Magazine article Government Finance Review

Electronic Auctions for Delinquent Tax Properties: E-Government in Riverside County, California

Magazine article Government Finance Review

Electronic Auctions for Delinquent Tax Properties: E-Government in Riverside County, California

Article excerpt

Riverside County, California, was hard-hit in the recession of the 1990s when timeshare owners in its resort communities stopped paying their property taxes. To get delinquent properties back on the tax rolls, the Treasurer's office developed an innovative new plan that uses e-commerce to conduct property sales.

Riverside County is the fourth largest county in California, with a population exceeding 1.4 million. Bordered by densely populated Los Angeles, Orange, San Diego, and San Bernardino counties, it encompasses more than 7,200 square miles and stretches nearly 200 miles from the Colorado River on the east to within 14 miles of the Pacific Ocean on the west. With the population increasing at a rapid pace (it is projected to grow by 300,000 within the next two years), demands on county services are continuing to grow. To keep services at their existing level, the county treasurer's office, which is responsible for collecting and accounting for real and personal property taxes, must get the most out of every existing revenue source.

Delinquent property taxes are a major revenue source for the county. Riverside County became one of the nation's timeshare centers in the 1980s when thousands of vacationers purchased resort properties in the Palm Springs area. When the recession hit in the early 1990s, many owners found it difficult to sell their timeshares and many stopped paying their property taxes, leaving the county with a backlog of more than 5,000 tax-delinquent timeshare units in vacation resorts. In order to get these properties back on the tax rolls, the Riverside County Treasurer decided to aggressively market these luxurious timeshares over the Internet.

The treasurer developed an innovative four-point plan to recover tax-delinquent property quickly and efficiently. The plan includes:

* conducting auctions of tax delinquent property more frequently and offering more tax-delinquent properties for sale;

* when financially prudent, lowering the asking price of previously offered property at subsequent tax auctions;

* implementing a marketing and advertising strategy to increase awareness and number of bidders at auctions; and

* utilizing the power of the Internet to conduct auctions online.

Delinquent Taxes

When taxes remain unpaid on real property ranging from timeshares to vacant land, the property is declared "tax defaulted." This starts a five-year waiting period, after which the treasurer has the legal authority to sell the defaulted property at auction to recover unpaid taxes. These auctions also serve as a powerful incentive for delinquent taxpayers to pay their taxes and fees.

In Riverside County, tax revenue is advanced to local jurisdictions regardless of whether the parcel owners pay the associated property tax. Typically, the county only collects 96 percent of what it is owed for a given year, but pays out 100 percent to other jurisdictions within the county in accordance with state law. Similar to credit card debt, penalties and interest compound each year that a payment is not received, dramatically increasing potential losses to the county's general fund during subsequent years.

At the close of the 1998-1999 fiscal year, the county was owed nearly $38 million in back taxes from delinquent taxpayers. While the county expects to eventually receive virtually all of this money, the delay causes two problems.

Again using the credit card analogy, the amount owed by taxpayers compounds annually at the statutory rate of one and a half percent per month, increasing the county's exposure to uncollectable revenues. Second, the missed opportunity from interest earned on this money, had it been paid on time, results in millions of dollars in lost revenue to the county. A one-year delay could substantially increase the ultimate cost to the county's general operation fund. Therefore, the sooner these properties are brought current, the better. …

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