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HomeMy WebLinkAboutItem 8.3 PropertyTaxPaymnts(TeeterPln) . . CITY OF DUBLIN AGENDA STATEMENT CITY COUNCIL MEETING DATE: December 13, 1993 SUBJECT: Alameda County Offer To Modify The Methodology For Qnd Making property Tax PaYments To The city (Teeter Plan) ~ (Prepared by: Paul S~ Rankin, Assistant City Manager) EXHIBITS ATTACHED: 1 ~ /Letter dated October 29,1993 from the County Administrator RECOMMENDATION:/\l~Direct Staff to inform the County that the City of '\V" Dublinwill not be electing to participate in the Teeter Plan~ FINANCIAL STATEMENT: The Staff recommendation is to make no change in the current methodology and there would not be any financial impact~ Analysis done by County Staff shows that there is a financial detriment after 5 years, when calculations are done on a countywide basis~ DESCRIPTION: As a result of the 1993/94 state Budget, legislation was approved which would create a financial advantage for counties which change the way they distribute property taxes.. The County found that a statewide survey showed that of the 58 counties in California, 23 had adopted the Teeter Plan and 24 were considering adoption~ TEETER PLAN The Teeter Plan refers to state legislation enacted over 30 years ago as a means to simplify the distribution of property taxes from the County to the various taxing agencies.. The concept behind the legislation is that the county pays the various agencies (i~e~ schools, cities, special districts, counties, 'etc) 100% of the amount levied on the tax bill~ Since it is assumed that there will be delinquencies the County retains all of the delinquent paYments plus penalties and interest~ Theoretically, the County would be assuming the risk since it had already advanced to the other agencies 100% of their billed taxes~ To compensate for this the County retains all of the penalties and interest~ The law requires that when a county implements the Plan, it must establish a "Tax Loss Reserve Fund" The purpose of this fund is to cover potential losses incurred following the sale of tax defaulted properties~ The County is required to continue to maintain the Reserve Fund at 4% of total tax roll distributed under the Teeter Plan~ This would be done by the County depositing penalties and interest in the fund to make up any shortfall~ Provided the fund balance is adequate any excess amount is credited to the County General Fund~ Although the County has granted cities with an option to participate the decision to revert back to the current system can only be made by the Board of Supervisors, or 2/3 of the taxing entities participating in the Plan~ The County Staff have indicated that they intend to stay with the Teeter Plan for at least 5 years, however, they cannot make any firm commitments~ This is partially impacted by the fact that the analysis done thus far by the County has a lot of assumptions and is based on less than complete data~ If the City participated in the Teeter Plan and it was discontinued at some time in the future, the Ci ty would record a drop of 3-5% in Property Tax Revenue, for the' year it was discontinued. This would result COPIES TO: ITEM NO. 7.3 CITY CLERK FILE~ ..... . -.. .~ ~. - - .. . . from the city no longer rece~vlng 100% and collecting only a share of the delinquencies as they are received. ONE TIME BUY-OUT OF CURRENT DELINQUENCIES As part of the implementation of the Plan the County has offered to pay the city for its proportionate share of countywide delinquencies as of July 1, 1993. The proposal only provides for a paYment of 95 cents on the dollar~ The remaining 5 percent will be deposited by the county in the Tax Loss Reserve Fund. The County has indicated that if at sometime in the future they discontinued the Teeter Plan, there is no guarantee that the city would receive any share of the Tax Loss Reserve Fund, which in essence it would have helped to fund. The County has estimated that the ci ty of Dublin could receive a "one-time" buyout of approximately $ 400,000. This one-time buyout has much more significance to the County. The County is designated as the legal depository for school related taxing agencies. In Fiscal Year 1993/94 the state Budget problem was partially solved by taking city and county property taxes and shifting them to school districts. New LegiSlation provides one-time relief for counties that implement the Teeter Plan. The total amount of anyone-time monies which are attributable to school districts can be taken by the County as a credit against their property tax transfer to the school dlstricts. This can only be done in the current fiscal year. For Alameda County this reduces their $97.3 million tax shift by $28.5 million (a decrease of 41%). The County is requiring all taxing agencies for which it is the legal depository (does not include cities), to participate in the Teeter Plan. ALAMEDA COUNTY PROPOSED PROPERTY TAX DISTRIBUTION UNDER TEETER PLAN The County proposes to distribute ci ty Property Taxes according to the following formula: 50% of Billed Taxes on December 14th 45% of Billed Taxes on April 14th 5% As Corrected By June 30th In addition to advancing 100% of the basic secured property tax the County will also forward 100% of any special assessments or fees for services collected on the property tax bill.. The County will ngt forward 100% for special assessments collected for repaYment of bonds on improvement districts (i.e. Dublin Blvd. Extension Assessment District). The reason for this limitation is the fact that the County does not have foreclosure powers to collect the unpaid amounts. The advantage to the city would be that it would know what it is going to recei ve and when the funds would be distributed ~ County staff have indicated that Teeter Plan agencies would not share in any interest earnings on the collected cash held prior to disbursement~ Currently these monies are distributed proportionately.. The County has also indicated that they would recover from the agency tax monies advanced on properties in bankruptcy. They also intend to adjust for losses on foreclosed tax sale properties. The impression gi ven to Staff is that there are several exceptions which tend to reduce the County's riSk, without any compensation to the City~ PENALTY AND INTEREST DISTRIBUTION Currently the penalty for late payment of property taxes is a one time penalty of 10 percent, plus interest after the initial year, at a rate of 1.5% per month (18% per year). The interest rate is established by State Law and is intended to discourage late payment of taxes. Although there is no guarantee that this will be maintained in State Law, this level of return is better than current prevailing rates for the investment of public monies. . . Alameda County currently allocates all delinquent taxes on a Countywide basis in proportion to the agencies share of the property tax levy. This is not done on a situs basis. For example, the city of Dublin Secured Tax Rate is 0.506771 % of the total for the entire County. This becomes the city's share of all delinquent secured taxes, penalties, and interest. The County has been unable to provide any actual delinquency data on a jurisdictional level. Also, when they remit "Prior Year Secured Taxes" they do not provide any detail as to the amount attributable to taxes versus interest. Theoretically the city will eventually receive its share of the taxes owed including any penalties and interest under the current system. COUNTYWIDE DISCUSSIONS The Assistant City Manager has participated in discussions with the Alameda County Finance Officers Group. The general consensus is that the Plan makes the most sense for agencies with little or no cash reserves, due to the one-time buyout. Also some agencies which are active in the debt issuance market saw a benefit with selling local bonds. They would be able to represent to the investment community that they had 100% collection of their property taxes. Some agencies have found this to be a benefit in marketing securities. However, the long term view of the proposal displays disadvantages to an agency including: The city no longer receives any benefit from penalties and interest. The City continues to retain the liability for uncollectible taxes. The potential gain from the onetime payout, versus collecting a share of the penalties and interest, was typlcally exhausted in 5 - 7 years. The city has limited control over the County's decision to terminate the Plan.. If the County changed away from the Teeter Plan and back to the current method, this would reduce the city's Property Tax revenues in the first year that the County discontinued the Plan~ The county's own analysis showed that after 5 years there is a financial disincentive to continuing the Plan. It should be noted that many of these multi-year reviews require assumptions regarding growth and changes to the Countywide delinquency rate. It has also been difficult to assess the impacts on an individual community, since the County is not capable of providlng the necessary data. There are obvious one time advantages for the County to pursue the change for its benefit at this time. However, the disadvantages appear to place the Ci ty at a greater risk than staying wi th the current allocation methodology. Staff recommends that the city Council authorize Staff to advise the County that the city of Dublin will not be participating in'the Teeter Plan.. . . R L (:~, ( . ~. c 0 U N T Y ADM I N 1ST RAT di .'RV :i .. I, F /993 (;(;':;UN STEVEN C. SZALAY COUNTY ADMINISTRATOR October 29, 1993 SUSAN S. MURANISHI ASSISTANT COUNTY ADMINISTRATOR Richard C. Ambrose, City Manager City of Dublin I P.O. Box 2340 Dublin, CA 94568-1559 Dear Rich: Subject: ALTERNATIVE METHOD OF TAX APPORTIONMENT ("TEETER PLAN") The purpose of this correspondence is to provide information about the next steps needed to be taken by taxing agencies to implement the provisions of the "Teeter Plan" and to respond to questions raised at the Teeter Plan informational meetings conducted by the County on October 19 and 20, and the meeting with City Managers on October 21, 1993. On October 5, 1993, the Alameda County Board of Supervisors approved an alternative method of property tax apportionment for taxing agencies in Alameda County for whom the County is the legal depository and other County agencies who approve the alternative method. The Board directed my office, in conjunction with the County Auditor-Controller and Treasurer-Tax Collector, to meet with taxing agencies that may be affected by the Plan, and provide a status report regarding implementation of the Plan not later than November 16, 1993. Under the "Teeter Plan" the County distributes the full apportionment of property tax reveHU:;:S uS if ..11 pi'oF,~rty ta;-: payers prtid their taxeG en tii.l2 and there' 'Ner~ no delinquen t taxes. The difference between the property tax revenue that the County distributes to taxing agencies and the revenue that the County actually collects is paid by the County. In return, the County receives all future delinquent tax payments for all taxing agencies including penalties and interest. In the first year of the Plan, taxing agencies will also receive 95% of their share of accrued delinquencies through June 30, 1993. The difference (5%) is required to be deposited to a Tax Loss Reserve Fund. Also, SB 742, Chapter 130 of the 1993-94 Statutes, which was signed by the Governor on July 19, 1993, provides that, for 1993-94 only, the County properly tax shift to school districts may be reduced by an amount equallo the amount of additional property tax revenues that would be allocated under the "Teeter Plan" to school districts. Taxing agencies who use the County as their legal depository need to take no additional action to implement the Plan. Taxing agencies that use the County as their legal depository who do l~ot wish to participate in the Plan should so notify me immediately. Taxing 1221 OAK STREET' SUITE 555' OAKLAND. CALIFORNIA 94612' (510) 272-IXU186T 1 FAX (510) 272.3784 &11 I - . . - 2 - agencies who wish to participate in the Plan who do not use the County treasury as their legal depository should so notify me of their intent to participate as soon as possible, and have their elected governing bodies pass a resolution approving participation in the Plan not later than January 1, 1994. Attachment A provides the necessary information and a format for the resolution that should be used to approve the Plan. Attachment B responds to questions raised by representatives of taxing agencies about the provisions of the Plan. Please fee free to contact Ken Gross of my staff at 272-3880, or Charles Roach, Auditor-Controller's Office, at 272-6565, regarding any additional questions. , Very truly yours, SCS:KG Attachments c: Each Member, Board of Supervisors Auditor-Controller County Counsel Treasurer-Tax Collector [ . . . Attachment A RESOLUTION OF THE (CITY /DISTRICT) OF ' ADOPTING THE ALTERNATE METHOD OF PROPERTY TAX ALLOCATION WHEREAS, State law authorizes counties to adopt the Alternate Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds, commonly . known as the "Teeter Plan," (Revenue and Taxation Code Sections 4701 and following); and WH'RR'R AS' , f h d 1 d b th b' f thO 1t ' . d . _ ~ '-'_ ___, It IS urt er ec are to e _ e 0 Ject 0_ - 15 a__p.m!ltlve proc.e ure to accomplish a simplification of the tax-levying and tax apportioning process, and , WHEREAS, on October, 1993 the Alameda County Board of Supervisors approved the alternative method of Property Tax Apportionment for taxing agencies in Alameda County for whom the County is the legal depository and other taxing agencies which request inclusion in the plan; and WHEREAS, the County of Alameda does not serve as the legal depository for the (City/District) of , and WHEREAS, the (City/District) of desires to participate in the alternative method of Property Tax Apportionment, NOW, THEREFORE, BE IT RESOLVED, that the (City/District) of requests that it be included in the Alternative Method of Distribution of Tax Levies and Collections as defined and in accordance with Revenue ,and Taxation Code Section 4701 and the Teeter Plan general provisions established by the County shown in Attachment 1 to this resolution. teelres2 . . Attachment 1 f l General Provisions: . Mello Roos and 1915 Bond Act Assessments will be exempt from the "Teeter Plan." . In addition to the base property tax, debt service obligations and special assessments will be included in the Teeter Plan unless otherwise excluded by the taxing agency. . Property taxes in default as a result of bankruptcy proceedings will be excluded from the Teeter Plan. . The Teeter Plan may be terminated under the provisions of Revenue and Taxation Section 4701. Taxing agencies may not opt out of the plan on an individual basis. . Taxes in default on property which remaln unsold after auction and are deemed uncollectible by the County are exempt from the Plan. . . Escaped tax assessments on installment plans, where no interest or penalties are assessed, are exempt from the Plan. altaone . . Attachment B QUESTIONS ON "TEETER PLAN" 1. What taxes will be included in the Plan? Secured property taxes Supplemental secured property taxes Special assessments 1 % Bonded Indebtedness 2. What taxes will be excluded from the Plan? 1915 Act Bonded Indebtedness Mello Roos Taxes due on bankruptcies Taxes on properties in default which are tax deeded to the State and deemed uncollectible by the Qounty . Escaped tax assessments on instatlm~nt plans where no interest or penalties are assessed 3. Why is the County excluding these taxes and assessments? The County does not have the foreclosure powers of other taxing agencies with respect'to 1915 Act'Bonded Indebtedness and Mello-Roos. There is a minimal likelihood of recovering taxes on bankruptcies and tax defaulted properties deeded to the State which have gone to auction but have not sold. No interest or penalties are available for recovery from escaped tax assessments on installment plans. . 4. What revenues can my taxing agency expect to receive in the first year? One.time buyout of existing delinquencies as of June 30, 1993, at 95% of 1 %" tax base plus 100% of accrued penalties, bonded indebtedness, and special assessments included in the Plan. In addition, 100% of 1993-94 tax charge. 5. How does a taxing agency become a Teeter Plan participant? Taxing agencies that use the County as their legal depository do not need to take any further action. Taxing agencies that do not use the County as their legal depository should immediately indicate their interest to the County and have their respective governing bodies'pass a . - 2 - . resolution prior to January 1, 1994, (sample attached) approving participation. 6. Must my agency join the Teeter Plan in 1993-94 or can I wait and consider joining next fiscal year? The County has the discretion to approve participation of a taxing agency in the Plan in a future fiscal year. However, because of the administrative complexity associated with opting in at a later date, taxing agencies may only opt into the Plan for 1993-94. 7. Are Redeveioprnent agencies eligible fOi participation in the Plan? No. Because redevelopment agencies already receive their property tax revenues as if they were on the Teeter Plan. 10. What happens to the 5% contribution by faxing agencies to the Tax Loss Reserve Fund if the Teeter Plan is terminated? The purpose of the tax loss reserve fund is to cover potential losses incurred at sales of tax defaulted property. Liquidation of the Tax Loss Reserve Fund upon termination of the Plan is subject to the County's discretion. 11. How is the Plan terminated? The Plan may be terminated for any fiscal year after the first year by the Board of Supervisors if the delinquency rate is above 3% or may be terminated by passage of a resolution to terminate by 213rds of plan participants. Once in, taxing agencies may not opt out the Teet':'~ Plan on fl selective basis. questeet.kg ~ . . ALAMEDA COUNTY ALTERNATE METHOD OF TAX APPORTIONMENT (TEETER) FINANCIAL EVALUATION TAX REVENUES COUNTY GENERAL FUND YEAR CURRENT METHOD TEETER METHOD DIFFERENCE 1993-94 125,009,017 130,741,380 5,732,363 1994-95 131 ,291 ,801 131,785,588 493,787 1995-96 137,900,033 138,205,178 305,145 1996-97 144,850,572 144,961,366 110,794 1997-98 152,161 ,148 152,071,623 (89,525) ------ ----------- TOTALS $691 ,212,571 $697,765,135 $6,552,564 ------------ ------------ --------- ------------ ------------ --------- Balances at end of fifth year: Tax Loss Reserve Fund $49,100,408 County's Portion oflnttfat: Buy..out; Pledgec:tagalnst receivable $15.387,733 ; . Accumulated Debt Obligation ($145,327,953) Redemption Taxes Receivable $146,818,691