Selling Tax Claims for Revenue

A Useful Budget Tool for Pennsylvania School Districts

2

Introduction

A taxpayer’s failure to pay property taxes results in a lien, or claim, being attached to the property associated with the delinquency.

Tax Claims are assets which have a face value of the delinquent tax amount plus fees and penalties. Tax Claims also accumulate interest.

29 states have enabling legislation that permits local taxing jurisdictions to monetize (sell, finance, securitize) real property tax liens.

Over $4 billion of these assets are sold or financed each year.

Selling Delinquent Tax Receivables

3

Pennsylvania Legislation

PA Acts 70 and 168 of 2004 give all school districts the ability to assign property tax claims.

School districts can generate significant cash and budget revenue via sale of tax claims.

Background

4

Revenue

Districts in need of revenue to fund new initiatives or avoid cutbacks.

Districts contemplating a borrowing. Districts in need of revenue to avoid budget referendum. Districts with relatively low current tax collection rates.

Who converts tax claims into revenue?

5

Revenue

Responsible purchaser conducts thorough financial and visual diligence of claim history and underlying properties to value district’s accumulated tax claims.

Due Diligence evaluation shared with selling district. Price negotiated between selling district and purchaser. Price paid typically between 90 – 95% of “full redemptive

value” (initial face amount plus penalty and all accumulated interest up to the date of sale).

Discount exists to account for anticipated losses.

How much revenue can a District expect?

6

Revenue

School District Revenue This year XSPAND’s ongoing programs will provide school

districts and municipalities nationwide with over $250 million. Programs range in size from $70 million per year for the 94

school districts in Los Angeles County to as little as a $300,000 per year program for Jeannette City School District in Westmoreland County, PA.

Also in PA: York City SD, Chester Upland SD, and New Castle SD have recently generated revenue via a sale of tax claims.

7

Revenue

Sale of claims is governed by Real Estate Tax Sale Law of 1947 so no additional fees are charged to taxpayers.

Tax Claim Bureau continues to collect the claims sold by the district so taxpayers do not notice change.

District can sell all – or a portion – of tax claims. Risk of non-payment assumed by purchaser. Transactions can be structured to permit flexibility to

accommodate redevelopment initiatives.

What are the effects?

8

Revenue

Selling tax claims generates significant immediate revenue.

Revenue can be recurring enabling school districts to achieve a tax collection rate approaching 100% on an on-going basis.

Good fiscal policy to match current expenditures with current receipts and facilitates budgeting and financial planning.

Current taxpayers not asked to finance delinquent taxpayers.

Benefits of Selling Tax Claims

9

Alternatives to Tax Claim Sale

Often times less costly. Non-Recourse to the school district. No Reserve Fund requirements. No Rating Agency implications. No impact on debt limitation.

Sale v. Borrowing

10

Alternatives to Tax Claim SaleTax Collection Law Firms

When: Immediate. Wait for collections over period of several years.

Amount: Will monetize the entire delinquent roll.Collect only most recent delinquencies, effectively undermining ongoing efforts by district to collect previous years owed.

Risk:District receives revenue in one up-front payment. District is certain how much revenue it will receive.

School district continues to assume risk of non-payment.

Impact on taxpayers:

No added charges. Pay claims just as they have before.

Pay additional fees, negatively impacting capability to pay other outstanding amounts owed to district.

Taxpayer Protections

Operate under provisions of PA Real Estate Tax Sale Law. Taxpayer rights to installment plans etc strictly protected.

Operate outside of Real Estate Tax Sale Law.

Long Term Effects:

Demonstrated innovative redemption techniques and taxpayer friendly programs which put chronically delinquent properties back on active tax rolls.

Increased costs to taxpayers may inhibit restoring properties to active rolls.

InnovativeSolutions

Creative Programs to Redeem Tax Claims, Improve Tax Rolls and

Promote Redevelopment in your Community

12

Innovative Solutions

In Camden, XSPAND created a partnership between Fleet Bank and FannieMae to establish a low interest loan program, which provided the opportunity for eligible homeowners to refinance their mortgages at rates as low as 4.75% in 2003.

Camden, NJ

13

Innovative Solutions

REQUEST FOR PROPOSALSFor The Purchase and Assignment of Delinquent Real Estate Property Tax Liens Owned by the Township of Irvington

Click Here

In Irvington, XSPAND developed a “Request for Proposal” marketing plan to attract developers to submit bulk purchase bids on properties with lien values surpassing property values. Bidders were limited to those who would support the city’s development plans. As a result, Irvington has realized revenue on liens with difficult collection characteristics while also assisting in the implementation of the Mayor’s Redevelopment Master Plan.

Irvington, NJ

14

Innovative Solutions

In New York City, XSPAND helps spur redevelopment via a web site allowing users to review information on properties scheduled for auction. Developers have found programs such as this to be a great resource for targeting investment candidates. Accelerated collection revenue and more properties back on the current tax roll are the results.

Property ID: 276434

Tax Class: 2A - Apartments with 4 to 6 units

Bldg Class: C3 - Four Families

Address: 70 HERKIMER STREET

City: New York

State: NY

Zip: 11216

Section:

Block: 1865

Lot: 41

Municipality:

County: Kings

Auction Date:

10/14/2004

Auction Time:

3:00PM

Auction Location:

360 Adams Street, Brooklyn, NY

Referee Name:

Frank A. Composto, Esq.

Upset Price: $----

The information provided is strictly for the convenience of potential bidders and purchasers. It is intended to be used for informational purposes only. Accuracy and completeness are not guaranteed and no representations or warranties are made. Be advised that bidders and purchasers are responsible for performing their own due diligence. Xspand recommends that you consult an attorney and obtain a title search prior to bidding. Investigations should utilize borough, block, lot or other identifying numbers. Street addresses should be verified for completeness and accuracy. Please note that other taxes may be due as well.

Information was last updated on 9/22/2004. If no auction date is listed, it has not yet been determined. Any questions, please email us at support@Xspand.com or call (973) 644-3755 (Monday through Friday, 8:30 am to 4:00 pm Eastern Time).

New York, NY

15

Innovative Solutions

In Jersey City, XSPAND employs its expertise in Brownfields redevelopment in order to facilitate the clean up and development of a large chromium contaminated property. The property will soon be back on the active tax rolls.

Jersey City, NJ

16

Summary

Pennsylvania law allows school districts an innovative budget option to generate immediate revenue.

School Districts can create immediate, substantial and recurring revenue via sale of tax claims.

Good fiscal policy to match current expenditures with current receipts.

Current taxpayers not asked to finance delinquent taxpayers.