BILL ANALYSIS Ó AB 2291 Page 1 ASSEMBLY THIRD READING AB 2291 (Achadjian) As Amended April 7, 2016 Majority vote ------------------------------------------------------------------ |Committee |Votes|Ayes |Noes | | | | | | | | | | | | | | | | |----------------+-----+----------------------+--------------------| |Revenue & |9-0 |Ridley-Thomas, | | |Taxation | |Brough, Dababneh, | | | | |Gipson, Mullin, | | | | |O'Donnell, Patterson, | | | | |Quirk, Wagner | | | | | | | | | | | | ------------------------------------------------------------------ SUMMARY: Allows a county tax collector to charge a fee to recover the reasonable costs of instituting and maintaining an arrangement to accept partial payments of delinquent taxes on tax-defaulted property. Specifically, this bill: 1)Allows, upon authorization by ordinance of the county board of supervisors, a county tax collector to charge a fee to recover the reasonable costs of instituting and maintaining a partial payment arrangement for delinquent taxes on tax-defaulted AB 2291 Page 2 property. 2)Specifies that the fee is a charge imposed pursuant to Proposition 26 (2010) and subject to the requirements governing the process by which a county board of supervisors may increase or decrease a fee or charge. 3)Specifies that the ordinance authorizing the fee must include a limitation on the total amount of fees imposed. EXISTING LAW: 1)Requires an annual payment of property tax, and provides that unpaid taxes become delinquent and subject to penalties and costs. 2)Requires tax-defaulted property to be sold to the highest bidder at public sale if the taxpayer fails to redeem the property by repaying in full the defaulted taxes, interest, and penalties within three to five years, as specified. 3)Allows the tax collector to collect fees to reimburse the county for costs incurred preparing tax-defaulted property for sale. 4)Allows a county tax collector, with the approval of the board of supervisors, to accept partial payments from taxpayers in the case of a deficiency in the payment of taxes due. 5)Specifies that partial payments shall be applied first to all penalties and interest due, and the balance, if any, shall AB 2291 Page 3 then be applied to the taxes due. 6)Specifies that partial payments shall not be deemed a redemption, partial redemption, or installment payment and shall not alter either the date upon which the property became tax defaulted or the date the property becomes subject to a power of sale. 7)Allows a taxpayer to choose to pay delinquent taxes in installments, subject to a fee for processing the taxpayer's request, during which time the property subject to the installment plan shall not become subject to sale unless payments are not made by the dates prescribed. 8)Provides that a charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product, is an exception to the definition of a "tax" (Proposition 26). 9)Allows a county board of supervisors to increase or decrease a fee or charge, otherwise authorized to be levied by another provision of law, in the amount reasonably necessary to recover the cost of providing the product or service. 10)Requires the county board of supervisors to hold at least one public meeting to discuss the proposed fee or charge, and that the action to levy the new fee or charge must be taken by ordinance, amongst other requirements. FISCAL EFFECT: None AB 2291 Page 4 COMMENTS: 1)Author's Statement: The author provided the following statement in support of this bill: AB 2291 would simply allow counties to recover the cost of providing an alternative for taxpayers with tax defaulted property. Accepting payments on a monthly basis would offer a substantially lower barrier to entry than the existing, more restrictive Permanent Installment Plan. As a result, AB 2291 would allow more taxpayers to begin paying off their delinquent taxes with lower monthly payments in the same manner they typically pay other debt. This will have direct benefits to taxpayers who are making earnest efforts to pay taxes owed. AB 2291 is both taxpayer friendly and maintains local control for counties that choose to provide this service. 2)Arguments in Support: The sponsor of this bill, the California Association of County Treasurers and Tax Collectors (CACTTC), states: The prospect of establishing a payment plan for an individual taxpayer requires in most counties a separate, local tracking process for payments. This can take a substantial amount of time to research, establish and maintain the plan going forward for any individual taxpayer. AB 2291 will authorize Tax Collectors to recover the costs to establish this plan for individuals, which will provide a direct benefit to affected taxpayers that choose to make an earnest effort to become current on their property taxes. AB 2291 Page 5 3)Arguments in Opposition: There is no opposition on file. 4)Delinquent Property Taxes: Generally, property taxes on the secured roll are due in two installments on November 1 and February 1. Property taxes that are due but unpaid after December 10 or April 10 become delinquent and incur a 10% penalty per installment. After April 10, the taxpayer is also charged a $10 fee for preparation of their delinquent tax records. If there are any unpaid taxes after June 30, then the property taxes are declared to be in default and incur additional penalties at the rate of 1.5% per month of the unpaid taxes (18% per year), as well as a $15 redemption fee. If property taxes remain unpaid for five years, the taxpayer is given notice that the property has become subject to the power of sale and will be sold at a public auction; if the tax delinquent property is requested for affordable housing development, the property can be sold after three years. The taxpayer can redeem his/her property by paying the total amount of the unpaid taxes for all delinquent years, as well as all penalties and fees. Depending on when the property is redeemed in relation to its time of sale, the taxpayer may be subject to additional fees. 5)Permanent Installment Plans: Counties are required to offer taxpayers a Permanent Installment Plan (PIP), through which they can make annual payments to redeem their tax defaulted property. The PIP may be opened any time prior to the property becoming subject to the power of sale, during which time the property will not be subject to sale unless payments are not made by the dates prescribed. The PIP requires the taxpayer to make an initial payment of at least 20% of the redemption amount and make subsequent yearly payments of at least 20%, in addition to paying current year taxes and any applicable penalties. Under existing law, any taxpayer choosing to pay delinquent taxes in installments may be subject to a fee, set by the board of supervisors, for processing the request and setting up the PIP. The fee varies AB 2291 Page 6 from county to county as each county faces unique costs in administering the PIP given differences in existing staff, technological resources, and program need. For example, Fresno County charges a $95 set-up fee; San Francisco County charges a $50 set-up fee; and Riverside County charges a $19.22 set-up fee, plus a $36.36 annual maintenance fee. 6)Partial Payment Arrangements: In addition to a PIP, a county tax collector may choose to accept partial payments from delinquent taxpayers, if authorized to do so by the board of supervisors. These partial payments could be accepted on an ad hoc basis or on a more formal basis in the form of a monthly payment plan. Making partial payments may serve as an alternative for taxpayers who want to catch up on delinquent taxes, but cannot afford to begin a PIP given the 20% down payment requirement. Even if the overall fee for a partial payment arrangement is higher than the fee for a PIP, since administrative costs for providing a monthly plan are naturally higher than those for a yearly plan, a partial payment arrangement may be more cost-effective for a taxpayer if increased flexibility helps the taxpayer budget for and pay off debt more quickly. Taxpayers would be able to decide which payment plan suits their needs best. Existing law does not explicitly authorize a county to charge a fee to recover the costs of accepting partial payments as it does for administering a PIP. As a result, many counties do not allow partial payments as they do not have the budget, personnel, or technical capacity to support the additional expense of tracking partial payments and communicating an updated payment balance to individual taxpayers. According to CACTTC, there are a few counties that currently accept partial payments in any amount at any time as they have the capability to absorb such relatively infrequent administrative costs. However, for counties that wish to establish a more formalized partial payment arrangement, the costs of informing taxpayers about this new payment option and establishing a more AB 2291 Page 7 comprehensive tracking and notification system may be prohibitive. This bill allows counties to recover the cost of accepting partial payments from delinquent taxpayers in the hope that more counties can begin offering such services on a regular basis. At What Cost? Similar to the costs of administering a PIP, the costs of administering a partial payment arrangement will vary by county given differences in program need and existing resources. Unlike the PIP, however, the county has discretion to decide for itself how it wants to accept partial payments, if at all, on delinquent taxes. Although this bill does not specify what an appropriate fee amount may be, it requires the ordinance by the county board of supervisors authorizing the fee to include a limitation on the total amount of fees imposed. This bill also specifies that the fee would be charged in accordance with the provisions of Proposition 26 and limited to the reasonable costs of providing the service. Analysis Prepared by: Irene Ho / REV. & TAX. / (916) 319-2098 FN: 0002727