FUNDAMENTALS OF MUNICIPAL REVENUE PROPERTY TAX BASICS. August 22, 2017 WHAT IS TAXED? WHO DOES THE WORK? WHAT IS THE TIMING?

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1 FUNDAMENTALS OF MUNICIPAL REVENUE PROPERTY TAX BASICS August 22, 2017 WHAT IS TAXED? WHO DOES THE WORK? WHAT IS THE TIMING? 2

2 PROPERTY TAX BASICS THE PROCESS WHAT, WHO, AND WHEN 3 Proposition 13 California Tax Payers Revolt 1978 WHAT DID PROPOSITION 13 DO??? Prop 13 limited property taxation to 1% of the assessed value. Annually, real property values can be increased by a maximum of 2% or the actual CCPI, whichever is less. (Oct.-Oct. time frame used) Exceptions to the CCPI applied FULL MARKET VALUE TRANSFERS OF OWNERSHIP and NEW CONTRUCTION ADDED Requires a special tax increase to be approved by a 2/3 vote Any increase in State taxes requires 2/3 vote of State Legislature The State now controls the allocation of Property Tax Revenue FACT: In 10 of the past 39 years the CCPI granted has been less than 2%. 4

3 WHAT PROPERTY IS TAXED? Secured, Unsecured, Utility Rolls Secured Roll Possessory Interests, mobile homes, slips, tie downs, mineral rights Handled differently depending on the County. Secured or Unsecured??? Unsecured Roll Utility Roll 5 THE COUNTY DEPARTMENTS THAT MANAGE PROPERTY TAXES ASSESSOR Appraises property, enrolls new construction, market value of sales, and administers appeals. AUDITOR CONTROLLER Extends the tax roll, applies the 1% base levy, any voter approved debt and direct assessment levies. Apportions revenue after taxes are paid. TREASURER-TAX COLLECTOR Prints and mails the tax bills and collects taxes based on the information provided by the Auditor. 6

4 PROPERTY TAX TIMELINE Values lag months being reflected on the tax rolls. January 1 st lien date. Assessor applies CCPI per Prop 13, uses prior calendar year property information. (January 1, 2017) Between January 1 and June 30, 2017 assessor applies Prop 8 changes, roll changes and roll corrections and closes roll. Auditor receives the roll on July 1 st and applies taxing percentages and direct assessments (July 1, 2017) Treasurer/tax collector receives the roll on August 31. The tax bills are printed and mailed. Roll received August 31, 2017, tax bills mailed September 2017 Tax payers pay taxes due November 2017 and February 2018 Delinquent after Dec. 10 and April 10 Auditor apportions revenue between November 2017 and August PROPERTY TAX BASICS CALCULATION OF REVENUE AND TAX APPORTIONMENT 8

5 THE LOWEST COMMON DENOMINATORS BUILDING BLOCK FOR TAX CALCULATIONS TRAs 1% factors 9 TAX RATE AREAS The Significance The parcel number (APN/AIN) is the lowest unique identifier of property. Each parcel is assigned to a tax rate area (TRA) and TRAs are uniquely assigned to cities/counties/special districts. TRA ,231 parcels TRA parcels Some cities/agencies have as few as 10 TRAs and others in excess of

6 How was my City s share of the 1% levy established? What is AB 8 and how does it work? Original Factors versus annual factors. The calculation of revenue change by TRA for this factor is recalculated annually. ERAF adjustments started in Some counties made the shift a part of the 1% file, others subtract the amount owed at a tax summary level. There is a separate file that manages annual growth in the County, City/Town or special district for this shift. 11 TAX SHARE GROSS AND NET OF ERAF Countywide average 1% share 13.8 The difference between the 1% share before and after the ERAF Shift in one city in a Riverside County. 12

7 Countywide average 1% share Ventura County has the ERAF calculated as receiving a share of the 1% tax levy. This has the impact of reducing each city s 1% share by the amount that has been shifted to ERAF. 13 AB-8 HOW DOES MY REVENUE GET FROM THE TAXPAYER TO MY CITY OR AGENCY? 14

8 Property Tax Apportionment -AB-8 the next step $4,000,000 $1,000,000 Current Year 1 st Apportionment December Payment Cycle Secured Unsecured HOPTR $84,000,000 SHARE OF ALL TAXES LEVIED IN THE COUNTY TOTAL REVENUE TO BE APPORTIONED IN CYCLE: $84,000, ,000, ,000,000 = $89,000,000 ALL CURRENT YEAR REVENUE RECEIVED IS ALLOCATED BASED ON THE AB8 APPORTIONMENT FACTORS DEVELOPED EACH YEAR. 15 SAMPLE AB-8 COUNTY FILE RIVERSIDE COUNTY While the city receives roughly a 23 share after ERAF and they receive of all revenue collected in Riverside County. As already discussed, Palm Spring s after ERAF share is approximately 23. The county sums the revenue to be generated in each TRA (last year s revenue plus the change between tax years) and once the total is calculated it is compared to the countywide revenue total and an Apportionment Factor is developed. AB 8 refers to this proportionate share of all revenue allocated not the agency s 1% share. 16

9 Property Tax Apportionment Is your city/agency a Teeter or Non-Teeter Agency? What s the Difference??? Current Year Collections Secured/Unsecured/HOX/Utilities/Unitary Apportioned for Non-Teeter or Teeter taxing entities based on AB-8 Supplementals, tax payer refunds, adjustments Apportioned for Non-Teeter or Teeter taxing entities based on AB-8 Prior year collections Secured and unsecured payments, penalties, interest, delinquencies Non-Teeter cities/counties/special districts only Revenues are also distributed based on the secured/unsecured collection and in the ratios they are received countywide. SECURED AND UNSECURED ALLOCATIONS Why it is difficult to forecast unsecured revenues? Hermosa Beach will receive 3.0% more of their property tax allocation as UNSECURED revenue than their value would produce and 3.0% less SECURED revenueofthewhole forthesametotal of 100% of property tax revenue used to develop their apportionment factor. 18

10 Property Tax Apportionment POOLED REVENUE FOR TEETER AND NON TEETER CITIES REVENUE THAT IS POOLED IS DISTRIBUTED PER AB8 FACTORS TO ALL TAXING JURISDICTIONS Based on their share of all revenue levied. These revenue sources include: Supplemental Bills--ADDITIONAL tax bills sent after sales transactions or new construction completed mid year- Roll corrections - Positive or negative changes- Successful appeals Tax payer refunds due to value adjustments 19 Fundamentals of Municipal Revenue PROPERTY TAX BASICS APPEALS FOR VALUE REDUCTIONS 20

11 THE ASSESSMENT APPEALS PROCESS An owner disagrees with the value enrolled by the assessor and files an appeal. Administrative conference between property owner and assessor staff is held IF THERE IS AGREEMENT, THE VALUE IS CHANGED. IF AN AGREEMENT IS NOT REACHED, THE CASE MOVES TO THE AAB BOARD FOR HEARING. THE CASE MUST BE HEARD WITHIN 2 YEARS. THE HEARING DECISION IS FINAL. There is no appeal of the appeal. 21 THE ASSESSMENT APPEALS PROCESS IMPORTANT TO REMEMBER: The case is between the applicant and Appeals Board. A City does not have an opportunity to speak to the case unless they are subpoenaed by the Assessor staff to relate pertinent information. Appeals granted can be for multiple years. Tax payer refunds may be for multiple years and hit a single year s property tax allocation. 22

12 Fundamentals of Municipal Revenue PROPERTY TAX BASICS REAL ESTATE TRENDS AND THEIR IMPACT ON BUDGETING PROPOSITION 8 Delivering Delivering Revenue, Revenue, Insight and Insight and Efficiency to Local to Government Local Government 23 While all Cities and Counties are different we can report that: 9 counties in the State are seeing median prices in excess of those seen at the peak of the real estate bubble in 2006 or San Mateo County has seen the largest median price point increase % over peak price $400,000 increase. 8 additional counties are currently less than 10% off their peak median prices. Butte, Contra Costa, El Dorado, Humboldt, Placer, San Diego, San Luis Obispo and Ventura. Counties still with an excess of 25% off the bubble prices include Merced, Imperial, Kern, Stanislaus and Santa Barbara. 24

13 ONE COUNTY S PROGRESS THRU THE RECOVERY In the same analysis with data as of June years later. The cities in San Joaquin County have recovered on average 55 60% of the value lost during the real estate decline. Comparison of current median sale price to peak price during real estate bubble as of July Most cities were seeing Prop 8 reductions and sale price values well below the peak prices seen between 2005 and The average decline countywide in these properties was 64.7%

14 THE RESTORATION OF PROP 8 REVIEWS 97% of SFR homes remaining at the beginning of have seen some value restored in % of the pool of values have reported at the peak of the recession have been restored. 66% of SFR have been fully restored or sold as of San Bernardino can expect several more years of potential restoration to boost the bottom line of budget forecasts if median sale prices continue to move increase year over year. 5% 7% of homes in this pool of reduced SFR sell each year. Over 3 years 15 20% of homes are no longer eligible for value restoration counties have reported that more than 80% of the values reduced per Proposition 8 between 2008 and 2012 have been restored. 5 of these counties reported the largest median price point increases post recession. More than ⅔ of the largest coun es in the State have reported greater than 60% of the values restored as of The average of all counties of value remaining to be restored in comparison to the reductions at the peak is 26%. Slightly less than $90 billion left to bring homes current to their trended Prop 13 values. Theincreaseseentothebottomlinein the budgeting process due to these value restorations has diminished. 28

15 Fundamentals of Municipal Revenue FORECASTING PROPERTY TAXES IN AN IMPROVING ECONOMY AND PREPARING FOR THE NEXT CORRECTION WHAT DO WE NEED TO CONSIDER? 29 WHERE DO I GET THE INFORMATION TO POPULATE A FORECASTING MODEL? WHAT Real Property Values WHERE CY Auditor Value Certification Report for CCPI application The California CPI Prop 13 increase State Department of end of December Transfers of ownership and the change between the sale price and the AV. Prop 8 value restoration amounts Base Year Values in former RDAs Personal Property Values Non-Operating Utility Values City share of 1% for taxing factor Current Year Unitary Revenues Supplemental Revenues Successful Appeal Reductions Real Estate Data Service CoreLogic real estate products This may need to be researched monthly. Assessor s Office is the only place to get this info. Auditor value reports the difference between the incremental value and total value reported. Annual Value Certification Reports Annual Value Certification Reports Current year revenue divided by CY Assessed Value Auditor remittance advices Auditor remittance advices Clerk of the Board of Supervisors 30

16 BUDGETING WITH AN EYE ON Budgeting Property Tax is not an exact science. There are a lot of unpredictable moving parts and every community is unique. WHAT WE DO KNOW: The CCPI granted by the assessors statewide for was 2.0%. The October June CPI is trending at 1.7%. (October October is used). It is likely to be 2% for Sales of property in 2017 will continue to add something to the bottom line in most cities BUT how are these sales looking in your community? Is there a leveling of median sale prices? Some cities have seen lower valued homes come to market in calendar year New construction in the city is a positive Projects completed as of 11/2017 and reported to the assessor should be reflected on the new roll. 31 BUDGETING WITH AN EYE ON WHAT WE DON T KNOW: Restored Proposition 8 values for ? Count on no more than 25% of what is outstanding for a conservative estimate. How will successful appeals impact the revenue stream? TEA adjustments in cities where the county has not made this a part of the AB8 formula. Residual revenue in cities with former RDAs Be prepared to adjust mid year as more information is made available. 32

17 33 MULTI YEAR GENERAL FUND BUDGET FORECAST 34

18 MULTI YEAR VLF IN LIEU REVENUE FORECAST THE CITY OF SAMPLE 5 YEAR VLF IN LIEU ESTIMATE 35 PAULA CONE, President HdL Coren & Cone pcone@hdlccpropertytax.com