TO: Board of Supervisors
FROM: Tracy A. Schulze, Auditor-Controller
REPORT BY: Tracy A. Schulze, Auditor-Controller
SUBJECT: Teeter Plan Promissory Note for Fiscal Year 2025-26
RECOMMENDATION
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Adopt a Resolution to authorize the issuance of the Fiscal Year 2025-26 promissory note for delinquent secured property taxes including the creation of a Teeter Note Reserve, and the continuance of the Teeter Plan for Fiscal Year 2026-27. (Fiscal Impact: $2,022,981 Revenue; Various Funds; Budgeted; Mandatory)
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BACKGROUND
The Napa County Board of Supervisors adopted Resolution No. 93-79 on July 13, 1993 to approve and implement the alternative method of property tax allocation specified in Revenue and Taxation Code Sections 4701 et seq. known as the Teeter Plan.
The Teeter Plan requires the County to pay each participating taxing jurisdiction one hundred percent (100%) of all taxes due at the end of each fiscal year, to that entity, regardless of whether such taxes have been collected by the County or are delinquent. In return, the County assumes the debt and collects all penalties and interest on delinquent collections. Staff are estimating the collections will generate approximately $500,000 in penalties and interest, which is reflected in the County’s General Fund budget. This item authorizes the promissory note for fiscal year 2025-26 and the continuance of the Teeter Plan for fiscal year 2026-27.
The implementation of the Teeter Plan involves:
1) establishing the minimum balance for the Tax Loss Reserve in accordance with Section 4703 or 4703.2,
2) the creation of a Teeter Note Reserve for fiscal year 2025-26, and
3) issuance and execution of a Promissory Note to fund the prepayment of taxes.
Tax Loss Reserve:
There are two methods of establishing the minimum balance for the Tax Loss Reserve outlined in Revenue and Taxation Code. Section 4703 requires maintaining a minimum balance of not less than 1% of the total of all taxes levied on the secure roll for the year. Section 4703.2 requires maintaining a minimum balance of not less than 25% of the total delinquent taxes for all participating entities at the end of the fiscal year.
After analysis of the two reserves methods outlined above, the recommendation is to follow Section 4703.2 which requires less of a reserve than Section 4703. The Tax Loss Reserve requirement for total delinquencies as of June 30, 2026 is $4,296,544.
New Fund:
The creation of a new fund is required to segregate each annual Teeter Note reserve and hold the note reserve of 3% for the duration of the note to mitigate negative impacts of roll corrections during the five-year period. The 2025-26 Note reserve will be maintained at $290,374.
Issuance of a Promissory Note:
Each year, a note must be issued to fund the payment of the prior year’s delinquent taxes. The Auditor-Controller’s Office has calculated the fiscal year 2025-26 delinquencies to be $9,679,127. The note is issued between the County of Napa and the County Treasurer and is structured to be paid within five years with the interest rates as stated.
The County’s portion of the Teeter buyout consists of $1,572,177 for the General Fund, $183,941 for the Library Fund, and $266,863 for the Fire Fund.
Attached is the resolution to select the Revenue and Taxation Code Section 4703.2 method for calculating the minimum reserve and issuing the promissory note to fund the Teeter Plan delinquencies. Attachment A provides a breakdown of the Teeter distribution by taxing jurisdiction. Attachment B details the history of Promissory Notes issued and the current balance of those outstanding.
Requested Action: Adopt a Resolution to authorize the issuance of the Fiscal Year 2025-26 promissory note for delinquent secured property taxes including the creation of a Teeter Note Reserve, and the continuance of the Teeter Plan for Fiscal Year 2026-27.
FISCAL IMPACT
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Is there a Fiscal Impact? |
Yes |
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Is it currently budgeted? |
Yes |
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Where is it budgeted? |
General Fund, Library Fund and Fire Fund |
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Is it Mandatory or Discretionary? |
Mandatory |
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Is the general fund affected? |
Yes |
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Future fiscal impact: |
The County will receive all the penalties and interest on the delinquencies until paid. |
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Consequences if not approved: |
The County and affected taxing entities will not receive their full property tax revenues for fiscal year 2025-26. |
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Additional Information |
Strategic Initiative: Elevate County Service and Workforce Excellence. |
ENVIRONMENTAL IMPACT
ENVIRONMENTAL DETERMINATION: The proposed action is not a project as defined by 14 California Code of Regulations 15378 (State CEQA Guidelines) and therefore CEQA is not applicable.