Print
E-mail
Comment
Rate
Towns find way around state money grab
Though the state government said it would be taking nearly 8 percent of local property taxes at the end of the calendar year to balance the state budget, towns across California may have found a way around that grab.
The state is legally allowed to borrow money from local property taxes, with the stipulation that it pay back the money with interest within three years and that the state cannot borrow money again until it is paid back.
Every Marin town other than Ross and a number of public agencies have opted, instead of waiting for the funds to be taken and repaid in three years, to enroll in a securitization bond program that would sell the state’s IOUs to private investors and transfer the funds from that sale directly to the towns and agencies. Towns would receive exactly as much as they would lose and would not then have to wait for the state to pay them back. California Communities, a joint powers authority created by the League of Cities and the California State Association of Counties, is backing the bond effort, while the state agreed to cover the costs of issuing the bonds.
“Borrowing local money was extremely unpopular,” said the League of Cities Legislative Director Dan Carrigg.
Towns and public agencies have until Nov. 6 to enroll in the bond program. California Communities will then package all the IOUs and sell those bonds to private investors in November. Towns and agencies would then receive a check for the amount they would lose to the state when property taxes are paid out.
Carrigg is confident there will be a buyer for these bonds and said the League of Cities had worked closely with Wall Street to establish boundaries. The sale of the bonds will be for the exact same amount as they are worth, but the interest rate will depend on the final sale agreement and the private investors interested. Carrigg expects to sell the packaged bonds at around a 3 percent interest rate.
Of the $1.9 billion the state was expecting to collect from the 8 percent property-tax grab, $1.5 billion of that is currently enrolled in the bond program, said Carrigg, accounting for 57 counties and 350 cities in the state. The more that enroll, the more attractive it looks to investors.
If a town or agency decides not to participate, then it simply takes the loss in property-tax revenue and will be repaid in three years at 2 percent interest.
Ross is the only town in Marin that has opted at this time not to participate in the program.
“It’s six of one, half a dozen of the other,” said Ross Town Manager Gary Broad. “The 8 percent doesn’t change our budget one way or another.”
Ross, where the 8 percent loss will amount to $212,000, can rely on reserves to cover the difference.
“We’re fortunate in that respect,” said Broad.
When the California Legislature announced a 2009-10 budget that would borrow 8 percent of local property taxes, many Marin towns were left reeling. The tax grab, as they took to calling it, combined with a delay of the payment of gas taxes to the towns, and the loss of local redevelopment funds — which the state also took — devastated local towns.
In Fairfax, across-the-board cuts were implemented because of the lean economic times, and the estimated $225,000 of property taxes that the state would take was going to be paid for from the dry-period fund. The dry-period fund is only $551,400 currently, said Town Manager Michael Rock.
The Fairfax Town Council approved the town’s participation in the program at its Oct. 7 meeting. The San Anselmo Town Council approved its participation at the Oct. 27 meeting.
San Anselmo Finance Director Janet Pendoley said there are two big issues that remain unresolved about the program: first, there is an element of risk, since this has never been done before, but that with such a large number of towns participating, the risk is shared; and second, either all the bonds have to be sold or none of them, and there is a chance there won’t be an interested buyer.
San Anselmo approved a budget with a surplus of $422,163, which it allocated to a contingency reserve to pay the 8 percent property-tax loss. The total loss in San Anselmo would have been around $513,000 and the additional money would have been covered by reserves or from the capital improvement fund.
“We’re prudent about keeping our reserves for the unknown future,” said Pendoley, who pointed out that if the town opts in to the bond program then it won’t have to worry whether the state has the money to pay it back in three years. The private investors who buy the bonds will have to worry about that.
Corte Madera is signing on to the program for “cash flow reasons,” said Corte Madera Finance Director George Warman Jr. Corte Madera, which was expected to lose close to $500,000, has implemented budget cuts over the last two to three years, said Warman, with substantial cuts in the upcoming year.
“We didn’t have much choice did we?” said Larkspur Town Manager Jean Bonander, agreeing that bond funds were a good way to cover the close to $600,000 that Larkspur would have lost in property taxes.
If the town has opted not to participate in the program, it would have been able to get by on reserves for a year, but then would have had to implement more cuts.
Along with the property-tax loss, the state is supposed to be paying out gas-tax revenues on a delayed timetable, though the revenues from July and August haven’t yet been received.
The state also took over $2 billion in redevelopment funds from local agencies, which is the subject of a lawsuit from the California Redevelopment Association over the constitutionality of the grab.
“We’re evaluating every single expenditure,” said Bonander.
Contact Kelly Dunleavy at kdunleavy@marinscope.com.
The state is legally allowed to borrow money from local property taxes, with the stipulation that it pay back the money with interest within three years and that the state cannot borrow money again until it is paid back.
Every Marin town other than Ross and a number of public agencies have opted, instead of waiting for the funds to be taken and repaid in three years, to enroll in a securitization bond program that would sell the state’s IOUs to private investors and transfer the funds from that sale directly to the towns and agencies. Towns would receive exactly as much as they would lose and would not then have to wait for the state to pay them back. California Communities, a joint powers authority created by the League of Cities and the California State Association of Counties, is backing the bond effort, while the state agreed to cover the costs of issuing the bonds.
“Borrowing local money was extremely unpopular,” said the League of Cities Legislative Director Dan Carrigg.
Towns and public agencies have until Nov. 6 to enroll in the bond program. California Communities will then package all the IOUs and sell those bonds to private investors in November. Towns and agencies would then receive a check for the amount they would lose to the state when property taxes are paid out.
Carrigg is confident there will be a buyer for these bonds and said the League of Cities had worked closely with Wall Street to establish boundaries. The sale of the bonds will be for the exact same amount as they are worth, but the interest rate will depend on the final sale agreement and the private investors interested. Carrigg expects to sell the packaged bonds at around a 3 percent interest rate.
Of the $1.9 billion the state was expecting to collect from the 8 percent property-tax grab, $1.5 billion of that is currently enrolled in the bond program, said Carrigg, accounting for 57 counties and 350 cities in the state. The more that enroll, the more attractive it looks to investors.
If a town or agency decides not to participate, then it simply takes the loss in property-tax revenue and will be repaid in three years at 2 percent interest.
Ross is the only town in Marin that has opted at this time not to participate in the program.
“It’s six of one, half a dozen of the other,” said Ross Town Manager Gary Broad. “The 8 percent doesn’t change our budget one way or another.”
Ross, where the 8 percent loss will amount to $212,000, can rely on reserves to cover the difference.
“We’re fortunate in that respect,” said Broad.
When the California Legislature announced a 2009-10 budget that would borrow 8 percent of local property taxes, many Marin towns were left reeling. The tax grab, as they took to calling it, combined with a delay of the payment of gas taxes to the towns, and the loss of local redevelopment funds — which the state also took — devastated local towns.
In Fairfax, across-the-board cuts were implemented because of the lean economic times, and the estimated $225,000 of property taxes that the state would take was going to be paid for from the dry-period fund. The dry-period fund is only $551,400 currently, said Town Manager Michael Rock.
The Fairfax Town Council approved the town’s participation in the program at its Oct. 7 meeting. The San Anselmo Town Council approved its participation at the Oct. 27 meeting.
San Anselmo Finance Director Janet Pendoley said there are two big issues that remain unresolved about the program: first, there is an element of risk, since this has never been done before, but that with such a large number of towns participating, the risk is shared; and second, either all the bonds have to be sold or none of them, and there is a chance there won’t be an interested buyer.
San Anselmo approved a budget with a surplus of $422,163, which it allocated to a contingency reserve to pay the 8 percent property-tax loss. The total loss in San Anselmo would have been around $513,000 and the additional money would have been covered by reserves or from the capital improvement fund.
“We’re prudent about keeping our reserves for the unknown future,” said Pendoley, who pointed out that if the town opts in to the bond program then it won’t have to worry whether the state has the money to pay it back in three years. The private investors who buy the bonds will have to worry about that.
Corte Madera is signing on to the program for “cash flow reasons,” said Corte Madera Finance Director George Warman Jr. Corte Madera, which was expected to lose close to $500,000, has implemented budget cuts over the last two to three years, said Warman, with substantial cuts in the upcoming year.
“We didn’t have much choice did we?” said Larkspur Town Manager Jean Bonander, agreeing that bond funds were a good way to cover the close to $600,000 that Larkspur would have lost in property taxes.
If the town has opted not to participate in the program, it would have been able to get by on reserves for a year, but then would have had to implement more cuts.
Along with the property-tax loss, the state is supposed to be paying out gas-tax revenues on a delayed timetable, though the revenues from July and August haven’t yet been received.
The state also took over $2 billion in redevelopment funds from local agencies, which is the subject of a lawsuit from the California Redevelopment Association over the constitutionality of the grab.
“We’re evaluating every single expenditure,” said Bonander.
Contact Kelly Dunleavy at kdunleavy@marinscope.com.
 |
||
| Fairfax fire started in basement |
Article Rating
Reader Comments
The following are comments from the readers. In no way do they represent the view of marinscope.com.
You must register with a valid email to post comments. Only your Member ID will be posted with the comments.
Registered users sign in here: |
Become a Registered User |
