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HomeMy WebLinkAboutNB 2 TEETER PLAN 07-06-93AG :'DA NEW BUSINESS NO. 2 7-6-93 DATE: ~UI~ 30v ].993 Inter-Com .TO: i=ROM: WlLLI~,M ~. HUSTON~ CZTY MANAGER _. DZ c R oZ' SUBJECT: ' COUNTY OF ORANGE /~LTRRN/%TIVE METHOD OF TAX APPORTIONMENT !. E. "TEETER PLAN" RECOMMENDATION: At the time of the writing of this staff report we do not have all the information necessary to make a recommendation to the City Council. Staff will complete our analysis and bring the proper documents to the meeting on Tuesday. FISCAL IMPACT: Depending on the delinquencies for any given year and the particular type of tax collection, such as a special assessment versus secured property taxes, the fiscal impact will vary but in general will be positive. DISCUSSION~ The County of Orange has determined that they will implement a new method of property tax distribution under Section 4701 of the Revenue and Taxation Code. This section has been used primarily by several counties in Northern California for several years. This section of the Code allows for a one step property tax distribution methodology. It allows the Auditor-Controller to allocate 100 percent of the secured roll as billed not as actually paid. The County in a sense, will advance the money to cities and special districts, follow up on the delinquencies and keep any interest and penalties they generate. During years of high delinquencies, cities should benefit from this plan because they will receive 100 percent of the roll as billed. During years of low dglinquencies there will be less benefit because now we receive closer to 100 percent of the secured roll anyway but, we'd lose the delinquency collections and interest from prior years. There is a one time allocation of prior years delinquencies. The County estimates that the Redevelopment Agency would receive about $349,000 and the City would receive about $288,000. We have already budgeted for about 50 percent of these amounts so, in our case the net benefit will be less than the County's estimate. Page 2 June 30, 1990 In a meeting held by Finance Directors from throughout the County there were mixed opinions as to the benefit or down side to the plan with the'cities who we.re cash p~or o~ting for it and those who didn't necessarily need thecash and liked the 18 percent interest earned on delinquencies opting-against the plan. I see the greatest advantage to the City to be in the special assessment collections. If we could have the County give us 100 percent of the special assessment levy for all practical purposes we would have zero delinquencies. We would send the Bond Trustee 100 percent of the current years levy every year but, like some other cities, I like the interest we are receiving on our delinquencies. I'm waiting to resolve some issues with the County before I make my final recommendations. I will have this completed by the night of the City Council meeting. Director of Finance RAN: ls Attachment teeter, wah STEVEN E. LEWIS ~//~/~~ AUDITOR'CONTROLLER TY O F FINANCE BUILDING _ 630 NORTH BROADWAY P. O. BOX 567 SANTA ANA, CA 92702-0567 RAN G E !~NTROLL TELEPHONE: (714) 834-2450 FAX: (714) 834-2569 OFFICE OF A ER jl~ ~, ~C~ ~' ~ V ~' ~) _ June 8, 1993 -- 0 TO: Orange County Taxing Agencies/Districts: Non-County Treasury "Legal Depository" FINANCE D PT' SUBJECT: Alternative Method of Tax Apportionment (Revenue and Taxation Code 4701, et.seq.): "Teeter Plan" It is anticipated that on June 29, the Board of Supervisors wil'l consider a staff recommendation to approve the implementation· of the Alternative Method of Tax Apportionment, otherwise known as the "Teeter Plan" effective June 30, 1993 for fiscal ~ year 1993- 94. county staff anticipate Board concurrence with this recommendation. All "Legal Depository" agencies/districts in the County Treasury will automatically be in the plan; however, cities, and other agencies/districts not in the County Treasury or those there only by choice (non-statutory) must decide to .opt-in to the Teeter Plan prior to July 15, 1993, by way of City council/District Board Resolution. This plan may provide substantial one-time benefits during fiscal year 1993-94 for your agency. It may.also provide a consistent, predictable cash flow of secured property taxes in future years, worry free from delinquent tax payments. An information meeting is scheduled for Wednesday, June 16, 1993 at 10:30 a.m., to better explain the Teeter Plan. The meeting will be held in the County Hall of Administration, 10 Civic Center Plaza, in the County Planning Commission Hearing Room, directly behind the Board of Supervisors Hearing Room on the first floor. We apologize for the late notice but we have only very recently decided to recommend the Teeter Plan to the Board of Supervisors. .We are forWarding an issue paper (enclosed) which better explains Teeter and plan to hand out a schedule at the above meeting shoWing an estimate of your agency's gain under Teeter. We believe that implementation of the Teeter Plan may be a win-win situation for both the County and your agency. The one-time distribution of delinquent secured taxes will also help soften the anticipated "hit" from this year's likely tax shift from your local tax base. "~' F0132-26 TO: Orange County Taxing Agencies/District: Non-County Treasury "Legal Depository" SUBJECT: Alternative Method of Tax Apportionment: Teeter Plan" We urge you to attend' the above meeting. However, if you will not be able to attend and would like to discuss this matter with County staff, please call Steve?ewis, Auditor-Controller, at 714-834-2457. - - ' ' Ernie Schneider County Administrator WS \ STEVE\ALT-METH Steven E. Lewis Auditor-Controller ~obert L. Citron Treasurer-Tax Collector ALTERNATE METHOD. OF TAX APPORTIONMENT (TEETER) Background% In 1949, the State Legislature adopted Revenue and Taxation. Code section 4701 which authorized the ,'Alternative Method of Property Tax Distribution". This alternative method was proposed by the Contra Costa Auditor-Controller whose last name was Teeter, and therefore, the method is sometimes referred to as the "Teeter" "It is the object of this plan. As stated in section 4701, ~p~ alternative p~ocedure to accomplish a si i~ication of the tax- levying and tax-apportioning process and an increased flexibility in the use of available cash resources". This method has been used by Contra Costa County for over 40 years and is used in four other counties (Solano, Siskiyou, E1 Dorado and Toulomme).- It is our understanding that many other counties are considering it for fiscal year 1993-94. -In simple terms, this' distribution method authorizes the Auditor-Controller to allocate to agencies 100% of the secured' property taxes billed.but not yet paid; whereas, the current method only allows allocation of secured property taxes paid (property taxes billed minus delinquent taxes). Delinquent taxes, penalties and interest are allocated, when collected, by a separate allocation process- Therefore, the alternate method only requiresone allocation process; whereas, the current '(old) method requires tw__9o allocation processes. As described later in this issue paper, the alternate ~ethod offers the following benefits: - simplifies the proper~.y tax revenue estimation and allocation process for the agencies and the Auditor-Controller. - Stabilizes property tax revenues. Generates higher property tax revenues during years of higher property tax delinquencies. Provides a one time increase in property tax revenues to all taxing agencies. Potential Benefits: During years in which the delinquent taxes are increasing, each agency would receive more property taxes under the alternate method Versus the current method.. Likewise, during years the delinquent taxes are decreasing, the opposite would be exPerienCed. -During the last three years, delinquent taxes have increased. We believe all taxing jurisdictions would have received more property taxes during this three year time period under the alternate method. SUBJECT: Alternate Method Of Tax Apportionment (Teeter) However, the single largest benefit of the alternate method is the on__~e time. allocation of the prior years' delinquent property taxes. -Once the decision is made to use this method, 95% of delinquent property taxes will be allocated to all agencies as if they had been collected. In addition, as the delinquent property tax~s_are collected, the Tax Collector collects penalties (10%) and interest ..('18%-)'. .T~hes'e' fund'S are deposited to a Tax Loss Reserve Fund' required 'by the alternative method. When the total proceeds in this fund exceeds 4% of the current year property tax levy, the excess is credited to the County General Fund. These penalties and interest will be used to pay interest expense for the tax advances to all agencies. In addition to the dollar benefits, the alternate method allows the taxing agencies to accurately estimate their annual property tax revenues. Under the alternate method, the agencies know that they will receive 100% of the secured property taxes billed. After the Assessor submits the property tax roll to the Auditor,' and the property value changes are calculated, we know the total secured property taxes that will be billed. Based on it's allocation factor, each taxing agency will receive 100% of its portion of the total and cease to receive delinquent secured taxes and penalties. Under the current method, estimating the property tax revenues is very complex. First, taxing agencies must obtain, from the Auditor, the total secured property taxes billed. From this amount, they would subtract their estimate of the annual delinquent taxes. .This would determine the net Current Year Secured Tax Revenue. Second, they must estimate the amount to be collected on Prior Year Property Taxes and penalties and Interest. This amount is very difficult to estimate. Remaininq Issues: As mentioned above, during the first year of using the alternate method, it is necessary to advance to the participating taxing jurisdictions an amount equal to the total prior and current delinquent secured property taxes outstanding. In addition, the County must establish a reserve equal to 4% of the total tax levy. We are proposing to do an outside financing and use al! of the one-time Teeter revenue to the County General Fund to finance the requir'ed advances and the reserve. As the 'delinquent propert_y taxes and .penalties are collected, we will repay the principal and interest on the borrowing The excess penalties and interest will qo to the Tax Loss Reserve Fund and be distributed to the County General Fund after they equal 4% of the tax levy. SUBJECT: Alternate Me~hod Of Tax Apportionment (Teeter) Many California counties are looking into the feasibility of changing to the alternate method. We are in the process of comparing our studies of the effects, determining the best method of financing the plan, and discussing the possible changes to our property tax computer systems. Based on our preliminary discussions, - changes tO ou.r pr_operty tax system may cost approximately $1~0,000 .... " Steps to Implementation: - Resolve the issues discussed above. Communicate this change to the taxing jurisdictions within orange County. -. Prepare a Board of Supervisors resolution, by June 29', 1993, '~ for adoption.' Implement any system modifications prior to the first property tax allocation, December, 1993. WS\STEVE\TEETER