Tuesday, Jul. 15, 2008

Property taxes late; county has to borrow

Money has to be paid to other agencies but little's coming in.

By CORINNE REILLY
creilly@mercedsun-star.com

For the first time since the mid-1990s, Merced County has borrowed money to deal with soaring property tax delinquency rates.

In yet another sign that fallout from the foreclosure crisis is still far from over, about one in 12 Merced County landowners failed to pay tax bills this fiscal year.

That means about $20.4 million in property taxes -- or about 8.3 percent of what the county billed -- are now past due.

As a result, the county has had to borrow about $5 million to make payments to school districts, cities and other agencies to which it hands down property tax revenue, according to the county auditor's office.

"I've never seen a situation like this -- a situation with so many delinquencies," said county treasurer-tax collector Karen Adams. "No one here has. We're trying to ease through it as best we can, but there's no question that we're in trouble."

For every dollar in property taxes the county collects, it keeps about 20 cents. The remaining 80 percent is handed down to school districts, cities and special agencies including water, sewer, cemetery and mosquito abatement districts.

To allow those agencies to create accurate budgets, the county guarantees that it will hand over all the property tax income that each city and district is supposed to receive -- regardless of whether the county collects it all.

That means the county must temporarily eat property tax delinquencies until the taxes are paid, either through late payments or, if the taxes remain unpaid long enough, through seizures or liens.

Most California counties apportion property taxes in this method -- named the Teeter Method for the Contra Costa County auditor who proposed it, Desmond Teeter.

The county maintains a reserve account that in most years is enough to temporarily cover delinquent tax payments.

Once the taxes are paid, the county uses the late penalties it collects to replenish the reserve account.

This year, however, the county depleted a $13.7 million reserve, forcing it to borrow money to make payments to schools, cities and special districts.

Still, county officials said the 8.3 percent delinquency rate -- up from last year's 5.6 percent -- shouldn't affect its budget.

"That's the reason we do it this way," said Stephen Jones, the county's auditor-controller. "We pay interest out on the loan that we had to take, but we keep the interest that's paid on the delinquent taxes when they come in, so it evens out. ... It won't affect our bottom line."

Under state law, property owners must pay a flat 10 percent fee anytime they pay a tax bill late. They are charged an additional 1.5 percent per month -- or 18 percent per annum -- on all taxes that are still unpaid at the close of the fiscal year, June 30.

The only consequence the county might face as a result of the delinquencies, Jones said, is difficulty borrowing more money for other purposes.

"Anytime you borrow money it goes against your bonding capacity," he said. "If we wanted to take out a big loan for a building project or some other purpose, it could affect us there."

Adams said many of the property owners who have failed to pay their tax bills are either homeowners who are at some stage of the foreclosure process or banks that have taken ownership of foreclosed properties.

Before banks or homeowners can resell their properties, all tax bills must be paid, plus penalties.

Homeowners struggling to pay their tax bills should contact the county tax collector's office, Adams said.

"We're not here to put people out of their homes," she said. "We can help people make arrangements to pay and there are lots of programs we can direct them to that can help. ... The worst thing you can do is ignore it and rack up more penalties."

Property tax delinquency rates have also climbed in other northern San Joaquin Valley counties. Stanislaus County's delinquency rate is about 8.5 percent, up from the last fiscal year's 6.4 percent. San Joaquin County's delinquency rate is up to about 7.7 percent.

To reach the tax collector's office, go to its Web site at www.mercedtaxcollector.org or call (209) 385-7592.

Reporter Corinne Reilly can be reached at (209) 385-2477 or creilly@mercedsun-star.com.

Falling behind on property taxes

Merced County property owners are deliquent in paying 2007 property tax bills to the tune of $20.4 million, or about 8.3 percent of the total due. Here's a look at the recent trend.