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RESOLUTION NO. 2015-194 OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA APPROVING ASSIGNMENT OF DELINQUENT TAX RECEIVABLES TO THE CALIFORNIA STATEWIDE COMMUNITIES DEVELOPMENT AUTHORITY FOR PRIOR FISCAL YEARS, AND AUTHORIZING EXECUTION AND DELIVERY OF RELATED DOCUMENTS AND ACTIONS
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RECOMMENDED ACTION
Recommended Action
Council adopt the resolution.
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SUMMARY
Staff has identified a delinquent property tax program (the Program) being offered by the California Statewide Community Development Authority (a statewide joint powers authority sponsored by the League of California Cities and the California State Association of Counties) (the “CSCDA”) under which qualified tax delinquencies will be advanced in full by the CSCDA, along with a 10% premium, in exchange for an assignment or sale of the rights to the payments later made by the property owners along with all penalties and interest thereon. This program is designed to be like a “Teeter Plan” for agencies that do not already participate in a Teeter Plan. The Teeter Plan (first enacted in 1949) provides California counties with an optional alternative method for allocating delinquent property tax revenues. 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. In exchange, the counties receive the penalties (10%) and interest on the delinquent taxes when collected. The City does not participate in the Teeter Plan but is requesting authority to pursue the the Program for tax levies related to Community Facility Districts (CFD) and Assessment Districts (AD). The program will not include any General Fund property tax levies as the current practice of collecting 100% of the penalties and interest associated with delinquencies over a long period of time does not pose an administrative burden on the City nor does it create an issue with meeting current operating obligations.
ENVIRONMENTAL REVIEW
The Development Services Director has reviewed the proposed activity for compliance with the California Environmental Quality Act (CEQA) and has determined that the activity is not a “Project” in accordance with Section 15378(b)(5) of the State CEQA Guidelines because it involves only a financial transaction; therefore it is an organizational or administrative activity of government that will not result in a direct or indirect physical change in the environment; therefore, pursuant to Section 15060(c)(3) of the State CEQA Guidelines the activity is not subject to CEQA. Thus, no environmental review is necessary.
BOARD/COMMISSION RECOMMENDATION
Not Applicable
DISCUSSION
The City receives revenues from property tax levies made for a variety of different purposes. The 1% “Ad Valorem” levy is levied county-wide and allocated to public agencies in accordance with certain allocation factors and other applicable state laws. Other levies, like those made for weed abatement, nuisance abatement, sewer or refuse service, special taxes and assessments levied for community facilities districts (“CFD”s) and/or assessment districts (“ADs”) and levies made in any landscape and lighting districts, and so on, are considered “direct levies and are remitted 100% to the City
Each year, a small percentage of property owners (usually between 2% and 5% of all properties) fail to pay their property taxes and thereafter become “delinquent.” Each year the County produces a “Delinquent Property Tax Roll” showing all of the delinquent property taxes County-wide. The City is entitled to delinquent property tax revenues along with penalties and interest accrued thereon. One way to view these delinquent taxes is as a “receivable” of the City but unavailable for current expenditures.
CSCDA finances the Program by pooling the tax delinquencies of different local agencies, and selling one or more Certificates of Participation for the amount of all of the accumulated delinquencies to Tower Capital Management (TCM). In the first year of an agency’s participation, CSCDA will purchase delinquencies that are up to 6 years old, meaning CSCDA will pay the City 100% for the qualified taxes remaining delinquent from any time during the last 6 years. The City will be able to immediately realize cash in the CFD and AD funds. The City will receive a 10% premium on the purchase of the delinquencies which can be used in any lawfully available fund, including the General Fund.
CSCDA requires a three-year commitment to sell the delinquencies. If the proposed resolution is approved, TCM will then conduct due diligence to determine which delinquencies qualify for the program, and on what terms. The City will also review and determine which tax receipt categories it desires to include in the program. Thereafter, the results will be reviewed by the Finance Director and City Attorney or their designees and then set a schedule to proceed to closing. After the first year, and each year thereafter, TCM will likely request the City to extend the agreement for one additional year. This way a 2 to 3 year “evergreen” term always exists. If the City ever wants to exit the program, it need only decline to extend the term and wait out the completion of the existing term.
Participating in the Program will provide reliable cash flow to the various CFD and AD funds managed by the City. It will create greater security to the bonded districts by ensuring collection of the funds which will then be available for the annual debt service requirements. In addition, the administrative burden of the collection process required by existing bond covenants will be reduced as the funds will be available for meet debt service requirements.
DECISION-MAKER CONFLICT
Staff has reviewed the decision contemplated by this action and has determined that it is not site-specific and consequently, the 500-foot rule found in California Code of Regulations Title 2, section 18705.2(a)(11), is not applicable to this decision for purposes of determining a disqualifying real property-related financial conflict of interest under the Political Reform Act (Cal. Gov't Code § 87100, et seq.).
LINK TO STRATEGIC GOALS
The City’s Strategic Plan has five major goals: Operational Excellence, Economic Vitality, Healthy Community, Strong and Secure Neighborhoods and a Connected Community. This program supports the Operations Excellence goal as it seeks to stabilize the natural variance in special tax receipts and provide the City with additional unrestricted revenues.
CURRENT YEAR FISCAL IMPACT
There will be a positive fiscal impact to the CFD and AD funds included in the program due to the collection of outstanding delinquencies. It is estimated that the current fiscal year impact to the various CFD’s and AD’s could be approximately $70,000. In addition, the General Fund could have a positive impact of approximately $70,000 related to the 10% premium paid. The actual amount will be calculated once all eligible districts have been selected for inclusion in the program.
ONGOING FISCAL IMPACT
Based on a preliminary analyses, the positive impact to the CFD’s and AD included in the program could range from $25,000 to $75,000 annually. It is estimated that the General Fund will receive approximately $50,000 per fiscal year by participating in this program. The actual amount will depend on the level of delinquencies in each fiscal year.
Staff Contact: David Bilby, Finance & Purchasing Manager