A. Introduction: County Support
A LRC may receive funds from the county’s general fund, grants from other cities, foundations or private institutions as well as from voter-approved tax levies if authorized by the county commissioners. In smaller counties, one or more of these sources will partially fund the salaries and activities of these LRCs. In addition to or in lieu of these sources, the LRC can be funded by penalty and interest on delinquent taxes and/or the delinquent tax and assessment collection fund (“DTAC”) as discussed in this Section IV (B) and (C).
B. Penalty and Interest on Early Tax Advances
Under the tax collection statutes, current real estate taxes that are unpaid at the close of the first half collection are considered “late” and a penalty is assessed. Current taxes that remain unpaid at the close of the second half collection also accrue a penalty and are then deemed “delinquent.” Interest begins to accrue on newly delinquent taxes on either September 1st or December 1st of the year the taxes become delinquent. Revised Code Section 323.121(B)(2)(a) allows the Treasurer to charge interest at a rate of 12% per annum and Section 323.121(B)(2)(b ) allows interest on delinquent taxes to be charged monthly at a rate up to 12% per year. [Note: the county’s tax assessment and collection software may need to be modified to allow for monthly calculation and assessment of interest. In Cuyahoga County this proved to be both a costly and error-ridden process].
Late or delinquent tax payments (including penalties and interest) are credited in the collection cycle in which they are actually paid and are distributed to various taxing authorities with current taxes due in that tax cycle. R.C. 321.241 authorizes the Treasurer within 120 days of receipt of the late and current delinquent taxes, penalties and interest to authorize a special “advance” of these taxes to the applicable taxing districts and to direct any penalty and interest from these actual late or delinquent payments to a “county land reutilization fund” prescribed in R.C. 321.263. This process may occur after both the first and second half tax collections. The Treasurer then makes payments from the county land reutilization fund to the LRC in periodic installments based upon an invoice from the LRC to the Treasurer.
C. Delinquent Tax Anticipation Notes
In addition to the early advances of late and current delinquent tax payments described above, a county may also borrow funds, in the form of a Delinquent Tax Anticipation Note (DTAN), to advance a portion of “anticipated” delinquent collections to taxing authorities. The DTANs may be purchased by a financial institution or by the county treasurer as part of the county’s investment portfolio. [Note: The County’s Investment Policy may need to be amended to allow for the purchase of DTANs]. This borrowing is then “advanced” to the taxing authorities. The amount of the DTAN is determined based upon conservative forecasting in the Treasurer’s office of the current delinquent taxes, penalty and interest anticipated to be collected within the following 15-18 months. To the extent that this borrowing is advanced to the taxing authorities within 120 days following the close of the second half collection, the LRC becomes entitled under the statute to receive the penalties and interest on subsequent payments on the “anticipated” delinquent collection.
By way of illustration, at the close of the second half collection, for example, $50 million of unpaid current taxes become delinquent, the Treasurer and LRC financial consultants may conclude that $40 million will be collected within the next 15 to 18 months, based on a conservative forecasting modeling. Within 120 days following the close of the second half collection, the Treasurer determines that $25 million of the forecasted collection has already been paid. The Treasurer then “advances” the $25 million to the taxing authorities and borrows the difference between the anticipated collection ($40 million) and the actual collection ($25 million). A DTAN is issued for $15 million and the funds obtained are paid as an advance to the various taxing authorities. Once the delinquent taxes, penalty and interest against the advance are thereafter collected, the Treasurer repays, with interest, the amount of the borrowing. The penalty and interest there from is then deposited into the county land reutilization fund for the LRC. The board of county commissioners must approve each issuance of a Delinquent Tax Anticipation Note, usually on an annual basis.
C. Delinquent Tax Anticipation Notes
R.C. 321.261 provides that from all delinquent real estate taxes, penalty and interest collected, 5% of this amount is credited to the Prosecutor and Treasurer to fund delinquent tax collection efforts (tax foreclosure, collection notices, publication, etc.). This 5% is divided evenly between the Treasurer and Prosecutor. The Treasurer and Prosecutor are authorized under the statute to expend surplus DTAC funds for land banking purposes if approved by the county investment advisory committee. (R.C. 321.261(D)(1)).
R.C. 321.261(B) now authorizes county commissioners, upon request of the Treasurer, to increase the DTAC an additional 5% (up to 10%). In the event of such increase, anything in excess of the initial 5% is credited to the county land reutilization fund to fund the LRC operations. The DTAC model is a bit simpler for Treasurers because the system for collecting it is already in place for the initial 5%. Moreover, using the DTAC system does not technically require an annual authorization from the commissioners.
Section IV (B & C) Sample Forms
- Form IV-B-1 – Typical Collection Schedule
- Form IV-B-2 – Sample Schedule with Special Advances of Late and Delinquent Payments (Penalty & Interest to LRC)
- Form IV-B-3 – Sample Schedule for Making Penalty and Interest Payment from Anticipated Late/Delinquent Taxes
- Form IV-B-4 – Commissioners Resolution Authorizing DTAN Issuance
- Form IV-B-5 – Invoice from LRC to Treasurer
Section IV(D) Sample Forms