BILL ANALYSIS
SENATE REVENUE & TAXATION COMMITTEE
Senator Lois Wolk, Chair
AB 1718 - Blumenfield
Amended: May 28, 2010
Hearing: June 23, 2010 Fiscal: Yes
SUMMARY: Recasts and Recreates the Property Tax
Postponement Program
EXISTING LAW establishes the Senior Citizens and
Disabled Citizens Property Tax Postponement Law, the Senior
Citizens Tenant-Stockholder Property Tax Postponement Law,
the Senior Citizens Mobilehome Property Tax Postponement
Law, and the Senior Citizens Possessory Interest Holder
Property Tax Postponement Law in the Revenue and Taxation
Code, which allows the Controller to pay property taxes to
county tax collectors on behalf of individuals over the age
of 62 or disabled persons making less than $39,000 in
income per year. The claimant must repay the Controller
upon sale of the home, who secures the loan by recording
lien, but loans do not become due and payable after 10
years if the claimant or the claimant's spouse continues to
occupy the home secured by the lien. The Controller's lien
for a property tax postponement loan is not afforded
"superpriority" status, similar to liens recorded by county
treasurer tax collectors for unpaid property taxes, which
means that the county lien is paid before all others if the
secured property is sold. These programs are distinct from
the Senior Citizens Property Tax Assistance Program (PTAP),
administered by the Franchise Tax Board, which is a direct
grant program to income-eligible senior citizens, but the
four postponement laws rely on the tax assistance law's
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terms and definitions.
The State has not funded PTAP since the 2007-08
Budget, so the state has not paid claims more recently than
those made in 2007. Last year, the Legislature also
prohibited persons from filing new claims for property tax
postponement, and the Controller from accepting
applications (SBx3 8, Ducheny, 2009).
THIS BILL revises and recasts the sections of law
governing the Senior Citizens and Disabled Citizens
Property Tax Postponement Law, the Senior Citizens
Mobilehome Property Tax Postponement Law, and the Senior
Citizens Possessory Interest Holder Property Tax
Postponement Law, repeals the Senior Citizens
Tenant-Stockholder Property Tax Postponement Law, and
enacts a new financing mechanism to fund future property
tax postponement payments. The measure also repeals the
section from SBx3 8 which prohibits persons filing new
claims for property tax postponement, and the Controller
from accepting them.
I. New Financing Mechanism
EXISTING LAW provides a continuous appropriation of
$12.7 million for the 1977-78 fiscal year, and for each
fiscal year thereafter, to pay claims under the four
programs.
THIS BILL repeals that section and creates the Senior
Citizens and Disabled Citizens Property Tax Postponement
Fund (SCDCPTPF) in the State Treasury, which is
continuously appropriated to the Controller to exclusively
pay property taxes and administer the three remaining
property tax postponement laws. No liability or obligation
shall be imposed upon the state or incurred by the
Controller beyond those authorized by the three property
tax postponement laws.
THIS BILL seeks to attract investment from cities and
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counties to fund the program to compensate for the expected
absence of future appropriations from the General Fund.
First, the measure adds deposits of excess funds into the
program on the list of allowable investments for County
treasurers. Second, the bill provides that moneys
deposited shall be held in a trust account titled the
Property Tax Postponement Participating Local Agency
Account (PTPPLAA), capped at $30 million in annual
deposits, and that all moneys in the account shall be
nonstate moneys and shall be used exclusively to make
property tax payments on behalf of claimants. Next, AB
1718 requires that deposits cannot be withdrawn for ten
years after the date of deposit. The Controller shall be
responsible for maintaining the account, and shall maintain
a subaccount for each deposit, and pay on each subbacount
an annual interest rate equal to the higher of 5% or the
interest rate on the 10-year U.S. Treasury Note plus 2%
payable at the end of 10 years, regardless of whether the
funds are held or used to pay property taxes on behalf of
claimants. Lastly, the measure deems deposits into the
PTPLAA authorized by resolution of the County Board of
Supervisors prudent financial managements under specified
sections of the Government Code.
THIS BILL requires the Controller shall prescribe
a maximum annual postponement loan amount, and claimants
must repay the state with any accrued interest no later
than the June 30 following the ten-year loan period.
Claimants are ineligible for future assistance if they fail
to repay the loan subsequent year of participation.
Claimants must also grant authorization for the Controller
to pay his or her property taxes, and promise to repay the
Controller under penalty of perjury. The measure also
applies this requirement to applicants under the Senior
Citizens Mobilehome Property Tax Postponement Law and
Senior Citizens Possessory Interest Holder Property Tax
Postponement Law.
THIS BILL repeals the section that required repayments
resulting from a sale or condemnation, or a residential
dwelling voluntarily sold, to go to the General Fund. The
measure provides that future repayments from these sources
are to be deposited into the SCDCPTPF.
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II. Super-priority Liens
EXISTING LAW allows a county to issue a tax lien
against property when an owner is late on paying property
taxes, and provides that a judgment is satisfied, and the
tax lien removed when the property tax is paid, or the
property is sold to satisfy the lien. Upon sale, tax liens
are paid out of proceeds in the order recorded; however,
property tax and special assessment liens have priority
over all other liens regardless of the time of its
creation.
THIS BILL provides that liens recorded by the
Controller shall have the same priority as property tax and
special assessment liens, requiring the Controller's lien
to be repaid before prior filed liens.
III. Interest Rate
EXISTING LAW provided an uncompounded interest rate on
property tax loans of 7 percent per year for loans made
prior to 1984. After that, the Controller established the
annual rate of interest as equal to the Pooled Money
Investment Account effective annual yield for the prior
year rounded to the nearest full percent, unless the
effective annual yield is at least a full point more or
less than the prior year, in which case the Controller
adjusts to the new rate not later than July 15th.
THIS BILL repeals the interest rate calculation and
instead provides that the interest rate shall be 7% per
year, unless the interest rate based on the 10-year U.S.
Treasury note plus 4 percent, rounded to the nearest full
percent, at the time the Controller approves the
application exceeds 7%. Interest rates for previously paid
property taxes do not change.
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THIS BILL requires the Controller to assess an annual
fee of $75 to all claimants approved to participate in the
program. Fee proceeds must be deposited into the SCDCPTPF.
IV. Change in Definition of "Eligible Dwelling"
EXISTING LAW excludes from eligibility residential
dwelllings in which the owners have less than 20% equity in
the full value of the property. The requirement must be
met when the claimant or authorized agent files an initial
postponement claim.
THIS BILL increases this threshold to 30%, and
provides that the claimant must be met for each.
V. Local Administration
THIS BILL repeals a section governing interactions
between the Controller and Tax Collector under the former
program and enacts a new, substantially similar section.
The measure also allows the tax collector to cancel any
penalties and interest owed by the claimant for the 2009-10
and 2010-11 fiscal years.
VI. Income Eligibility
EXISTING LAW states that postponement shall not be
allowed for claimants with $39,000 or more of household
income for claimants in the 2009 calendar year and
thereafter.
THIS BILL lowers the threshold to $35,500.
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VII. Limitations on Mortgagors
EXISTING LAW posits that the postponement of property
taxes does not affect the obligation of a borrower to make
payments to a lender with respect to an impound, trust, or
other type of account established before 1978.
THIS BILL prohibits a mortgagee, trustee, or other
person authorized to take sale on real property as a result
of the mortgagor or trustor's failure to pay property taxes
from filing a notice of default for five years following
the initial authorization to take sale if the mortgagor or
trustor shows evidence of participation in the property tax
postponement program.
THIS BILL prevents a lender from requiring a borrower
to maintain an impound, trust, or other type of account
with regard to taxes for a borrower who provides evidence
of participation in the property tax postponement program.
THIS BILL states that written confirmation from the
Controller identifying the individual as a participant in
the program shall be considered evidence to satisfy the
conditions above. The measure requires the Controller to
provide written notice to individuals that participated in
the program in 2008 and 2009.
VIII.Filing Deadlines
EXISTING LAW requires that claims for postponement be
filed between May 15th and December 10th of the calendar
year in which the fiscal year of postponement is requested.
THIS BILL modifies those dates to between July 1st and
September 30th. Claims for postponement filed after
September 30th and before June 30th may be considered for
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good cause. Claims for postponement for the 2009-10 fiscal
year shall be filed after the effective date of the act
adding this section and on or before April 9, 2010. The
measure also applies the change in deadlines to the Senior
Citizens Mobilehome Property Tax Postponement Law, and
Senior Citizens Possessory Interest Holder Property Tax
Postponement Law.
IX. Code Maintenance
THIS BILL makes several statutory changes to update
terminology and consolidate the four current property tax
postponement law, including:
Replacing references in sections authorizing the
Controller to pay delinquent taxes, purchase the
secured property, or incur costs to maintain or market
the property from R&T 16100, which authorized the
continuous appropriation for the previous program, to
the SCDCPTPF.
Deletes references to the Senior Citizens
Tenant-Stockholder Property Tax Postponement Law.
Changes references to "certificates of
eligibility," the tool used to realize payment under
the former program, with "property tax payment from
the Controller." The measure also repeals the former
section directing the tax collector to mark the tax
paid when receiving a certificate of eligibility and
enacts a new sections substantively identical which
similarly directs the tax collector when receiving the
property tax payment.
Deletes sections of law used in the PTAP to
calculate a claimant's income based on the calendar
year ending immediately prior to the commencement of
the fiscal year for which postponement is claimed that
was formerly used under the Senior Citizens and
Disabled Citizens Property Tax Postponement Law, the
Senior Citizens Tenant-Stockholder Property Tax
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Postponement Law, and the Senior Citizens Possessory
Interest Holder Property Tax Postponement Law, but not
the Senior Citizens Mobilehome Property Tax
Postponement Law, thereby defaulting to the standard
which posits that income shall be calculated for the
calendar year which ends within the fiscal year for
which assistance is claimed.
Erases from PTAP eligibility references to
individuals who are eligible under the four property
tax postponement laws. Criteria for eligibility for
PTAP or postponement remains functionally unchanged
because the bill then imports income calculation
requirements, definitions of household income and
claimant, and protections ensuring that claimants
confined to hospitals or medical institutions from the
PTAP into the postponement law, then extends them to
the two other remaining postponement laws.
The measure also states that total household income
shall not include amounts deducted for a net business
loss, net rental loss, net capital loss, or other net
losses, amounts deducted for depreciation, or other
non-cash expenses.
Provides that PTAP definitions govern the
construction of the remaining three postponement laws.
Explicitly references that ownership of a
PTAP-eligible residential dwelling may include joint
ownership between the claimant and the claimant's
spouse; claimant and parents, children (natural or
adopted), or grandchildren of either the claimant or
the claimant's spouse; or the claimant and another
individual eligible under the PTAP, as slightly more
expansive list than the one the section currently
references. Also adds mobilehomes to the list of
PTAP-eligible residential dwellings.
Moves a preclusion from houseboats and floating
homes from the list of residential dwellings to its
own code section.
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Updates the Senior Citizens Mobilehome Property Tax
Postponement Law and Senior Citizens Possessory
Interest Holder Property Tax Postponement Law to
delete provisions relative to the certificate of
eligibility and replace with authority for the
Controller's to operate make property tax payments for
claimants inhabiting mobile homes, and secure liens.
Changes the terms under which amounts become due and
payable under the two laws to the general terms in the
Government Code.
FISCAL EFFECT:
AB 1718 will not directly affect state or local
revenues.
COMMENTS:
A. Purpose of the Bill
The author provides the following statement:
For more than 30 years, the California Senior Citizens
Deferred Property Tax Program helped thousands of low
and moderate income elderly and disabled throughout
the state remain in their homes by postponing their
property taxes using state-financed loans. The
General Fund made money from the interest earned on
these loans.
At the time the program was suspended last year, there
were some 5,500 participants. For program
participants with a mortgage, the suspension of P-T-P
exposed homeowners to the threat of foreclosures or
forced sale of their home from property tax
delinquencies.
With AB 1718 we can help these elderly and disabled
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Californians remain in their homes - at no cost to the
General Fund. AB 1718 would:
o Establish a new pooled fund into which
counties would make 10-year investments to raise
between $9 to $15 million to resume the program.
o Allow eligible seniors and disabled
citizens would have their property taxes paid
under a 10-year loan.
o Tighten participant eligibility to make
sure the loans they receive can be repaid, e.g.
lowering income level to $35,500, require equity
qualification each year resident applies for the
program.
o Requires the Controller to determine
annually a cap on loans based on the availability
of funds.
o Establish a 5-year moratorium on impounds
and foreclosures for nonpayment of property taxes.
Homeowners need to keep current on their
mortgages. The five years mirror the period
counties currently must wait before forcing a tax
sale to collect on property tax delinquencies.
Have worked out the language with lenders.
B. Program Background
The State Controller's Office provided the following
background information about the program.
Property Tax Postponement Information -
The State Controller's Office administers a statewide
program titled Property Tax Postponement (PTP) that until
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very recently allowed low income senior, blind or disabled
homeowners to defer the payment of property taxes through
using a long-term loan from the state. Effective February
20, 2009, the legislature suspended the program (SB 8 X3
(Chapter 4, Statutes of 2009)) as part of the budget
reductions to the state's general fund programs.
PTP Program Background
In response to concerns that senior homeowners on fixed
incomes could lose their homes because of the inability to
pay rising property tax bills, a 1977 constitutional
amendment authorized the postponement of property taxes
(Article 13, Section 8 of the California Constitution in
1977).
The Senior Citizens Property Tax Postponement Act was
subsequently enacted which established the PTP loan program
which was made available to senior, disabled, or blind
homeowners with limited incomes and that met certain other
criteria, including having 20% equity in their home.
Property Tax Postponement is a loan program. Until
2009-10, PTP loans were made annually to pay for the
property taxes for approved claimants. A lien is placed on
the home to secure the State's interest. The loans are
repaid with interest when the home is sold.
Over the last 30 years, the PTP program has provided
property tax postponement assistance to more than 200,000
homeowners.
In response to the legislative suspension, the SCO notified
the counties and each claimant approved for postponement in
2008-09 that applications could not be accepted. Most
applications for claimants that applied in 2008-09 were
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processed before the suspension became effective. There
was no funding provided for 2009-10 and SCO has been unable
to accept applications for the current fiscal year.
Program Cost (& Revenue)
The attachment provided shows a 15 year history of program
receipts and disbursements on a cash basis. Revenues are
cyclical and are lower during periods where real estate
values decline, such as now.
Over the last 15 years, loan expenditures averaged
$12.32M, while loan repayments averaged $15.10M.
In 2007-08, program expenditures were $ 11.79M and
loan repayments including interest were $11.74M, a net cost
of $49,444 for that fiscal year.
In 2008-09, program expenditures were $ 13.28M and
loan repayments including interest were $9.11M, a net cost
of $4.1M for that fiscal year.
SCO expected that program expenditures would increase
considerably starting in 2007 due to legislation that
increased the qualifying income limit, demise of the FTB
Homeowner Assistance Program, and a growing senior
population. However, program expenditures did not increase
as originally anticipated due mostly to the decline in
housing values which resulted in many new applicants having
insufficient equity (20%) to qualify for the program in the
initial year of participation.
If the program were completely restored for 2009-10, SCO
estimates that funding of $15 - $17M would be required to
fully fund the program loans. Estimated repayments for
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2009-10 are $9M - $10M
PTP Program Benefit to Taxpayers
o Over the long-term, the program is generally self
supporting.
o Since FY 2000, the program has collected $35M more
in PTP loan repayments than disbursed in PTP loans
o Interest collected over the last 5 years (at Pooled
Money Investment rate) was more than $21M.
o Interest collected annually typically exceeds the
program's administrative costs (~ $1.7M). $3.7M in
interest was collected in FY 2007/08.
o PTP loans are secured by lien on the property;
o PTP loans carry a reasonable interest rate (5% for
'08/09);
o PTP participants can remain in their homes
PTP Program Benefits to Counties
o Reduces county property tax default rates;
o Increases county tax collection revenues;
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o Benefits schools that rely on property taxes;
o Reduces burden on county social services for
displaced disabled and seniors citizens;
o Reduces the number of tax defaulted property sales;
o Avoids forcing a senior or disabled citizen from
their homes due to a tax sale.
o Reduces lender foreclosures due to inability to
keep property taxes current
Impact Resulting from PTP Program Suspension
On February 20, 2009, the Governor signed Senate Bill X3 8
(Chapter 4, Statutes of 2009), which suspended the Senior
Citizens' Property Tax Deferral program indefinitely. This
bill eliminated funding for the program and prevented SCO
from accepting any new applications after February 20,
2009.
The SCO surveyed several of our participants and all the
county tax collectors. They provided the following direct
impact associated with the program suspension:
Claimants expressed the following:
o Fear of losing a home to tax sale if unable to pay
the county tax bills after 5 years in default status
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o At least 90 PTP eligible homes may be lost through
tax default sales in 2009
o Fear of foreclosure by their lender because of the
inability to directly pay the property taxes or to pay into
an impound account initiated by the lender;
o Forced to choose which basic needs they can afford
including food, medication, utilities
o Fear of becoming homeless or dependent on family
members
o Will incur large penalties for unpaid property
taxes (10% penalty plus interest @ 18%)
o Many claimants have been in the program for 10 - 20
years, counted on the loan program to fund their property
taxes and have no other way of obtaining the needed funds.
o 280 of claimants approved for 2008-09 are over 90
years old
o ~50% of program participants are more than 75 years
old
Impact to the counties include:
o Decrease in revenue due to higher delinquencies
rates,
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o Increase in related workload: manage and track
delinquencies, phone calls
o Increase in properties the counties are forced to
sell as tax defaulted;
o Increase strain on county services by displaced
homeowners.
o County budgets are already strained, this adds more
financial stress
C. Sure, but Will it Work?
AB 1718 pumps new life into the Property Tax
Postponement Program by finding a new and more reliable
sponsor than the moribund State General Fund: local agency
investment funds. County treasurers have a fiduciary duty
to safeguard local agency funds. AB 1718 seeks to build a
pot of funds by coaxing cities to make 10-year, irrevocable
investments promising to repay local agencies after ten
years its principal plus an annual interest rate of 5% or
the interest rate on the 10-year note on the day of deposit
plus two points, whichever is higher. The fund is repaid
by a $75 fee on each claimant, plus loan repayment of
principal plus 7% or the interest rate on the 10-year note
at the time the Controller approves the claim plus four
percent, adjusted to the nearest full point. According to
the Author, the fee pays for the Controller's
administration costs, and the spread generates additional
funds to grant additional claims.
The primary concern with AB 1718 is whether the fund
will generate sufficient repayments to repay local agency
sponsors, and if not, who pays the bill? While the
Controller's postponement payments are a form of loan
secured by a lien against the property, unlike other loans
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there is no consistent repayment of principal and interest.
After ten years, a claimant must begin to repay the AB
1178 loan, and presumably their regular property tax
obligation, when they haven't paid property taxes in a long
time and likely don't have the means to pay both bills.
The Controller may have to foreclose on houses to secure
repayment, which the Office has only done once in twenty
years, and lacks the resources to regularly do. Should
the repayment revenue stream to fall below the Controller's
repayment obligations, the Controller may not be able to
meet the bill's obligation to repay local agencies'
principal and interest. The measure specifies that no
liability or obligation shall be imposed upon the state,
but will that statute be sufficient if local agencies are
left holding the bag?
D. Winners and Losers
Under the previous program, the Controller granted
claims on a first-come, first-served basis based on the
amount appropriated. Under AB 1718, postponement payments
will be funded by local agency investments, which may not
be as much, and will certainly not arrive in the coffers
with the regularity and certainty of legislative
appropriations (until recently). The Controller will
ostensibly allocate the available funds in the same manner
as in the past absent legislative direction otherwise.
Should the Controller fund those applications showing
greater need be funded first? Should only those claimants
in jurisdictions that invest in the fund be granted
benefits? Perhaps investment safety is most important, and
the program should fund those claimants most likely to
quickly sell or vacate homes.
E. The Neverending Quest for Yield
Today's investment environment does not offer many
opportunities to earn substantial and certain yields.
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Trillions in wealth sit in low-yield vehicles such as
short-term government bills, money markets and certificates
of deposit, or simply sit idle in cash. Investors learned
the hard way that yesterday's inflated yields on debt
instruments were based on false promises from unqualified
borrowers duped by less than scrupulous lenders who in turn
served the appetites of avaricious issuers of securities.
So too did almost everyone forgot the painful lesson of
1929: equity investment isn't a sure road to riches.
AB 1178 treads a delicate balance. The Controller
must offer local agencies sufficient returns on its
investment into the property tax postponement program to
draw in sufficient capital to pay claims. The higher the
interest rate, the more attractive the investment will look
against other options the County Treasurer may choose.
However, the higher the promised interest rate, the higher
the interest rate that the senior or disabled person must
pay. Between 1994-95 and 2008-09, the interest rate that a
claimant had to pay was usually 5%, but dipped as low as 2%
for two fiscal years, and went as high as 6%. AB 1178 will
put in place a much higher interest rate than in the past;
the claimant must pay the lower of seven percent or an
interest rate of the 10-year note plus 4, rounded to the
nearest ten percent (the 10-year note currently trades at
3.22%, with a five-year high of 5.228% in October, 2007, a
10-year high of 5.778% in July, 2000, and a historic high
of 15.84 in July, 1981). As the 10-year sinks in price,
but increases in yield, claimant's interest rates rise too.
The measure also changes the interest rate peg to the
10-year from the Pooled Money Investment Account (PMIA)
Annual Yield, the account that measures the state's returns
on its own cash investments. Last year, PMIA yielded
2.24%, after staying in a fairly tight band between 3.8%
and 6.1% with the exception of three low yielding years in
2002-03, 2003-04, and 2004-05. According to the Author,
local agencies prefer the peg to the 10-year note because
the bill calls for a ten year investment and must be
measured against investments; however, PMIA is more of a
known quantity, as it is determined by the state's own
investment decisions.
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F. Lien on Me?
Under existing law, tax liens are payable in the order
in which they are filed. For example, if the Internal
Revenue Service files a lien against a home for a taxpayer
delinquent on income taxes, the lien is repaid after the
lien filed by the mortgage company if the property owner
fell behind on their mortgage payments first. In
California, a property tax lien payable to counties
automatically jumps to the front of the line. AB 1718
confers similar treatment to liens recorded in favor of the
state when the Controller pays a claimant's property taxes,
a feature absent from the prior law. So-called
"superpriority" lien status ensures that the state will be
repaid when the house is sold, an important security
feature in these days of negative equity.
G. Technical Amendments needed:
Committee staff suggest:
On Page 33, delete lines 29 through 31
because the 09-10 fiscal year already past.
Delete Section 51 of the bill. The
2009-10 fiscal year is already finished. For the
2010-11 fiscal years in counties in the Teeter
plan, those revenues have already been advanced
from the counties to participating local
agencies.
Additionally, if the superpriority status for the
Controller's lien is maintained, County Treasurer-Tax
Collectors suggest amending property tax collection laws to
conform the statutes.
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Support and Opposition
Support:California Controller; California State
Association of Counties; Regional Council of Urban
Counties; Urban Counties Caucus
Oppose:None received.
---------------------------------
Consultant: Colin Grinnell