COUNTY OF SAN MATEO

Inter-Departmental Correspondence

County Manager’s Office

DATE:

June 18, 2008

BOARD MEETING DATE:

June 24, 2008

SPECIAL NOTICE/HEARING:

None

VOTE REQUIRED:

Majority

TO:

Honorable Board of Supervisors

FROM:

John L. Maltbie, County Manager

SUBJECT:

County Manager’s Report #7

A.

Resolution in opposition to SB 1710 (Oropeza), Tax Liens

RECOMMENDATION:

Adopt a resolution in opposition to SB 1710 (Oropeza) regarding tax liens.

VISION ALIGNMENT:

Commitment: Realize the potential of our diverse population

Goal(s): 1—Our diverse population works well together to build strong communities, effective government and a prosperous economy.

BACKGROUND:

SB 1710 would create a mechanism for property tax lending, a process through which a private “payer” would pay a property owner’s (assessee) property taxes, penalties and interest, and through which such payments become a lien against the assessee’s real property. SB 1710 would establish such liens with the same priority as tax liens issued by counties—enabling the payer to have first priority in the lien collection process.

The lien would confer the same obligation for repayment and the right of sale and foreclosure as a lien issued by the county. Similar to tax collectors, the payer would be able to commence foreclosure actions after three years for commercial properties and after five years for residential properties. This bill would cap interest rates for property tax loans at no more than 16 percent per year (less than the 18 percent that tax collectors may levy). The bill would also allow the payer to charge any reasonable and actual costs and fees with caps:

Charge, fee cap

Loan amount

$1,250

Up to $2,500

$1,500

2,501 - $5,000

$1,750

$5,001 - $7,500

$2,000

$7,501 - $10,000

$2,500

> $10,000

SB 1710 would require the tax collector to implement the tax lien transfers, but allow them to charge a fee for the actual cost of such actions or a fee of $250, whichever is less.

DISCUSSION:

The California State Association of Counties (CSAC) and the California Association of County Treasurers and Tax Collectors (CACTTC) have taken an opposed-unless-amended position on SB 1710. They are concerned about the costs to the property owner, the absence of minimum qualifications for payers and conflicts created by having multiple assessees.

While legislative committee analyses suggest that this will increase property tax payments to counties, CSAC and CACTTC also want to ensure that taxpayers are protected and that the tax collectors role is minimized.

SB 1710 raises policy questions about the role of private lenders taking priority status in the lien process, which currently reserves “super-lien” status to counties for the collection of property taxes—even before the Internal Revenue Service for income tax delinquencies, which are subject to the same lien process as mortgage companies.

Critics fear that the fees and charges (capped only by the most recent, May 23, amendments) are too high and with priority lien status, lenders are financially motivated to make these loans. The property tax delinquency status of the property owner suggests that those who would be subject to these types of loans will be lower income families and individuals.

While proponents argue that payers will be providing a lending service that will likely not be available to such property owners, the granting of authority similar to counties (lien status and ability to foreclose and sell property) masks and potentially belies the benefit to the taxpayer.

Tax Collector Buffington has reviewed SB 1710 and recommends the County oppose the bill unless amended to better protect taxpayers and minimize the tax collectors role in such private transactions. The Legislative Committee has reviewed this bill and recommends an oppose position.

FISCAL IMPACT:

Unknown

B.

Update on State Budget

RECOMMENDATION:

None. Information only.

VISION ALIGNMENT:

Commitment: Responsive, effective and collaborative government

Goal(s): Goal 20—Government decisions are based on careful consideration of future impact, rather than temporary relief or immediate gain.

BACKGROUND:

The Budget Conference Committee began their work of reconciling the Assembly and Senate versions of the State Budget on June 12. The Committee members are:

Senators Ducheny, Machado and Dutton and Assembly Members Laird, Leno and Niello.

The Treasurer’s Office predicts the state will run out of cash in early September. By early to mid-August, the state will need to begin issuing Revenue Anticipation Warrants. A number of factors (including California’s current debt, an absence of a state budget, no assurance of repayment and prison health receivership) will increase the cost of borrowing. California’s credit rating is 49^th of the 50 states.

DISCUSSION:

As in years past, the Conference Committee is expected to address the bulk of minor issues and to leave the core elements to the Big 5 (Governor and four legislative leaders).

Senate Democrats have rejected the Governor’s lottery securitization proposal and instead proposed an $11.5 billion increase in tax revenues. However, they have not specified the source.

Our advocate reports that the Committee has no significant action to date. Legislative leaders have begun meeting, but not with the Governor.

FISCAL IMPACT:

Unknown, but significant.