To: Board of Supervisors
Department or Agency Name(s): Auditor-Controller-Treasurer-Tax Collector
Staff Name and Phone Number: Lindsay VanMidde (707) 565-3279
Vote Requirement: Majority
Supervisorial District(s): All
Title:
Title
Annual Financing for the Alternative Method of Property Tax Allocation (Teeter Plan) for delinquent property taxes for the fiscal year ending June 30, 2024
End
Recommended Action:
Recommended action
A) Adopt a Resolution Authorizing Renewal of County of Sonoma Delinquent Tax Anticipation Note Series 2014-1, 2015-1, 2016-1, 2017-1, 2018-1, 2019-1, 2020-1, 2021-1, 2022-1 and 2023-1 and Authorizing the Issuance Of County Of Sonoma 2024-1 Delinquent Tax Anticipation Note.
B) Renew and Authorize the Chair of the Board to execute the issuance of $11,101,100 in prior Delinquent Tax Anticipation Notes as authorized by the Alternative Method of Property Tax Allocation.
C) Authorize the Chair of the Board to execute the issuance of a $17,456,800 Delinquent Tax Anticipation Note for fiscal year 2023-24 as authorized by the Alternative Method of Property Tax Allocation.
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Executive Summary:
In 1949, the State Legislature adopted Revenue and Taxation code sections 4701-4722, which authorized the alternative method of property tax allocation. This alternative method was proposed by Mr. Desmond Teeter, the Auditor-Controller for Contra Costa County, and is now commonly referred to as the Teeter Plan. Under the Teeter Plan, counties allocate current secured property tax revenues based on total property tax billed but not yet paid; whereas, the previous cash method only allows allocation of paid secured property taxes. This Teeter Plan provides for more stable and reliable annual property tax revenues, and simplifies the property tax estimation and allocation process. This requested action will allow for the continued operation of the Alternative Method of Property Tax Allocation for another year and has no impact on Teeter revenues currently budgeted in Fiscal Year 2024-2025.
Discussion:
Due to budget shortfalls in the early 1990’s, the 1993 State budget included the 1993-94 Educational Revenue Augmentation Fund (ERAF II) shift, which transferred property tax revenues from counties to schools for the second consecutive year. SB742 was passed by the State Legislature and allowed counties that implemented a Teeter Plan to take a one-time credit against the ERAF shift. In June 1993, with the endorsement of taxing jurisdictions, the Sonoma County Board of Supervisors approved the Alternative Method of Property Tax Allocation.
Under the alternative method, taxing jurisdictions, including the County General Fund, receive their portion of current secured taxes that are delinquent at year-end. State law allows these property tax advances to be funded through the issuance of Delinquent Tax Anticipation Notes (Notes). Notes are issued for a term of one year and are renewable for up to ten consecutive one-year terms. As security for the Notes, the County pledges all secured taxes to be collected which were delinquent and advanced to taxing jurisdictions. The principal balance of the Notes is reduced as property owners pay delinquent taxes or from the proceeds of the sale of tax-defaulted properties. Repayment of these Notes can take several years, and under the County’s Teeter Plan, the Board of Supervisors (Board) is required to annually approve each year’s Note for the outstanding principal amount. Interest on the Notes is paid from the Tax Loss Reserve Fund.
The Tax Loss Reserve Fund is made up of the penalties and interest portion of delinquent secured tax, and is required by state law to maintain a minimum of 1% of the current secured property tax levy to ensure that sufficient funds are available to repay the Notes in the event that the full value of the delinquent taxes are not recovered. In FY 2009-10, the Board adopted a Teeter Policy that established a restricted reserve requirement equal to 2% of the levy. In FY 2015-16, the Board temporarily reduced the reserve target to 1.25% to finance a one-time roads pavement preservation investment with the objective of re-establishing the 2% reserve from the future collection of penalties. In 2023-24, the board adopted a Teeter Policy that established a restrictive requirement equal to 1.5%, and then subsequently, during 2024-25 budget hearings, temporarily reduced the reserve target to 1.25%. The Tax Loss Reserve Fund is projected to have a balance of $21.1 million at June 30, 2025. This projected balance is $3.7 million greater than the temporarily reduced reserve target of 1.25% and $232,000 greater than the 1.5% reserve policy. This item does not impact the projected balance. The estimated balance will be updated prior to FY 2025-26 Budget Hearings.
The delinquency rate and delinquent secured tax amount have increased since the last reporting period:
• Delinquent secured taxes totaled $28.6 million at the start of 2024-25, up from $26.7 million at the start of 2023-24.
• The secured roll delinquency rate increased from 1.30% in 2022-23 to 2.05% in 2023-24.
Interest expense on the Notes is calculated on the outstanding balance of delinquent secured taxes and is estimated to be $780,000 in 2024-25.
A detailed breakdown of the prior Delinquent Tax Anticipation Notes being renewed is included in the attached Resolution.
Strategic Plan:
N/A
Racial Equity:
Was this item identified as an opportunity to apply the Racial Equity Toolkit?
No
Prior Board Actions:
Annually since 1993: Approve financing
08/31/1993: Implemented the Alternative Method of Property Tax Allocation & approved financing
06/29/1993: Adopted the Alternative Method of Property Tax Allocation
Fiscal Summary
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FY23-24 Adopted |
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Narrative Explanation of Fiscal Impacts:
This financing process has no impact on Teeter revenues currently budgeted in Fiscal Year 2024-25.
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Narrative Explanation of Staffing Impacts (If Required):
N/A
Attachments:
Attachment 1- Resolution Authorizing Renewal Of County Of Sonoma Delinquent Tax Anticipation Note Series 2014-1, 2015-1, 2016-1, 2017-1, 2018-1, 2019-1, 2020-1, 2021-1, 2022-1 and 2023-1 And Authorizing The Issuance Of County Of Sonoma 2024-1 Delinquent Tax Anticipation Note
Related Items “On File” with the Clerk of the Board:
N/A