Presentation on theme: "County of Orange Teeter Program California State Association of County Auditors Property Tax Managers’ Sub-Committee February 5, 2015 Presented by: Claire."— Presentation transcript:
County of Orange Teeter Program California State Association of County Auditors Property Tax Managers’ Sub-Committee February 5, 2015 Presented by: Claire Moynihan County of Orange Public Finance Accounting
Overview Provide an understanding of the County’s Teeter Program. Topics to be covered: Teeter Defined History of Teeter Plan Teeter Tax Losses Reserve Fund Orange County’s Teeter Program Debt Financing Debt Service Fund and General Fund
Teeter Defined The Teeter Plan provides for an optional alternative method for allocating delinquent property tax revenues. Under the Teeter Plan, the County purchases the estimated outstanding current year delinquent secured and secured supplemental tax receivables as of June 30 th. In exchange, counties receive the penalties and interest on the delinquent taxes when collected, as well as the base taxes receivable. For those taxing entities that do not participate in the Teeter Plan, interest and penalty are allocated to those taxing entities based on their pro rata share of the delinquent property taxes. The tax penalty is a basic 10% of delinquent taxes. Interest accrues at 18% per year, secured by a first lien on the property.
History of Teeter The Teeter Plan was first enacted in The concept of this alternative method of distribution was first introduced by Mr. Desmond Teeter, the Auditor of Contra 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. Mr. Teeter’s proposal resulted in the addition of Chapter 3, consisting of Revenue and Taxation (R&T) Code sections Because Mr. Teeter was the author of this alternative method, it is now commonly referred to as the Teeter Plan. The purpose of this method is to provide an alternative procedure for the distribution of property tax levies on the secured roll made by counties on their own behalf or as the tax-levying and tax-collecting agency for other political subdivisions.
History of Teeter The object is to simplify the tax-levying and tax-apportioning process and to provide increased flexibility in the use of available cash resources to taxing entities. Only five counties originally adopted the Teeter Plan. In FY , after the ERAF shift was mandated by the State, counties were searching for an offset to their property tax losses. Legislation was passed that allowed counties opting into the Teeter plan to receive a one-time credit known as the Teeter Credit. Because of the Teeter Credit, many more counties opted to allocate property taxes per the Teeter Plan. Today, more than 90% of California counties have elected into the Teeter Plan, which obligates those counties to purchase the delinquent tax receivables from the participating taxing entities.
Tax Losses Reserve Fund The R&T requires counties on the Teeter Plan maintain a Tax Losses Reserve Fund to cover losses that may occur if tax-defaulted property is sold in a special sale for less than the amount necessary to cover outstanding tax and assessment liens on that property. This fund receives payments of delinquent penalties and interest collected from the purchased receivables. Unclaimed excess proceeds from the sale of defaulted property are also remitted to this fund. Excess revenues beyond the requirements may be transferred to the General Fund. Orange County has never needed to access the Tax Losses Reserve Fund. The minimum reserve may be either: 1% of total secured property tax and assessments or 25% of delinquent secured taxes and assessments
Tax Losses Reserve Fund Each County Board of Supervisors determines which of these two methods will best meet its needs, and can switch annually, upon recommendation from the Auditor-Controller. This year, the Auditor-Controller and the CEO are recommending to the Board of Supervisors to switch methods to the 25% of delinquent secured taxes calculation method. Property tax delinquencies have significantly declined, so it is more favorable for the County to change methods to allow the minimum reserve requirement to be maintained. If the total reserve balance is greater than the minimum required at the end of the fiscal year, the excess may be transferred to the County General Fund. The Tax Loss Reserve Fund requirement is $44.3 million. The Tax Loss Reserve Fund requirement using 25% of June 30, 2014 delinquent taxes and assessments would be $10.9 million. The balance of the Tax Loss Reserve Fund as of September 30, 2014 was $47 million.
Orange County’s Teeter Plan Enacted in Fiscal Year In Orange County, 124 cities, agencies, districts and taxing entities participate in the Teeter Plan and receive their full share of property taxes from the secured roll, whether or not these taxes have been collected. Those agencies which by law are required to use the County Treasury as their legal depository were automatically included in the Teeter Plan and include the following: All County Board-governed funds and special districts, which include the General Fund, Flood Control District, Library, and County Service Areas (includes Parks) Sanitation Districts Orange County Vector Control Independent library districts Some recreation and park districts Some community special districts
Orange County’s Teeter Program Agencies not automatically included in the plan had to choose whether to opt into the plan by July 15, 1993 through resolution of the governing body and include: Cities City community redevelopment agencies Independent districts not included in the County Treasury by law Not all taxing entities opted into the Teeter Plan. Approximately 83% of delinquent taxes are purchased as part of the Teeter Plan. The remaining delinquent taxes belong to those taxing entities that did not automatically or through their governing body opt into the Teeter Plan
OC Teeter Financing Program Initially, the County issued short-term debt to finance the Teeter Plan. In June 1995, the Orange County Special Financing Authority (OCSFA) issued long-term debt. The Teeter Plan was financed through OCSFA long-term bonds for a number of years. In 2008, the financing program changed from long-term debt to a short-term financing program through the Teeter Plan Obligation Commercial Paper Program Notes. The commercial paper was issued from time to time to mature on business days not to exceed 270 days from issuance and was secured by the delinquent taxes (excluding penalties and interest).
OC Teeter Financing Program On February 1, 2013, the County redeemed all of its commercial paper and entered into a 3-year note receivable with Wells Fargo, in an amount not to exceed $150 million. The note is secured through a pledge of the base delinquent taxes collected. Interest is calculated weekly based on SIFMA index +.58% and is remitted monthly to the trustee to pay Wells Fargo. The SIFMA has ranged between.03% and.23% since inception of the note. Quarterly, the County pays Wells Fargo a commitment fee of.25% for the unused portion of the note. Currently, there is $71.3 million outstanding on the note.
OC Teeter Financing Program Current practice: After the last apportionment in June, the balance of base delinquent taxes collected are remitted to the County’s trustee to send to Wells Fargo to redeem a portion of the notes In July, the AC Property Tax Division provides the amount of cash required to purchase the June 30 delinquent taxes receivable Wells Fargo is notified of the amount required and another series of the note is issued and wired to the County to purchase the delinquent taxes receivable After the last apportionment in December, the balance of base delinquent taxes collected are remitted to the trustee to send to Wells Fargo to redeem a portion of the notes
Debt Service Fund 15Y and General Fund Currently, penalties and interest collected are first deposited into the Tax Losses Reserve Fund until the reserve requirement is met. The amount in excess of the reserve is recorded to the Teeter Debt Service Fund 15Y, and those revenues are available to the General Fund. For FY 13-14, $15.5 million of penalty and interest revenue was recognized in Fund 15Y and interest expense was $347 thousand. CEO normally budgets a transfer from Fund 15Y to the General Fund each year. In the last two years, the transfer did not occur because the General Fund did not need the transfer. FYBUDGETACTUAL TRANSFER 2015$ 22.5 millionYet to be determined million million$ 10.0 million million 28.0 million million 20.0 million
Summary Teeter History Teeter Program in Orange County Financing Perspective Debt Service Fund 15Y Perspective General Fund Perspective Resources Comprehensive Annual Financial Report (CAFR) State Controller’s Office California State Association of County Auditors