County Tax Lien Sales Scrutinized
May 23, 2008
The potential sale of tax liens as a method of closing the gap in a projected 2009 budget shortfall for Suffolk County has taken on an added dimension in recent weeks, with the surfacing of a proposal for a limited development corporation that would buy future tax liens.
Harry Tyson, of Municipal Asset Providers in Manhasset, has proposed not only the purchase of current outstanding tax liens, but future liens as well. “Suffolk County currently has about $50 million in delinquent taxes each year,” he said. “My company has developed a program to purchase the outstanding liens, and then new liens, each year in the future. This product would allow the county to sell its delinquent liens for an amount that equals 95% of the present value of liens.”
It is a proposal, says County Executive Steve Levy, that is being examined to see how it would affect the county. “There’s good and bad to it,” he said. “There’s the upfront cash, but if you’re going to sell future liens you wouldn’t get penalties and interests that would come to the county. And you can lose control over these properties. Right now it’s on the table.”
The proposal, said Robert Lipp, deputy director of the county Legislature’s Budget Review Office, is “a new kind of animal” since the county currently sells tax liens to itself, which it then collects as properties are disposed of through transfer.
“Right now, each year we have a sale of tax liens – if a person is delinquent in their taxes, we sell the tax liens to ourselves,” explained Lipp. “That way if the property is ever sold, a portion of the proceeds goes to the holder of the lien, including how much taxes are owed, plus penalties.”
The traditional tax lien sale company might purchase current tax liens, he said, but this proposal is for future tax liens, and is different. “Here we have a vendor who wants a long-term contract with the county so that he could borrow at favorable rates for long periods of time so that he could give the county as much as possible, up front, for each year’s tax lien sale,” explained Lipp.
Suffolk County is weighing two options for raising funds to close a budget shortfall in 2009 estimated at $150 million – the sale of tax liens or tobacco securitization funds. How much could be raised through the sale of tax liens is something that has yet to be assessed, said Lipp. “In terms of the finances, once a [request for proposals] is put together and the offers come back, we’d look at them and analyze how much would we get back,” he said.
According to Tyson, there are a number of tax lien purchasers in the market, and other municipalities sell their liens to LDCs. His product, however, allows the municipality to continue to collect its own liens and pays out a premium, so the county would retain control over aspects of the property disposal. “The program would either be 30 years or whenever the county wants to terminate the program, which they can do every single year,” he said.
Levy said that while the Tyson proposal may have merit, tax liens and tobacco securitization funds should be looked at side by side.
“Some people think selling tax liens is head over heels better than tobacco, but both approaches have pros and cons,” said Levy. “The good thing about tobacco is it’s not speculative, but on the downside you’re giving up revenues in the future. As for selling tax liens, we don’t know how the bonding agencies would look at doing that. Nobody knows exactly how it would work. So we don’t know which one we would do. We want to see RFPs for both tax lien sales and tobacco securitization.”
Another concern, said Deputy County Attorney Dennis Brown, is whether county law regarding handling of tax lien properties would be met by any proposal. “With respect to binding county laws, we would have to look at the degree that they would be binding on a purchasing entity,” he said.
Lipp agreed. “There are nuances to the Suffolk County Tax Act which have to be met,” he said. “And from what we gather the county executive and Legislature don’t want to do something that’s going to throw someone out of their house. That has to be formally addressed, to make sure those sorts of things wouldn’t happen before we even look at whether the finances make sense.”
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