Executive Summary (94-05)
March 7, 1994
Minnesota uses a state-regulated system of 90 public and 78 private deputy registrars to register and title motor vehicles and watercraft, renew drivers' licenses, and register snowmobiles and all-terrain vehicles (ATVs). In an average year, deputy registrars process about 4.5 million motor vehicle transactions, 800,000 driver's license applications, and 260,000 watercraft, snowmobile, and ATV transactions. The Department of Public Safety (DPS) has primary responsibility for regulating the system. It can appoint and, for cause, discontinue a deputy registrar, and it sets criteria governing the establishment of new deputy registrars. In fiscal year 1993, Minnesota's deputy registrars collected about $610 million in motor vehicle registration fees and excise taxes on behalf of the state. As a result, many of the Department of Public Safety's regulations concerning deputy registrars are designed to protect the financial interest of the state. The Department of Natural Resources regulates the boat and snowmobile programs, but has no authority to appoint or discontinue a deputy registrar.
There is a variety of viewpoints about how a deputy registrar system should be designed. Proponents of a public system contend that private deputy registrars earn large profits and that replacing them with public deputies would provide additional revenue that could finance other programs or reduce taxes. Proponents of a private system contend that private deputies are more efficient and provide better customer service than public deputies.
Some critics argue that there is a lack of competition in the system that discourages improvements in customer service and leads to excessive profits. The 1984 law that authorizes the appointment of corporations as deputy registrars is controversial because it allows deputy registrars to be sold.
Because of these concerns, the Legislative Audit Commission directed the Program Evaluation Division to study the deputy registrar system. In our study, we asked:
To answer these questions, we surveyed motor vehicle officials from all 50 states and interviewed deputy registrars and other interested parties. We collected financial data from the Department of Public Safety and a sample of 101 deputy registrars. To measure customer waiting times, we made over 200 visits to deputy registrars.
In general, we found that most large deputies did well financially, but most small public deputies lost money and most small private deputies had relatively low incomes. We found that most deputy registrars provide good customer service, and there was no clear advantage for public or private deputies. To improve the system, we concluded that the focus should be on making the system more responsive to the customer. DPS regulations that protect the financial interests of deputy registrars tend to discourage changes that could improve customer service.
States use a wide variety of systems to register and title motor vehicles and to renew drivers' licenses. To provide access for the public, states supplement the state central office with state branch offices, county or municipal offices, or private agents. Nine states use state employees exclusively. Another 17 states use a combination of state employees and private agents. Twenty-five states delegate much of the motor vehicle customer service function to counties or municipalities. Twelve of these 25 states, including Minnesota, use a combination of local governments and private agents.
Altogether, we identified 29 states that use private agents in some capacity. The services provided by private agents vary widely among states, ranging from full service (driver's license renewals and motor vehicle titles and registration) to a single function. Private agents in 22 states, including Minnesota, provide at least two functions, usually motor vehicle titles and registration.
We compared Minnesota's administrative fees with fees in states that clearly distinguish the administrative fee from the tax (or user fee). We excluded fees charged by registration services in six states because they provide different services than Minnesota's deputy registrars and because they are agents of the customer rather than agents of the state. Altogether, our comparison group included 32 states for motor vehicle registration renewal, 30 states for motor vehicle titles, and 13 states for drivers' licenses. We found:
The median administrative fee was $2.00 for registration renewal, $2.50 for titles, and $3.00 for driver's license renewals. Fees ranged from $.75 to $5.25 for tabs, from $.75 to $5.50 for titles, and from $1.00 to $7.50 for drivers' licenses. (Agents from several states performed one or more of these services at no cost to their customers. We did not include these states in that specific calculation.)
We found that many states make greater use of technology to process motor vehicle transactions than in Minnesota. For example, each year, DPS clerical staff manually enter into the state's database about 1.5 million title transactions and about 1 million registration renewals that cannot be electronically scanned. Most of this data entry duplicates work already performed by deputy registrars on their own computers. Many states upload this information electronically from agents to their central database. We believe that Minnesota could save substantial resources by electronically processing this information. In addition, motor vehicle records would be updated more quickly. The Department of Public Safety plans to test this approach for registration renewals in 1994 with the deputy registrar in Faribault. It plans to fully implement this approach in about two years.
Minnesota's deputy registrars provide reasonably good access to motor vehicle services for Minnesota residents. There is a deputy registrar in every county and almost all residents live within 15 miles of a deputy registrar. Compared to other states, the number of full-time agents in Minnesota is slightly better than average, taking into account population and square miles.
To measure customer waiting times, we made 205 visits to deputy registrars between July and October 1993. We found that:
We estimate that about 76 percent of walk-in customers waited less than 5 minutes, 7 percent waited 20 minutes or longer, and 2 percent waited 30 minutes or longer. The longest wait that we observed was 60 minutes.
Customers waited an average of only 1.1 minutes at small deputy registrars, but waited an average of 6.4 minutes at large deputies. Hennepin County's data show that the average wait at its four service centers was about 15 minutes during the summer months.
We did not find large differences in customer service between public and private deputy registrars. Public and private deputies had similar customer waiting times (4.1 minutes for private deputies and 4.3 minutes for public deputies) and were open about the same number of hours per week (44 hours per week). Private deputies are much more likely to be open on Saturdays (42 percent, compared with 17 percent for public deputies). DPS data indicate that public deputies had slightly lower error rates in 1992 than private deputies.
Overall, we found that most residents receive good customer service from deputy registrars, but the system discourages or even prohibits changes that could improve customer service. State criteria for establishing new deputy registrars protect the territory of existing deputies with little regard for whether the public is being adequately served. The criteria include minimum distances between a proposed office location and existing deputies, minimum estimated transaction counts, and maximum numbers of deputies in a municipality. For example, in metropolitan counties, a new deputy registrar may not be established within 5 miles of an existing deputy registrar. The criteria do not consider customer waiting times, whether a new location would be more convenient for the customer, or other measures of customer satisfaction. Even if a deputy registrar is providing poor service, nobody may establish a new office near that deputy. In addition, some innovative ways of improving customer service are prohibited by rule. For example, some deputies have been interested in setting up satellite offices in regional shopping centers or near emission test stations. However, DPS rules do not permit new offices, including branch offices that issue tabs on-site, to be located within 5 miles of another deputy. (This restriction does not apply to drop-off sites as long as the transaction is processed at the deputy's main office.) Furthermore, DPS does not permit any office, including branch offices, to locate near an emission control test station, regardless of its distance from other deputies, because it may attract so much business that it would be unfair to other deputies. To achieve a better balance between customer service and other objectives, we recommend that:
The Department of Public Safety should consider a variety of options, including several that are being used or tested by other states. For example, DPS could promote more competition in the Twin Cities metropolitan area by reducing the minimum distance requirement for the core metropolitan area from 5 miles to 3 miles (the standard used in some other states) or by removing territorial restrictions on advertising. Other options include making it easier for customers to use the mail, and using kiosk and phone technology. Options that the Legislature should consider include issuing license plate tabs at emission control test stations in the Twin Cities area. This idea is being examined in Oregon and Wisconsin.
Deputy registrars receive an administrative fee of $3.50 for motor vehicle transactions (registration renewal and titles), $3.25 for watercraft titles, and $.50 for registration of watercraft, snowmobiles, and all-terrain vehicles. In July 1993, the administrative fee for drivers' licenses increased from $1.00 to $3.50 per transaction. Some counties collect $.50 from the deputy for each driver's license transaction, leaving the deputy with $3.00. Since motor vehicle and driver's license transactions make up about 95 percent of deputy registrar transactions, the average fee received by deputies is about $3.35.
We collected financial data from a sample of 101 deputy registrars. Although these data are not definitive, we found that:
Larger public deputy registrars tend to have lower costs than smaller deputies. In our analysis, we treated Hennepin, Anoka, and Washington counties separately because each operates three or four deputy registrars. Among single-office public deputies, we estimate that the average cost ranged from $4.15 per transaction for small public deputies to $2.76 for large single-office deputies. The multiple-office deputies had a higher cost than other large deputies, primarily because the average cost at Hennepin County's four service centers was about $4.84 per transaction. Hennepin County's high cost is the most notable exception to the generalization that larger deputies tend to have lower costs per transaction.
Larger deputies tend to have a lower cost per transaction because they process more transactions per full-time employee. Large single-office deputies processed 12,200 transactions per full-time employee, about 77 percent more than the amount for small deputies (6,900). However, large deputies also tend to pay higher salaries and benefits, partially offsetting their economies of scale advantage. Large deputies paid $25,800 per employee, compared with $22,200 for small deputies.
Small public deputies had costs ranging from $3 to $6 per transaction. The main reason for this variation is differences in staffing. For example, one small deputy registrar (about 8,000 transactions per year) had a cost of $6 per transaction because two employees worked full time in the deputy registrar's office. There are other deputies of the same size or larger that employ just one full-time worker. In 1994, this deputy plans to use one full-time employee with occasional help from the county auditor. This will significantly reduce the deputy's cost.
We also examined income earned by public deputy registrars. We found that:
Minnesota has 44 public deputy registrars that process fewer than 24,000 transactions per year. In our sample, 76 percent of these deputy registrars (16 out of 21) lost money in 1992. If the current driver's license fee had been in effect, 67 percent still would have lost money.
There are 34 single-office public deputies which process more than 24,000 transactions per year. Our sample data indicate that about 33 percent of these deputies lost money in 1992, but only 14 percent would have lost money under the current fee schedule.
For private deputies, we measured the owner's income by adding salary and benefits received by the owner to the deputy registrar business income (revenues minus expenses). Some owners of corporate deputy registrars who own the building they occupy also earn income by renting the space to the deputy registrar. While we included the rent as a deputy expense, we did not include the income (or losses) earned from such investments. Our analysis shows that:
We estimate that, in 1992, average incomes ranged from $15,000 for small deputies to $77,000 for large deputies. Under the current fee schedule, average incomes would have been about $102,000 for large deputies, $47,000 for medium-large deputies, $28,000 for medium-small deputies, and $15,000 for small deputies.
We also examined the cost per transaction of the Department of Public Safety and of deputy registrars operated by non-profit organizations. We found that:
At the Department of Public Safety, the cost per transaction in fiscal year 1993 was $3.26 for walk-in service, $1.32 for renewals by mail, and $4.36 for titles by mail.
The cost for deputies operated by non-profit organizations ranged from $1.77 to $2.62.
Corporate sales indicate that there is strong interest in becoming a deputy registrar, even in small cities. Since 1984, the year private deputies were allowed to incorporate, 60 of the 78 private deputy registrars have incorporated and 20 have been sold. Excluding four sales within the family, deputy registrars that have been sold had annual transactions ranging from 5,000 to 35,000. None of the large deputy registrars has been sold. We obtained sale prices from 13 of the 16 deputy registrars that have been sold outside the family. Sale prices ranged from $20,000 to $108,000. Four sales were for $100,000 or more. On average, the sale price was about 3.6 times the annual number of transactions, or slightly more than the gross annual revenue, under the current fee structure.
Ever since the 1983 Legislature authorized the appointment of corporations as deputy registrars, the resulting sales have been controversial. We found no other state where corporate private agents could sell an exclusive right to do business in a particular area, as can be done in Minnesota.
We think appointing private corporations as deputy registrars is undesirable for several reasons. First, if a corporation is appointed as a deputy registrar, the appointing authority loses effective control over the selection of deputies. Currently, lacking major violations of DPS standards, the appointing authority cannot exercise its appointive powers over corporate deputies indefinitely.
Another problem is that each deputy who initially incorporates receives a windfall profit when the corporation is sold, and subsequent owners have to make a capital investment, raising the fees necessary to make a deputy financially viable.
In order to maintain the public's control over who becomes a deputy registrar, and to maintain low capitalization requirements for deputy registrars, we recommend that:
Exceptions could be made for non-profit organizations, such as the American Automobile Association.
We examined the fee structure for deputy registrars by measuring the transaction times for different types of transactions and by reviewing deputy registrar cost studies conducted by a private consultant in three counties. We found that:
The administrative fee for motor vehicle renewals (tabs) is the same as the fee for titles and drivers' licenses even though tabs take much less time to process than titles or drivers' licenses. We found that the average transaction time was about 2.3 minutes for license plate tabs, 6.7 minutes for motor vehicle titles, and 5 minutes for drivers' licenses. These results also indicate that the large gap between the former $1 driver's license fee and the $3.50 motor vehicle fee was not justified on the basis of cost.
Fee studies conducted in three counties indicate that the large fee differences between boat and snowmobile registrations ($.50) and motor vehicle and driver's license transactions ($3.50) are not justified on the basis of cost. In the three counties, the estimated registration cost for boats and snowmobiles ranged from 25 percent lower to 30 percent higher than the average cost of motor vehicle and driver's license transactions. We recommend that:
This would mean lower fees for motor vehicle registrations and higher fees for motor vehicle title transfers and watercraft, ATV, and snowmobile registrations.
Overall, we found that neither public nor private deputy registrars have a clear advantage in customer service. Private deputies have slightly better hours, and public deputies have slightly lower error rates. Customer waiting times are similar for public and private deputies.
We found that many private deputy registrars, particularly large deputies, make large profits, but this does not necessarily mean that replacing them with public deputies would save the taxpayers money. While we found that many public deputy registrars made money for their city or county, there were many others, particularly small deputies, who lost money. If a county or city cannot provide deputy registrar services at a reasonable cost, private deputies give the public another option for providing those services.
The existence of private deputies, by itself, does not automatically bring the benefits commonly associated with private enterprise. Private deputies do not bring lower prices to consumers because there is no price competition. Private deputies may be more efficient than public deputies, but that does not necessarily help the public under the protective regulations of the state.
The Program Evaluation Division was directed by the Legislative Audit Commission to conduct this evaluation in June 1993.
For a copy of the full report, entitled "Motor Vehicle Deputy Registrars," (94-05), 66 pp., published on March 7, 1994, you may use our order form (request report #94-05). Alternatively, please call 651/296-4708, e-mail our office Legislative.Auditor@state.mn.us, or write to Office of the Legislative Auditor, 658 Cedar St., St. Paul, MN 55155.
Staff who worked on this project were Dan Jacobson (project manager) and Jan Sandberg, with help from Donna Gray and David Kemnitz.