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Overview

Learn about the budgetary pressure and fiscal impact faced by Riverside County due to the collapse of the housing market, including property tax collections, tax lien financing, valuation impact, budget cuts, and more.

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Overview

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Presentation Transcript

  1. Overview • Local government is clearly feeling the fallout from the collapse of the housing market. • The extent of the impact is not only a function of market conditions, but also of state specific property tax laws regarding valuations and tax receivable financing. • Most local governments will experience some budgetary pressure over the next two to three years. • Riverside County is located in the southeastern part of California, stretching from Orange County to the Colorado River, which is the border with Arizona. This county is part of the Inland Empire. 1

  2. Property Tax Collections • Due to the time lags built into the valuation process, the impact of the market deterioration can usually be seen first in collections. • For example, Riverside County’s tax roll grew 17%% on 2006-07, yet saw a spike in delinquencies from 4% to 7% as the market began to slowdown. AV Growth Rates and Tax Delinquent Rates* 2

  3. Tax Lien Financing • The fiscal impact of increasing delinquency rates is offset in many states by lien sale/financing programs. • California’s “Teeter” program advances any unpaid amounts after the close of the fiscal year. • Cities, Schools and Redevelopment agencies receive 100 cents on the dollar. • The County receives the 10% late penalty and 18% annual interest rate. Counties can fund the advance on a tax-exempt basis. • Riverside County funds its advance by issuing tax-exempt commercial paper • In our case a higher delinquency rate produces revenues to partially offset slower growth of the tax roll. • Strong underlining demand for housing mitigates the risk of ultimate collection. 3

  4. Valuation is the Name of the Game Assessed Value By Base Year 2007/2008 Tax Year • The valuation of the tax base drives revenues, especially in those states with tax rate limitation measures, e.g Proposition 13’s 1% limit. • Valuation regimes which fully mark to market will see greater volatility than those states with limitations on value, e.g. Proposition 13’s 2% limitation on annual valuation increases. • States which place the onus on the taxpayer to appeal should be differentiated from states that require assessors to drop valuations, such as California’s Proposition 8. • Therefore exposure to further drops in valuation should combine market forecasts with specific local mechanics • Valuation analysis should also take into account the composition of the tax, i.e residential vs commercial. 4

  5. Our near term outlook • 100% of the growth in value captured by property transfers will be offset by reductions to recently acquired properties. • We are forecasting a similar number for next year, based upon: • Historical trends • Demand driven by population growth and household income • Riverside County is projecting a 0% A.V growth rate for 2008-09, a sharp drop off. Assessed Value Growth Projections 5

  6. Budgetary Impact • Since property tax is the single largest source of local revenues, the declining growth translates to budget cuts. • Many cities and Counties are looking at 5% to 10% budget cuts for coming year. • The fallout from the State of California’s budget deficit is unknown at this point. 6

  7. Impact on Riverside County • Riverside County has moved to adjusted spending to reflect impact of housing market collapse. • Budget process and current level of resources should make for a soft landing. • The State’s inability to reach structural balance continues to pose challenges for all Counties. • Counties have a history of making tough budget choices. 7

  8. Contact us • Riverside County Treasurer • 4080 Lemon St., 4th Floor • Riverside, CA 92501 • (951) 955-3967 • (951) 955-9598 Fax • www.countytreasurer.org 11

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