County may borrow record amount

March 30, 2009
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It’s a sign of the times, a reflection of the current economy and the result of a higher local tax load.

County commissioners established the revolving fund for delinquent real property taxes and authorized the sale of limited tax notes last week. Their action wasn’t unusual, as the board does this every spring. But what is different this time is that commissioners approved the sale of tax notes worth up to $40 million for 2009 — an all-time record amount and a 17.6 percent hike over the $34 million borrowed for the 2008 notes.

“That’s a record since I’ve been around,” said Kent County Treasurer Kenneth Parrish, who is in his 13th year at the post, of the $40 million ceiling.

Parrish said a combination of factors has pushed the figure that high. One, people are taking longer to pay their taxes because many have lost income to the recession. Two, taxes have risen while property values have fallen. Three, the number of millages levied through property taxes have grown in recent years, which have resulted in higher tax bills.

“What I have found over the past couple of years was, we increased in delinquencies every year — in some cases, substantial increases of the delinquencies — but the collection rate stayed the same. So that told me, we’re just levying more taxes,” said Parrish.

“But I do also expect that once we get all the final numbers in and looked at, we will see that the collection rate probably did drop a little bit this year due to the economy.”

All overdue property taxes automatically move from an originating municipality to the county each March 1, the date the taxes become delinquent. Parrish uses the proceeds from the sale of the tax notes to pay the cities, townships, libraries, school districts, Grand Rapids Community College and the Interurban Transit Partnership for their delinquent taxes.

“He is essentially buying their delinquent-taxes receivables. The proceeds go to all the original taxing entities,” said County Fiscal Services Director Robert White.

“Then people who are delinquent pay him their delinquent property taxes and he uses those collections to pay off the note holders,” he added.

The county will sell tax notes to raise capital for the revolving fund. The notes will carry an interest rate, one not to exceed the short-term market rate, and most will be bought by large financial institutions.

“The county wants to assure itself that on the date of sale, it can sell all of the notes. They can’t just do a partial sale. So normally these are sold to a financial institution, like a large bank, that will turn around and resell the notes to individual retailers and institutional investors,” said White.

Although commissioners gave Parrish the authority to sell $40 million worth of notes, he felt a sale will likely be for less. The resolution commissioners approved instructs Parrish not to borrow more than what the delinquent taxes total, a figure he expects will be closer to $36 million than $40 million.

“Because of the timing of when we have to put all this in process, we never know the exact amount of the delinquencies when we start the process of sending the resolution through to the board. So I always round up a little bit just to make sure we have a cushion, because if we fall short, then we have all sorts of hoops we have to jump through,” he said.

“This year, the final number looks to be in the neighborhood of $36 million. Last year, we borrowed $34 million.”

Parrish said the county doesn’t lose money by selling the notes. He said the interest the county will pay note buyers will be funded by the interest the county collects from the taxes. In past years, the interest income the county earned from the note proceeds helped pay the note holders. But that scenario isn’t likely to happen this year with the market offering lower investment rates.

“The whole system was designed so that, with the interest that is collected just on the delinquent taxes, that would more than pay for the cost of borrowing the money so that everybody is made whole at one time, essentially, with all of their revenues,” said Parrish.

The county will take bids to hire a financial adviser who will market the three-year notes in April. The municipalities are likely to receive the delinquent tax revenue in May. The county then collects the delinquent taxes, interest and penalties to pay the note holders.

The interest rate the county charges for delinquent taxes is 1 percent per month. The county also adds a 4 percent administrative fee to the bill.

The delinquent properties, those in forfeiture, turn into foreclosures on Wednesday. As of mid-week last week, Parrish said 260 properties were still delinquent. A list of properties on which the county foreclosed will be available around mid-April.

In a related matter, revenue to the county’s Register of Deeds was down 35 percent for the first two months of this year compared to 2008. Income from property transfer taxes and recording fees totaled $439,512 for January and February. Still, that figure was 9 percent higher than the amount of revenue that was projected for those months.

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