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Armstrong School Board weighs decision to sell delinquent real estate taxes

Tuesday, May 13, 2014, 12:41 a.m.
 

The Armstrong School Board could see a boost in revenue but a drop in its projected reserve funds if it decides not to sell its delinquent 2013 real estate taxes in June.

The board is debating whether to continue selling all or a portion of its 2013 delinquent real estate tax claims for a yet-to-be-determined amount to McKean-based Municipal Revenue Services, or to quit using the company after three years.

The company purchases delinquent real estate tax claims from school districts and municipalities while charging closing fees and interest rates. This year, the company agreed to charge Armstrong School District a $141,000 closing fee and an interest rate of 4.75 percent.

By not using the company's service, the district would see a $283,500 boost in revenues next year since officials anticipated paying the company that amount for closing costs and fees, said Business Manager John Zenone. But the district would lose the $3 million the company usually pays for the tax claims.

The district figured the tax sales into its estimated $9.7 million reserve funds in the 2014-15 budget.

Zenone said the board is set to collect $3.7 million for the 2013-14 budget, after paying $177,000 in costs and fees to Municipal Revenue Services.

“This type of agreement is essentially for cash-poor entities, since it gives them a big boost of cash up front, and predictable annual cash flows,” Zenone said. “When we started this, we were in a bind and looking for funds since we needed to make payroll.”

Since the company pays the district on a quarterly basis, Armstrong has received $1.5 million for the current budget. That means the district would not receive the additional $1.4 million which is figured into the district's fund balance for the 2014-15 budget, Zenone said.

The district began working with the company during the 2011-12 budget. During three budget cycles, the district received a total of $9.3 million while paying about $1 million in interest and closing cost, Zenone said.

Board members say they want to leave program

School board member Stanley Berdell said he wants to see the district get away from using the company since it is costing roughly 10 percent of all delinquent real estate taxes per year.

“We have to get out so we can see the least amount of damage,” Berdell said. “We've been kicking this can down the street too long and can't keep kicking it anymore.”

School board President Joe Close said he also wants to see the district leave the program but it would be tough to give up $1.4 million from the district's fund balance.

“It's essentially in lieu of a tax increase, which nobody wants to do,” Close said. “But that's almost three mills of taxes.”

Tax increase considered

The board already is considering increasing real estate taxes for a third consecutive school year in its 2014-15 budget.

The budget reflects a 2.33-mill tax increase in an attempt to balance its projected $97.3 million spending plan that calls for only $92.3 million in revenues, including the proposed tax claim sale.

Armstrong School District's current tax rate is 56.64 mills. The proposed hike would bring the tax rate to 58.96 mills and raise $1 million for the district.

Zenone plans to present the board with three versions of the 2014-15 budget in June: one reflecting how the district would fare by selling all of its delinquent real estate taxes, and two options showing no sale or a partial sale.

“We're going to know exactly how this decision will impact us in this upcoming budget,” Close said.

The board plans to pass a final 2014-15 budget by June 16.

Brad Pedersen is a staff writer for Trib Total Media. He can be reached at 724-543-1303, ext. 1337, or bpedersen@tribweb.com.

 

 

 
 


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