Officials Hope to Tap Late Property Taxes : Crisis: Assembly panel will weigh plan to alter the way bonds backed by the overdue payments are issued.

Scrambling for ways to raise needed cash, Orange County officials are hoping to use the millions owed each year in delinquent property taxes to aid in the bankruptcy recovery effort.

Emergency legislation being considered today in Sacramento would restructure the way the county issues bonds that are backed by the collection of delinquent taxes, which have averaged a total of about $75 million a year since 1991.

County officials say the proposal by state Sen. John R. Lewis (R-Orange) is crucial to the bankruptcy recovery effort because it would help pay off $175 million in bond debt due this summer while funneling millions of dollars back into county coffers.

“It’s a very important piece of legislation for the county,” said Paul Nussbaum, chief adviser to County Chief Executive Officer William J. Popejoy. “Ultimately, it will provide another source of income for the county.”

Orange County ranks first among neighboring Southern California counties when it comes to collecting an estimated $2 billion in property taxes each year, with as much as 96% of the county’s property owners paying their bills on time, according to Assistant Tax Collector Gary Cowan.

But the small group of property owners who fall behind on their taxes each year owe the county millions--last year alone they owed a total of $64.5 million. Delinquent property owners are charged fines and penalties, including 1.5% interest each month on outstanding tax bills.

Ultimately, most property owners pay up, Cowan said. The county only has to foreclose on about 20 parcels each year, he said.

As a result, collection of delinquent property taxes is seen as such a “sure thing” that the county can use it to issue one-year bonds, called Teeter notes, and disburse anticipated property tax revenue to cities, schools and other special districts, Nussbaum said.

“It’s to the benefit of the schools and cities to get their money upfront,” Cowan said. “What we get in return is keeping the interest and penalties. That’s the benefit to us.”

Lewis’ bill would create a joint powers authority that would have the ability to issue 20-year bonds--instead of one-year Teeter notes--a move that could enhance the bonds’ credibility with the public, since the county would not be directly involved with the ongoing process.

The longer-term structuring could partially ease a cash crunch this summer, when nearly $1 billion in bonds come due, including $175 million in year-old Teeter notes, Nussbaum said.

It would also give the county a one-time windfall of $60 million, with $10 million each year thereafter, Nussbaum said.

The Assembly Select Committee on the Insolvency of Orange County meets today to review Lewis’ proposals and other bankruptcy recovery bills. The package could be forwarded to the Assembly floor by Thursday, officials said.

Supervisor Marian Bergeson agreed that Lewis’ bill is an “important piece of the recovery effort.”

“I don’t feel that this is one of the controversial issues,” she said. “It makes good sense.”

Banking on delinquent property taxes is so lucrative that several collection agencies have approached the county with proposals to pay off the delinquent property taxes upfront for the opportunity to collect on the interest and a portion of the fines.

“We’ve had a lot of people approach us about this,” Nussbaum said.

Cowan said the typical delinquent taxpayer is someone who has lost a job.

“It’s not by choice that they haven’t paid, but they have to delay the payment,” he said. “And they pay a pretty steep penalty for doing that.”

When property owners cannot or will not pay off their tax debt, the county can place a lien on delinquent property but must wait five years before foreclosing on it, Cowan said.

“But that rarely, rarely happens,” he said. “The property in Orange County is very valuable. People will find a way to pay.”

Nussbaum said he expects that, if Lewis’ bill is approved, other counties may follow Orange County’s lead.

“I think this is something that would be beneficial to many other counties,” he said. “At a time like this, we need to find creative financial solutions to help the county.”

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Paying Dues

The Orange County tax collector’s office bills nearly $2 billion in property taxes every year. A look at Orange County’s collection success in the past three years:

Mailed Tax worth Delinquent Delinquent taxes Year bills (billions) bills (millions) 1991-92 746,000 $1.7 34,000 $77.9 1992-93 725,000 1.9 35,150 83.6 1993-94 717,547 1.9 35,000 64.5

Source: Orange County tax collector’s office