HomeMy WebLinkAboutMINUTES - 05212013 - SD.4RECOMMENDATION(S):
ACCEPT report from the County Auditor-Controller on the Tax Losses Reserve Fund, as requested by the Board of
Supervisors on May 7, 2013.
FISCAL IMPACT:
None. This is an informational report with no specific financial impact.
BACKGROUND:
The Teeter Plan (California Revenue and Taxation Code Section 4701-4717/first enacted 1949) provides California
counties with an optional alternative method for allocating delinquent property tax revenues. Using the accrual
method of accounting under the Teeter Plan, counties allocate property tax revenues based on the total amount of
property taxes billed, but not yet collected. The Teeter Plan allows counties to finance property tax receipts for local
agencies by borrowing money to advance cash to each taxing jurisdiction in an amount equal to the current year's
delinquent property taxes. The Tax Losses Reserve Fund receive the penalties and interest on the delinquent taxes
when collected. For counties not under the Teeter Plan, interest and penalty are allocated to all agencies based on
their pro rata share of the delinquent property tax.
History
The concept of this alternative method of distribution was first introduced in an article entitled, "Let's Look at the
Machinery," which was published in the Tax Digest of January 1949, by Desmond Teeter, the auditor of Contra
APPROVE OTHER
RECOMMENDATION OF CNTY ADMINISTRATOR RECOMMENDATION OF BOARD COMMITTEE
Action of Board On: 05/21/2013 APPROVED AS RECOMMENDED OTHER
Clerks Notes:
VOTE OF SUPERVISORS
AYE:John Gioia, District I Supervisor
Candace Andersen, District II Supervisor
Mary N. Piepho, District III Supervisor
Karen Mitchoff, District IV Supervisor
Federal D. Glover, District V Supervisor
Contact: Lisa Driscoll, County Finance
Director (925) 335-1023
I hereby certify that this is a true and correct copy of an action taken and entered on the
minutes of the Board of Supervisors on the date shown.
ATTESTED: May 21, 2013
David Twa, County Administrator and Clerk of the Board of Supervisors
By: June McHuen, Deputy
cc: Robert Campbell, Auditor-Controller, Ted Cwiek, Human Resources Director
SD.4
To:Board of Supervisors
From:Robert Campbell, Auditor-Controller
Date:May 21, 2013
Contra
Costa
County
Subject:Report - Tax Losses Reserve Fund
Costa County. Mr. Teeter said that the existing distribution system was cumbersome and involved and did not permit
an apportionment of taxes to any fund until the actual collection of taxes occurred. He proposed allowing each fund
involved to be credited with the full amount of the levied tax as soon as such amount was determined; the aggregate
cash on hand in the county treasury would then be available to meet the drafts drawn on any of the funds. A statutory
accounting procedure would be set up in connection with the system. Mr. Teeter's proposal resulted in the addition of
Chapter 3, consisting of Revenue and Taxation Code sections 4701-4716, inclusive, to Part 8 of Division 1 of the
Revenue and Taxation Code in 1949 (Stats 1949 Chapter 1370).
BACKGROUND: (CONT'D)
Distribution of Funds
After apportionment to the State of the amounts prescribed by Revenue and Taxation Code section 4656.5,
amounts received for the redemption of tax-defaulted property shall be distributed as follows:
1) Any amounts levied but not apportioned to funds at the time of levy, and any redemption penalties collected on
those amounts, shall be distributed to funds as prescribed in Chapter 1c (commencing with Rev. and Tax. Code
§4656), except that assessments not apportioned previously shall be distributed to the funds for which they were
levied (Rev. and Tax. Code §4710(a)).
2) Any amounts that were apportioned to funds at the time of the levy shall be distributed to the apportioned tax
resources accounts. The pro rata share of redemption penalties or interest collected on any amounts levied, but not
apportioned to funds at the time of levy, shall be distributed to the respective funds; the balance of the
redemption penalties or interest, together with delinquency penalties, shall be apportioned to the tax losses
reserve fund (Rev. and Tax. Code §4710(b)).
3) Amounts collected as costs shall be distributed to a restricted county fund, to be allocated only for the
following purposes (Rev. and Tax. Code §4710(c)):
Updating and improving information with respect to delinquent taxes;a.
Redemption systems;b.
Monthly settlements with the auditor, pursuant to Revenue and Taxation Code section 4108; andc.
The collection of taxes by the tax collector.d.
When amounts are collected as redemption fees, five dollars ($5) shall be distributed to the State for deposit in the
General Fund and ten dollars ($10) shall be deposited in the county's general fund. The total amount collected on
the secured tax roll shall be entered on the secured taxes receivable accounts (Rev. and Tax. Code §4710).
Fund and Minimum Balances
The Revenue and Taxation Code states that in each county that elects to adopt the procedure authorized by the
Teeter plan there is hereby created a tax losses reserve fund. Contra Costa County operates under section Revenue
and Taxation Code 4703.2, which state that the tax losses reserve fund shall be used exclusively to cover losses
that may occur in the amount of tax liens as a result of special sales of tax-defaulted property. In a county electing
to be subject to this section rather than Section 4703, the tax losses reserve fund shall be maintained at not less
than 25 percent of the total delinquent secured taxes and assessments for participating entities in the county as
calculated at the end of the fiscal year. At the end of the fiscal year, amounts in the tax losses reserve fund that are
in excess of 25 percent of the total delinquent secured taxes and assessments for participating entities in the county
may be credited to the county general fund.
Contra Costa County's Tax Losses Reserve Fund
The Tax Losses Reserve Fund in Contra Costa County is fund 900500. At year end, June 30, 2012, the fund
balance was $101,354,611.29. The fund's current balance is $109,399,361.35. This is not the year end fund
balance as there are normally postings through the Finance Close. The Finance Close will include transfers of
approximately $22.3 million. The Finance Close for FY 2013-14 will include transfers of approximately $22
million. The attached report provides more detailed information regarding Contra Costa's Tax Losses Reserve
Fund.
CONSEQUENCE OF NEGATIVE ACTION:
Not applicable.
CHILDREN'S IMPACT STATEMENT:
None.
CLERK'S ADDENDUM
Speaker: Rollie Katz, Public Employees' Union, Local 1.
ATTACHMENTS
Teeter Plan and the Tax Losses Reserve Fund Presentation
Teeter Plan and the Tax Losses Reserve FundPrepared by: Lisa Driscoll, County Finance Director & Robert Campbell, County Auditor‐Controller
2As a Teeter County, Contra Costa:¾Advances the full tax roll prior to and regardless of collection of tax paymentsoThe Tax Losses Reserve Fund benefits by collecting the penalties and interest on delinquent taxes once paid. The County benefits by annually receiving its full tax levy regardless of collection. The County further benefits when transfers are made from the Tax Losses Reserve Fund into the General Fund.oForeclosed properties cannot transfer to new owner until all past taxes and penalties are paid.oBiggest issue for the County Treasury is the risk that the lag between advancing the tax roll and receiving the Teeter redemptions may be long, resulting in liquidity shortfalls.¾The Tax Losses Reserve Fund serves two primary functions and two secondary functions:1.Covers property tax deficiencies occurring from sales of tax‐defaulted property or bankruptcy shortfalls.2.Acts as a risk management resource that provides necessary liquidity for the Teeter Plan.3.Transfers an average of $10.4 million per year for the last 20 years into the General Fund as general purpose revenue ($12 million budgeted for current year and for FY 2013‐14). 4.Has begun to fund critical deferred maintenance infrastructure needs and one‐time unforeseen adverse events, thereby freeing up on‐going resources for services.Teeter Plan/Tax Losses Reserve (TLR)
3¾Currently the housing market in Contra Costa as well as most of the state has not fully recovered from the crisis in 2008.¾In a Fitch Ratings’ article from October 2012 Contra Costa County was listed as one of the 4 counties with the greatest losses from 2008-2012:oThese four counties comprised about 52% of the total assessed value decline in the state.oContra Costa represented 9% of the statewide decline in assessed value for that period.oAlthough, recent indicators have provided some positive real estate news the past volatility needs to be carefully managed through substantial coverage of existing delinquencies and conservative drawdown for specific one-time expenditures in the future.¾As the economy continues to improve, property values will increase and delinquencies will decrease, thus the annual deposits into the Tax Losses Reserve Fund will diminish.Assessed Value and TLR
Importance of Reserves for Cash Flow•Although revenues are volatile, expenses (majority for salaries) are quite smooth.•Even with a General Fund Reserve of $150.6 Million, the General Fund has a negative cash flow at least 9 months of the year.•The General Fund cash balance begins the year with a negative cash balance due to large disbursements for advances, pension pre‐pay costs, and accrued expenses.•Cash flow is not positive until the second installment of property tax receipts are received in late spring.•The TLF helps with the Treasury operations (cash flow) as it relates to the Teeter Advance of Taxes.These are reasons why it is important to maintain a reasonable balance in the TLR, rather than the minimum level. 4
5Recent Tax Losses Reserve Fund ActivityRecent higher than ‘normal’ delinquency deposits into the Tax Losses Reserve have allowed the County to:• Transfer larger annual amounts into the General Fund for general purpose; • Fund property tax related losses such as the recent adverse decision regarding Property Tax Administration Fees ($5.3 million) without impacting services in the General Fund; and • Fund much needed facility repairs, which would otherwise be funded with General Fund dollars.12,000,000Originally Budgeted for GPR Transfer FY 2012-135,000,000Originally Budgeted for Facility Projects 2012-135,300,000Property Tax Administration Fee Loss FY 2012-1312,000,000Budget for General Purpose Rev Transfer FY 2013-1410,000,000Budget for Facility Projects FY 2013-14 Fiscal YearTax Losses Reserve TransfersFY 93-94 6,225,373FY 94-95 15,321,481FY 95-96 14,389,022FY 96-97 9,889,000FY 97-98 7,389,000FY 98-99 7,389,000FY 99-00 7,389,000FY 00-01 7,389,000FY 01-02 7,389,000FY 02-03 7,389,000FY 03-04 20,889,000FY 04-05 9,000,000FY 05-06 9,000,000FY 06-07 8,000,000FY 07-08 10,000,000FY 08-09 9,000,000FY 09-10 9,000,000FY 10-11 12,000,000FY 11-12 9,000,000Budgeted FY 12-13 22,300,000Budgeted FY 13-14 22,000,000Total Since 1993 230,347,876
6¾Moody’s recently downgraded the County’s Pension Obligation Bonds (POB) rating from Aa3 to A1. Moody’s stated “similarly rated counties in the state boast general fund balances which are at least twice the balance of Contra Costa.” Moody’s also points out concerns about our lack of “significant cash balances” in the General Fund and our “high, but manageable overall debt burden.” Finally Moody’s states that our rating could go up if we “further bolstering of financial position through rebounding revenues and expenditure management.”¾It is ill-advised to begin to rely more heavily on a source of funds that has a specific purpose, and is projected to decrease.Conclusion
7Questions