with regard to the inequality in which the application, or lack thereof, of penalties, fees, and sanctions are applied depending on the non-compliant entity or violator.
During the last 10 years of auditing, I observed a pattern of leniency by the City of Seattle not only towards employers who violate the City’s labor standard laws, but also towards non-compliant multi-family property developers and owners who committed to provide affordable housing units or pay an in-kind financial contribution towards affordable housing in exchange for a tax exemption or extra development capacity for their project. The impact of labor standard violations can be significant as they can affect employees companywide in areas such as lost wages, overtime, and paid sick leave owed to low-income workers. The impact of non-compliant affordable housing developers and property owners is less affordable housing being available to populations vulnerable to housing instability. In contrast, I have learned about
how local governments’ punitive actions can target and negatively affect the poor
, the criminal justice system imposed excessive fines on those least able to pay them, and
how parking tickets are spatially concentrated in neighborhoods of predominately economically vulnerable populations
In four of the last five audits when I was the Auditor-In-Charge, I found that some non-compliant entities experienced minimal or no negative consequences. In the
2012 audit of the Multifamily Tax Exemption (MFTE) Program
, we found that developers of multifamily apartment projects receiving a 12-year property tax exemption for providing affordable units could risk the loss of this tax exemption for non-compliance. Although the audited agency, the Seattle Office of Housing (OH), had found its own instances of non-compliance during its reviews of tenant income certification reports submitted by property managers to the City, the agency never exercised its right to pursue reimbursement of the tax exemption. Furthermore, the City’s MFTE ordinances did not include a process to obtain reimbursement or impose fees or penalties on non-compliant properties. Instead, the City’s approach has been to work with the non-compliant properties to achieve compliance. However, we still found instances of non-compliance despite these efforts. For example, when OH reviewed certification reports to ensure that the properties provided the required number, type, size, and mix of affordable units
, the agency did not impose a penalty on those non-compliant properties, and instead, only requested evidence of corrective action.
Similarly, while the City’s labor standards laws included provisions for civil penalties for violating businesses, few penalties, if any, were assessed. In our
2014 Paid Sick and Safe Time Ordinance Enforcement Audit
, the City sent advisory letters to businesses when there was evidence of non-compliance; these letters provided guidance on how to comply with the laws. The audited agency, the Seattle Office for Civil Rights (SOCR), did not routinely address individual employee or companywide remedies, such as back pay for paid sick and safe time requested that were denied by employers. Also, when an instance of non-compliance was identified, SOCR did not require evidence that the matter was brought into compliance, nor did it conduct follow-up to ensure long-term compliance. While our recent review of the City’s labor standards enforcement efforts showed improvement in requiring employers who violated the law to pay remedies directly to employees, such as back pay, it also showed that the City remained unwilling to use all its available enforcement tools such as civil penalties. Instead, the City continued to minimize or waive civil penalties, not recovering the costs of its enforcement efforts from violators.
2017 Audit of Seattle’s Incentive Zoning for Affordable Housing
, we highlighted that when the required in-kind or financial payments from developers were received late, the City had no provisions for imposing a late fee. We also found projects that received permission from the City for additional building capacity but provided no affordable housing contributions; the total estimated value of this non-compliance was nearly $5 million. Since 2012, one developer owed the City approximately $3.4 million (68 percent of the $5 million). As a result of this audit finding and the subsequent media publicity, the developer voluntarily paid the City the $3.4 million and over $300,000 in interest, but no penalties or fines were imposed. In this audit, we noted that not imposing fines on non-paying developers could be an equity issue that the City may want to address because many other City processes impose fines/penalties for late payments. For example, when parking violations are unpaid beyond a certain amount of time, late payment fees and other penalties are automatically imposed. A developer’s missed affordable housing payment contribution could be in the millions of dollars and remain unpaid for years without consequence.
These audits highlight the disproportionality in the imposition of fees and penalties, and the population this disproportionality affects, depending on the offenses. For example, during an audit of the Seattle Municipal Court Resource Center, I learned that there were many individuals serving up to five years’ probation for misdemeanor convictions in contrast to developers and businesses whose non-compliance can total in the millions of dollars and result in little or no consequence. KUOW, a Seattle National Public Radio station,
that from November 2017 through November 2018, 318 people were charged by Seattle prosecutors for stealing from Goodwill, which is more than any other retailer in Seattle. They also reported that Goodwill’s choice to pursue charges against people shoplifting for survival cycles many homeless people back into the criminal justice system. Specifically, KUOW reported that more than 29 percent of the people charged for stealing from Goodwill said they were homeless or listed a shelter as their address. More than half spent time in jail as a result of the charges that were filed against them. They also reported a racially disproportionate result among Goodwill defendants; almost 22 percent were black, even though black Seattleites represent less than 7 percent of the City’s population. It didn’t matter that the defendants returned the merchandise, or the value of the merchandise could be as little as $13. As the article noted, in nearly every case the items were returned to the store after the suspect was caught.
A positive development is that jurisdictions, universities, researchers, and nonprofits are addressing and studying the inequities inherent in fines and penalties, with California and San Francisco leading the way. In 2016, the
Financial Justice Project
was established in San Francisco to assess and reform fines, fees, and financial penalties that disproportionately impacted financially struggling residents.
As auditors, we too, should examine the financial impact of fines, fees and penalties on those least able to pay them and the inequity that is created when jurisdictions choose not to enforce and penalize non-compliant behavior from established, well-connected segments of our communities, such as businesses and developers. As we examine collection processes for fines and penalties, we should pay attention to the inequities that may exist in the systems and processes we audit as part of our work.
ALGA’s Diversity, Equity, and Inclusion (DEI) Committee is currently working on developing tools to assist you in identifying and highlighting equity issues in your audits. In addition, the DEI committee is sponsoring DEI focused training and highlighting audits with DEI elements in ALGA’s monthly newsletters. For more information about the audits mentioned in this article or the efforts of the DEI Committee, contact Virginia Garcia, Chair of the DEI Committee.
MFTE properties are required to provide the same proportion of affordable studio, and 1- and 2-bedroom units compared to the total number of the same type of units in the entire building.
ABOUT THE AUTHOR
is an Assistant City Auditor with the Seattle Office of City Auditor. Her audits have focused on civil rights, labor standards, and affordable housing, three of which earned Association of Local Government Association (ALGA) Knighton Awards while she was auditor-in-charge. She is committed to race and equity issues and community service. Virginia is the first chair of ALGA’s Diversity, Equity, and Inclusion Committee, which was established in 2018. Virginia has a BA in Political Science from UC Santa Barbara and a MA in Public Administration from the University of Washington.
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