Paul McDonnellPaul McDonnell

April 23, 2009April 23, 2009

TEETER 101TEETER 101

TEETER 101 2

• Teeter is a method for distributing taxes which guarantees that participating agencies receive 100% of levied taxes as opposed to the actual amount of taxes collected.

• Each year the amount of taxes actually collected is less than the amount levied.

• Rather than wait for delinquent tax payments, penalties and interest, to be collected; revenues are advanced to the Teeter participants by the county.

• Once the outstanding taxes, penalties and interest are collected, the Teeter advance is repaid.

Teeter Defined

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• The TTC is a key player in the Teeter process.

• Your tax sale strategy could be affected if the process is not managed effectively.

• Teeter can be a significant county revenue source.

• Your Pool in many cases is a key component of the funding strategy

Why Should You Care?

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• The County of Riverside adopted the Teeter Plan in 1993.

• The advance of unpaid funds was made by selling a note to the Treasurer’s Pooled Investment Fund.

• In 1997 the County replaced the note with the issuance of tax-exempt commercial paper (TECP).

• TECP has cut the County’s cost by over $8 million since 1997.

• The Plan has been a strong source of revenue for the County. In the last five years alone, over $125 million has been transferred to the General Fund.

History of Teeter in Riverside County

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• The County finances the advance of tax receivables, much like a bank finances credit card receivables, yet the County has a secured first lien position.

1. Estimated. Includes 10% penalty and 24 months of interest at 1.5% per month per California Law. 2. Set aside is a function of tax sale experience.3. Represents average cost of funds on Teeter Notes.

Gross Return1 23.00%

Tax Loss on Uncollectables2 (1.00%)

Net Payment 22.00%

Cost of Funds3 (2.00%)

Net Return 20.00%

Teeter Financing Program

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Teeter Cash Flows

Investors

General Fund

CP1 Tax Collections

Taxing Entities

Repayment

Program Revenues

Advance

Repay

Sale

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Teeter and Tax Sale

• The County takes on the collection risk in exchange for the penalties and interest.

• Our ultimate collection tool is the tax sale.

• The downturn of the 1990’s “stress tested” the viability of our Teeter Program.

• The total write-down during the last cycle was relatively small.

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Riverside County Properties Subject to Tax Sale

0

500

1000

1500

2000

2500

3000

3500

4000

4500

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

New Items* Total Items*

• Regular tax sales have allowed us to manage the growth of our inventory

*Excluding timeshares

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• Virtually all counties participate in Teeter.

• Six to Ten have “stand-alone” programs selling notes to the Pool or to the Public.

• Most other programs rely on some form of advance from the Pool or the General Fund.

• In some cases sufficient balances have accumulated to fund additional advances.

Observations from 2008 CACTTC Survey

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Observations (cont.)

• For larger programs an externally funded stand-alone program is the most cost effective.

• Internal programs are cost effective for small counties, given legal and underwriting expenses, not to mention staff time.

• No matter what shape the program takes, a consolidated summary of Teeter activities should be develped for reporting and forecasting purposes.

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Recap

• Most Counties have been well served by their Teeter Programs.

• Program sizes should grow with increased delinquencies, allowing for greater revenue to the General Fund.

• Credit enhancement capacity and costs are real concerns for CP programs.

• Being knowledgeable about Teeter can help you contribute to solving your counties’ revenue shortfall.

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Thank You!

• Questions?

• Contact:

Paul McDonnell

pmcdonnell@rceo.org

951.955.1110