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By: @Marcus Detwiler

First enacted in 1949, the "Teeter Plan" provides counties with an optional alternative method for allocating delinquent property tax revenues. Using the accrual method of accounting under the Teeter Plan, counties allocate property tax revenues based on the total amount of property taxes billed but not yet collected.

The Teeter Plan allows counties to finance property tax receipts for local agencies, including special districts, by borrowing money to advance cash to each taxing jurisdiction in an amount equal to the current year's delinquent property taxes. In exchange, the counties receive the penalties and interest on the delinquent taxes when collected. For counties not under the Teeter Plan, interest and penalties are allocated to all agencies based on their pro rata share of the delinquent property tax. However, the county retains the penalty on delinquent property taxes if the delinquency is cleared up within the same fiscal year.

While the Teeter Plan can provide special districts with security and stability with regard to anticipated revenues while also providing counties with a fiscal incentive to facilitate the program, it can also be subject to fault—particularly when low-value properties with penalties, interest, and other tax delinquency-related liens (tax-defaulted properties) are auctioned off or otherwise “redeemed” at prices that do not fully pay off these liens.

Several counties have enacted low-value property ordinances, as authorized within the Revenue and Taxation Code, that dictate the manner, method and terms under which these liens are extinguished. While this is the case in nearly all counties, eight counties reportedly do not have a low-value ordinance. Without the clarity afforded by having the express procedures to be followed in the event of a tax-defaulted property being sold for less than the outstanding penalties, interest, and other tax delinquency-related liens, there is a relatively higher likelihood that the subsequent calculations used to determine revenue disbursements to affected taxing agencies are incorrect.

This becomes relevant when the specific tax-related delinquencies are parsed out and funds are given to affected taxing agencies: county Teeter Plans cover the one percent ad valorem property tax secured roll “base rate” on properties, but not direct assessments or charges. The significance of this distinction is thus: a county is supposed to remit funds to affected taxing agencies solely based on the one percent ad valorem property tax base rate under the Teeter Plan, and not direct assessments or charges. In the event that a county is mistakenly including direct assessments or charges in their Teeter Plan calculations and disbursements to affected taxing agencies, that county is effectively guaranteeing and providing funds outside the parameters of the Teeter Plan.

A county that subsequently determines that it had incorrectly been including direct assessments or charges in its Teeter Plan may have very limited recourse under existing law; the potential lack of remedies notwithstanding, a county may attempt to recover improperly granted funds from taxing agencies participating in the Teeter Plan, possibly by reducing future Teeter Plan payments to participating agencies by a corresponding amount.

While this is likely to be most acute in counties that do not have a low-value property ordinance, it does not necessarily mean that this phenomenon is exclusive to those counties. Special districts should, as a result, ensure they are fully aware of how their disbursements from the county under the Teeter Plan are being calculated by consulting with their respective county auditor-controller and/or treasurer-tax collector.

This communication is provided for general information only and is not offered or intended as legal advice. Readers should seek the advice of an attorney when confronted with legal issues and attorneys should perform an independent evaluation of the issues raised in these communications.