TEETER 101 Paul McDonnell April 23, 2009

TEETER 101 Paul McDonnell April 23, 2009

Teeter Defined 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 101 2

Why Should You Care? 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 TEETER 101 3

History of Teeter in Riverside County 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 taxexempt 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. TEETER 101 4

Teeter Financing Program 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. Gross Return1 23.00% Tax Loss on Uncollectables2 (1.00%) Net Payment 22.00% Cost of Funds3 (2.00%) Net Return 20.00% 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. TEETER 101 5

Teeter Cash Flows Taxing Entities Advance Investors Sale Repay CP 1 Repayment Tax Collections Program Revenues General Fund TEETER 101 6

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. TEETER 101 7

Riverside County Properties Subject to Tax Sale Regular tax sales have allowed us to manage the growth of our inventory 4500 4000 3500 3000 2500 2000 1500 1000 500 0 2000-01 *Excluding timeshares TEETER 101 2001-02 2002-03 2003-04 New Items* 2004-05 2005-06 2006-07 2007-08 Total Items* 8

Observations from 2008 CACTTC Survey 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. TEETER 101 9

Observations (cont.) For larger programs an externally funded standalone 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. TEETER 101 10

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. TEETER 101 11

Thank You! Questions? Contact: Paul McDonnell [email protected] 951.955.1110 TEETER 101 12