San Mateo County Grand Jury • 2005-2006

Issue | Background | Findings | Conclusions | Recommendations | Responses | Attachments Summary of Old Myths and New

Published: June 14, 2006 32 pages
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Note: Missing finding numbers detected: F36, F37, F38, F39, F40, F41, F42, F43, F44, F45, F46, F47, F48, F49, F50, F51, F52, F53, F54, F55, F56, F57, F58, F59, F60, F61, F62, F63, F64, F65, F66, F67, F68, F69, F70, F71, F72, F73, F74, F75, F76, F77, F78, F79, F80, F81, F82, F83, F84, F85, F86, F87, F88, F89, F90, F91, F92, F93, F94, F95, F96, F97, F98, F99, F100, F101, F102, F103, F104, F105, F106, F107, F108, F109, F110, F111, F112, F113, F114, F115, F116, F117, F118, F119, F120, F121, F122, F123, F124, F125, F126, F127, F128, F129, F130, F131, F132, F133, F134, F135, F136, F137, F138, F139, F140, F141, F142, F143, F144, F145, F146, F147, F148, F149, F150, F151, F152, F153, F154, F155, F156, F157, F158, F159, F160, F161, F162, F163, F164, F165, F166, F167, F168, F169, F170, F171, F172, F173, F174, F175, F176, F177, F178, F179, F180, F181, F182, F183, F184, F185, F186, F187, F188, F189, F190, F191, F192, F193, F194, F195, F196, F197, F198, F199, F200, F201, F202, F203, F204, F205, F206, F207, F208, F209, F210, F211, F212, F213, F214, F215, F216, F217, F218, F219, F220, F221, F222, F223, F224, F225, F226, F227, F228, F229, F230, F231, F232, F233, F234, F235, F236, F237, F238, F239, F240, F241, F242, F243, F244, F245, F246, F247, F248, F249, F250, F251, F252, F253, F254, F255, F256, F257, F258, F259, F260, F261, F262, F263, F264, F265, F266, F267, F268, F269, F270, F271, F272, F273, F274, F275, F276, F277, F278, F279, F280, F281, F282, F283, F284, F285, F286, F287, F288, F289, F290, F291, F292, F293, F294, F295, F296, F297, F298, F299, F300, F301, F302, F303, F304, F305, F306, F307, F308, F309, F310, F311, F312, F313, F314, F315, F316, F317, F318, F319, F320, F321, F322, F323, F324, F325, F326, F327, F328, F329, F330, F331, F332, F333, F334, F335, F336, F337, F338, F339, F340, F341, F342, F343, F344, F345, F346, F347, F348, F349, F350, F351, F352, F353, F354, F355, F356, F357, F358, F359, F360, F361, F362, F363, F364, F365, F366, F367, F368, F369, F370, F371, F372, F373, F374, F375, F376, F377, F378, F379, F380, F381, F382, F383, F384, F385, F386, F387, F388, F389, F390, F391, F392, F393, F394, F395, F396, F397, F398, F399, F400, F401, F402, F403, F404, F405, F406, F407, F408, F409, F410, F411, F412, F413, F414, F415, F416, F417, F418, F419, F420, F421, F422, F423, F424, F425, F426, F427, F428, F429, F430, F431, F432, F433, F434, F435, F436, F437, F438, F439, F440, F441, F442, F443, F444, F445, F446, F447, F448, F449, F450, F451, F452, F453, F454, F455, F456, F457, F458, F459, F460, F461, F462, F463, F464, F465, F466, F467, F468, F469, F470, F471, F472, F473, F474, F475, F476, F477, F478, F479, F480, F481, F482, F483, F484, F485, F486, F487, F488, F489, F490, F491, F492, F493, F494, F495, F496, F497, F498, F499, F500, F501, F502, F503, F504, F505, F506, F507, F508, F509, F510, F511, F512, F513, F514, F515, F516, F517, F518, F519, F520, F521, F522, F523, F524, F525, F526, F527, F528, F529, F530, F531, F532, F533, F534, F535, F536, F537, F538, F539, F540, F541, F542, F543, F544, F545, F546, F547, F548, F549, F550, F551, F552, F553, F554, F555, F556, F557, F558, F559, F560, F561, F562, F563, F564, F565, F566, F567, F568, F569, F570, F571, F572, F573, F574, F575, F576, F577, F578, F579, F580, F581, F582, F583, F584, F585, F586, F587, F588, F589, F590, F591, F592, F593, F594, F595, F596, F597, F598, F599, F600, F601, F602, F603, F604, F605, F606, F607, F608, F609, F610, F611, F612, F613, F614, F615, F616, F617, F618, F619, F620, F621, F622, F623, F624, F625, F626, F627, F628, F629, F630, F631, F632, F633, F634, F635, F636, F637, F638, F639, F640, F641, F642, F643, F644, F645, F646, F647, F648, F649, F650, F651, F652, F653, F654, F655, F656, F657, F658, F659, F660, F661, F662, F663, F664, F665, F666, F667, F668, F669, F670, F671, F672, F673, F674, F675, F676, F677, F678, F679, F680, F681, F682, F683, F684, F685, F686, F687, F688, F689, F690, F691, F692, F693, F694, F695, F696, F697, F698, F699, F700, F701, F702, F703, F704, F705, F706, F707, F708, F709, F710, F711, F712, F713, F714, F715, F716, F717, F718, F719, F720, F721, F722, F723, F724, F725, F726, F727, F728, F729, F730, F731, F732, F733, F734, F735, F736, F737, F738, F739, F740, F741, F742, F743, F744, F745, F746, F747, F748, F749, F750, F751, F752, F753, F754, F755, F756, F757, F758, F759, F760, F761, F762, F763, F764, F765, F766, F767, F768, F769, F770, F771, F772, F773, F774, F775, F776, F777, F778, F779, F780, F781, F782, F783, F784, F785, F786, F787, F788, F789, F790, F791, F792, F793, F794, F795, F796, F797, F798, F799, F800, F801, F802, F803, F804, F805, F806, F807, F808, F809, F810, F811, F812, F813, F814, F815, F816, F817, F818, F819, F820, F821, F822, F823, F824, F825, F826, F827, F828, F829, F830, F831, F832, F833, F834, F835, F836, F837, F838, F839, F840, F841, F842, F843, F844, F845, F846, F847, F848, F849, F850, F851, F852, F853, F854, F855, F856, F857, F858, F859, F860, F861, F862, F863, F864, F865, F866, F867, F868, F869, F870, F871, F872, F873, F874, F875, F876, F877, F878, F879, F880, F881, F882, F883, F884, F885, F886, F887, F888, F889, F890, F891, F892, F893, F894, F895, F896, F897, F898, F899, F900, F901, F902, F903, F904, F905, F906, F907, F908, F909, F910, F911, F912, F913, F914, F915, F916, F917, F918, F919, F920, F921, F922, F923, F924, F925, F926, F927, F928, F929, F930, F931, F932, F933, F934, F935, F936, F937, F938, F939, F940, F941, F942, F943, F944, F945, F946, F947, F948, F949, F950, F951, F952, F953, F954, F955, F956, F957, F958, F959, F960, F961, F962, F963, F964, F965, F966, F967, F968, F969, F970, F971, F972, F973, F974, F975, F976, F977, F978, F979, F980, F981, F982, F983, F984, F985, F986, F987, F988, F989, F990, F991, F992, F993, F994, F995, F996, F997, F998, F999, F1000, F1001, F1002, F1003, F1004, F1005, F1006, F1007, F1008, F1009, F1010, F1011, F1012, F1013, F1014, F1015, F1016, F1017, F1018, F1019, F1020, F1021, F1022, F1023, F1024, F1025, F1026, F1027, F1028, F1029, F1030, F1031, F1032, F1033, F1034, F1035, F1036, F1037, F1038, F1039, F1040, F1041, F1042, F1043, F1044, F1045, F1046, F1047, F1048, F1049, F1050, F1051, F1052, F1053, F1054, F1055, F1056, F1057, F1058, F1059, F1060, F1061, F1062, F1063, F1064, F1065, F1066, F1067, F1068, F1069, F1070, F1071, F1072, F1073, F1074, F1075, F1076, F1077, F1078, F1079, F1080, F1081, F1082, F1083, F1084, F1085, F1086, F1087, F1088, F1089, F1090, F1091, F1092, F1093, F1094, F1095, F1096, F1097, F1098, F1099, F1100, F1101, F1102, F1103, F1104, F1105, F1106, F1107, F1108, F1109, F1110, F1111, F1112, F1113, F1114, F1115, F1116, F1117, F1118, F1119, F1120, F1121, F1122, F1123, F1124, F1125, F1126, F1127, F1128, F1129, F1130, F1131, F1132, F1133, F1134, F1135, F1136, F1137, F1138, F1139, F1140, F1141, F1142, F1143, F1144, F1145, F1146, F1147, F1148, F1149, F1150, F1151, F1152, F1153, F1154, F1155, F1156, F1157, F1158, F1159, F1160, F1161, F1162, F1163, F1164, F1165, F1166, F1167, F1168, F1169, F1170, F1171, F1172, F1173, F1174, F1175, F1176, F1177, F1178, F1179, F1180, F1181, F1182, F1183, F1184, F1185, F1186, F1187, F1188, F1189, F1190, F1191, F1192, F1193, F1194, F1195, F1196, F1197, F1198, F1199, F1200, F1201, F1202, F1203, F1204, F1205, F1206, F1207, F1208, F1209, F1210, F1211, F1212, F1213, F1214, F1215, F1216, F1217, F1218, F1219, F1220, F1221, F1222, F1223, F1224, F1225, F1226, F1227, F1228, F1229, F1230, F1231, F1232, F1233, F1234, F1235, F1236, F1237, F1238, F1239, F1240, F1241, F1242, F1243, F1244, F1245, F1246, F1247, F1248, F1249, F1250, F1251, F1252, F1253, F1254, F1255, F1256, F1257, F1258, F1259, F1260, F1261, F1262, F1263, F1264, F1265, F1266, F1267, F1268, F1269, F1270, F1271, F1272, F1273, F1274, F1275, F1276, F1277, F1278, F1279, F1280, F1281, F1282, F1283, F1284, F1285, F1286, F1287, F1288, F1289, F1290, F1291, F1292, F1293, F1294, F1295, F1296, F1297, F1298, F1299, F1300, F1301, F1302, F1303, F1304, F1305, F1306, F1307, F1308, F1309, F1310, F1311, F1312, F1313, F1314, F1315, F1316, F1317, F1318, F1319, F1320, F1321, F1322, F1323, F1324, F1325, F1326, F1327, F1328, F1329, F1330, F1331, F1332, F1333, F1334, F1335, F1336, F1337, F1338, F1339, F1340, F1341, F1342, F1343, F1344, F1345, F1346, F1347, F1348, F1349, F1350, F1351, F1352, F1353, F1354, F1355, F1356, F1357, F1358, F1359, F1360, F1361, F1362, F1363, F1364, F1365, F1366, F1367, F1368, F1369, F1370, F1371, F1372, F1373, F1374, F1375, F1376, F1377, F1378, F1379, F1380, F1381, F1382, F1383, F1384, F1385, F1386, F1387, F1388, F1389, F1390, F1391, F1392, F1393, F1394, F1395, F1396, F1397, F1398, F1399, F1400, F1401, F1402, F1403, F1404, F1405, F1406, F1407, F1408, F1409, F1410, F1411, F1412, F1413, F1414, F1415, F1416, F1417, F1418, F1419, F1420, F1421, F1422, F1423, F1424, F1425, F1426, F1427, F1428, F1429, F1430, F1431, F1432, F1433, F1434, F1435, F1436, F1437, F1438, F1439, F1440, F1441, F1442, F1443, F1444, F1445, F1446, F1447, F1448, F1449, F1450, F1451, F1452, F1453, F1454, F1455, F1456, F1457, F1458, F1459, F1460, F1461, F1462, F1463, F1464, F1465, F1466, F1467, F1468, F1469, F1470, F1471, F1472, F1473, F1474, F1475, F1476, F1477, F1478, F1479, F1480, F1481, F1482, F1483, F1484, F1485, F1486, F1487, F1488, F1489, F1490, F1491, F1492, F1493, F1494, F1495, F1496, F1497, F1498, F1499, F1500, F1501, F1502, F1503, F1504, F1505, F1506, F1507, F1508, F1509, F1510, F1511, F1512, F1513, F1514, F1515, F1516, F1517, F1518, F1519, F1520, F1521, F1522, F1523, F1524, F1525, F1526, F1527, F1528, F1529, F1530, F1531, F1532, F1533, F1534, F1535, F1536, F1537, F1538, F1539, F1540, F1541, F1542, F1543, F1544, F1545, F1546, F1547, F1548, F1549, F1550, F1551, F1552, F1553, F1554, F1555, F1556, F1557, F1558, F1559, F1560, F1561, F1562, F1563, F1564, F1565, F1566, F1567, F1568, F1569, F1570, F1571, F1572, F1573, F1574, F1575, F1576, F1577, F1578, F1579, F1580, F1581, F1582, F1583, F1584, F1585, F1586, F1587, F1588, F1589, F1590, F1591, F1592, F1593, F1594, F1595, F1596, F1597, F1598, F1599, F1600, F1601, F1602, F1603, F1604, F1605, F1606, F1607, F1608, F1609, F1610, F1611, F1612, F1613, F1614, F1615, F1616, F1617, F1618, F1619, F1620, F1621, F1622, F1623, F1624, F1625, F1626, F1627, F1628, F1629, F1630, F1631, F1632, F1633, F1634, F1635, F1636, F1637, F1638, F1639, F1640, F1641, F1642, F1643, F1644, F1645, F1646, F1647, F1648, F1649, F1650, F1651, F1652, F1653, F1654, F1655, F1656, F1657, F1658, F1659, F1660, F1661, F1662, F1663, F1664, F1665, F1666, F1667, F1668, F1669, F1670, F1671, F1672, F1673, F1674, F1675, F1676, F1677, F1678, F1679, F1680, F1681, F1682, F1683, F1684, F1685, F1686, F1687, F1688, F1689, F1690, F1691, F1692, F1693, F1694, F1695, F1696, F1697, F1698, F1699, F1700, F1701, F1702, F1703, F1704, F1705, F1706, F1707, F1708, F1709, F1710, F1711, F1712, F1713, F1714, F1715, F1716, F1717, F1718, F1719, F1720, F1721, F1722, F1723, F1724, F1725, F1726, F1727, F1728, F1729, F1730, F1731, F1732, F1733, F1734, F1735, F1736, F1737, F1738, F1739, F1740, F1741, F1742, F1743, F1744, F1745, F1746, F1747, F1748, F1749, F1750, F1751, F1752, F1753, F1754, F1755, F1756, F1757, F1758, F1759, F1760, F1761, F1762, F1763, F1764, F1765, F1766, F1767, F1768, F1769, F1770, F1771, F1772, F1773, F1774, F1775, F1776, F1777, F1778, F1779, F1780, F1781, F1782, F1783, F1784, F1785, F1786, F1787, F1788, F1789, F1790, F1791, F1792, F1793, F1794, F1795, F1796, F1797, F1798, F1799, F1800, F1801, F1802, F1803, F1804, F1805, F1806, F1807, F1808, F1809, F1810, F1811, F1812, F1813, F1814, F1815, F1816, F1817, F1818, F1819, F1820, F1821, F1822, F1823, F1824, F1825, F1826, F1827, F1828, F1829, F1830, F1831, F1832, F1833, F1834, F1835, F1836, F1837, F1838, F1839, F1840, F1841, F1842, F1843, F1844, F1845, F1846, F1847, F1848, F1849, F1850, F1851, F1852, F1853, F1854, F1855, F1856, F1857, F1858, F1859, F1860, F1861, F1862, F1863, F1864, F1865, F1866, F1867, F1868, F1869, F1870, F1871, F1872, F1873, F1874, F1875, F1876, F1877, F1878, F1879, F1880, F1881, F1882, F1883, F1884, F1885, F1886, F1887, F1888, F1889, F1890, F1891, F1892, F1893, F1894, F1895, F1896, F1897, F1898, F1899, F1900, F1901, F1902, F1903, F1904, F1905, F1906, F1907, F1908, F1909, F1910, F1911, F1912, F1913, F1914, F1915, F1916, F1917, F1918, F1919, F1920, F1921, F1922, F1923, F1924, F1925, F1926, F1927, F1928, F1929, F1930, F1931, F1932, F1933, F1934, F1935, F1936, F1937, F1938, F1939, F1940, F1941, F1942, F1943, F1944, F1945, F1946, F1947, F1948, F1949, F1950, F1951, F1952, F1953, F1954, F1955, F1956, F1957, F1958, F1959, F1960, F1961, F1962, F1963, F1964, F1965, F1966, F1967, F1968, F1969, F1970, F1971, F1972, F1973, F1974, F1975, F1976, F1977, F1978, F1979, F1980, F1981, F1982, F1983, F1984, F1985

Findings and Recommendations 36 findings

F1
The property tax system, including county allocations and state audits, builds on itself year upon year. Consequently, it is possible for errors introduced in a previous allocation to be incorporated in a future allocation and thereby be propagated from year to year.
No recommendations for this finding
F2
Although San Mateo County apparently benefited from the trial court funding provisions of the Brown/Presley Act of 1988, the County Controller did not identify or implement the TEA provisions of the Act, which would have benefited four no/low-tax cities at the expense of the County.
No recommendations for this finding
F3
Prior to learning of §98 of the Code in 2005, the Controller failed to allocate approximately $8.1 million of TEA funds to four cities for the 15 year period between 1991 and 2005 (from $0.3 million to $3.3 million per city). 5
No recommendations for this finding
F4
The Controller relies on the State Controller’s Office (SCO) quadrennial audit of the methods employed by the County to apportion and allocate property tax revenues to determine compliance with statutory requirements. In 1997, the SCO audited the County’s property tax allocations for the seven-year period 7-1-88 to 6-30-95. It was standard procedure at that time to audit for TEA compliance. In this particular audit, however, the state auditor inexplicably modified the audit program to exclude TEA compliance. None of the three levels of SCO reviewers caught the omission. In 2005, Portola Valley discovered that it was entitled to an additional share of property taxes collected within the town’s boundaries based on the TEA formula provided in Code §98 and brought this to the attention of the County Controller.
No recommendations for this finding
F5
The Controller promptly responded to Portola Valley’s claim by requesting the opinion of County Counsel. The request for opinion focused mostly on old information in its own files and less on the current Code §98. The Controller also stated “the impact would be material if it is found that San Mateo County is subject to the requirements of this law.”
No recommendations for this finding
F6
County Counsel responded to the Controller in 30 days and opined that the County is not exempt from the provisions of §98 of the Code.
No recommendations for this finding
F7
The Controller researched which cities in the County qualify under Code §98, and determined how to calculate the amounts they are entitled to under TEA and from where the TEA amounts are withdrawn. Additional payments to qualifying cities must come from payments previously allocated to other entities.
No recommendations for this finding
F8
Five months following receipt of Portola Valley’s claim pursuant to §98 of the Code, the Controller sent checks totaling approximately $2.6 million (for the two most recent years of the 15 years in which payments should have been made) to the four qualifying cities in the County. The checks were accompanied by minimal documentation, but courtesy phone calls were placed on the day the checks were posted.
No recommendations for this finding
F9
The initial basis for calculating the payments sent to the four cities was later found to be incorrect. Upon reflection, the Controller changed its interpretation of how to apply the Code with regard to ERAF I and ERAF II, which reduced by 15% the earlier TEA payments from $2.6M to $2.2M. Additionally, the Controller modified the assumptions for the interest due each city, resulting in a slightly increased interest payment.
Related Recommendations (1)
R1
Cities: Cities should not rely entirely on the county to look after their interests. As demonstrated here, to do so is a false economy. The city councils of Colma, Half Moon Bay, Woodside, and Portola Valley should: 1.1 Align their expectations of receiving services with those of the professionals providing services. Contracts should clearly specify all expectations. Specifically, agreements with contract city attorneys should clearly state the scope of the city’s expectations with regard to their monitoring and reporting of state legislation that impacts the city. Likewise, job descriptions for full-time city attorneys should also clearly state the full scope of activities expected of them by the city council. 1.2 Assign city staff to participate in relevant financial organizations such as SAMFOG or CSMFO, participate in and monitor bulletins of the League of California Cities and report on items of interest at city council meetings.
F10
In March 2006, the Portola Valley town council delayed a planned ballot measure to reduce the town’s utility tax rate because they had lost confidence in the figures generated by the County Controller and was uncertain of the town’s future receipts of property taxes. The town council’s loss of confidence was the result of 6 the minimal explanation sent with the original check, the changed interpretation of how to apply ERAF to TEA, and inaccurate interest calculations. The 1980’s and early 90’s were a time of rapid change in financial systems and processes; however, the county’s controller’s office remained provincial and ineffective. William Bergman was elected County Controller in 1978, followed by Jerry Trias in 1986. The current Controller, Tom Huening, was elected in 1998.
Related Recommendations (1)
R4
The Board of Supervisors should: 4.1 Take the following steps to assure that cities, schools, and special districts in the County can rely on figures generated by the County Controller. 4.1.1. Provide funds for the Property Tax and Special Accounting Manager to actively and consistently participate in the County Property Tax Manager’s subcommittee of the CAAC. 4.1.2. Monitor the results of customer surveys conducted by the Controller’s Office and bring concerns to the Controller’s attention,. 4.2 Extend the responsibilities of the Deputy County Manager for Legislative Affairs and County Counsel to include informing elected officials of the County of legislation that might impact their departments. 4.3 Monitor the progress of and review the results of the Controller’s mini- compliance audit of current property tax allocation practices and take further actions as deemed necessary to assure that the County accurately allocates property taxes. 14
F11
Grand Jury Reports in 1989 and 1990 identified significant deficiencies in the operation and management of the Controller’s Office, including the misallocation of property taxes. On September 4, 1990, the Board of Supervisors reached agreement with the elected County Controller to add a Deputy Controller to the department to help address the deficiencies. A new Controller was elected in November 1998.
No recommendations for this finding
F12
In 1988, the State Legislative Analyst identified 17 counties as having qualifying no/low-tax cites. Thirteen of them identified the 1988 TEA legislation and implemented the requisite changes. Another three were incorrectly identified as having qualifying no/low-tax cities. San Mateo is the only county with qualifying low/no-tax cities to have failed to implement the TEA legislation. All 13 counties that correctly implemented the legislation indicated that their participation in the County Auditor’s Association of California (CAAC) and County Property Tax Managers’ Association Sub-Committee was instrumental in their identifying the TEA provisions.
No recommendations for this finding
F13
In the fall of 1987 and 1988, the State Board of Equalization sent all county assessors a table of Tax and Revenue Code sections that were affected by legislation of interest to assessors. The 1987 list identifies SB 709, and the 1988 list included AB 1197, the two generalized TEA legislative actions which the County Controller failed to identify and implement. Currently, the Controller’s Office appears to operate professionally and has put many of its earlier problems behind them. For example:
No recommendations for this finding
F14
In 2003, in cooperation with the County Counsel’s Office, the Property Tax Division determined that the Educational Revenue Augmentation Fund (ERAF) owed the County, cities, and special districts $33.7 million in excess property tax shift as defined by the law. Since that initial determination in 2003, the Controller has issued refunds totaling $135 million to the County and $59 million to cities and special districts, funds that might have been distributed three years later or not at all.
No recommendations for this finding
F15
Until the four no/low-tax cities discovered the TEA provisions, no misallocations of property taxes had been identified since the grand jury reported in 1990 that 23 school districts identified mistakes in the allocation of supplemental property taxes. Actually, few County agencies ever question their property tax allocation. 7
No recommendations for this finding
F16
Mistakes discovered during the SCO’s quadrennial audits are adjusted. The most recent audit, completed August 13, 2004, identified only one shortcoming. The County did not properly record secure parcels in redevelopment project tax rate areas, which is actually the responsibility of the County Assessor. As of March 2006, the Assessor had put in place a number of quality assurance measures to improve tax rate area (TRA) assignments.
No recommendations for this finding
F17
The Controller reaches out to local agencies in the County primarily through the San Mateo County Financial Officer’s Group (SAMFOG). Additionally, when addressing issues impacting the County’s 23 school districts, the Controller works directly with the County Office of Education who in turn communicates with individual school districts.
No recommendations for this finding
F18
The Controller’s Office conducts an annual survey of all cities, special districts, and RDA’s in the County. The purpose of the survey is to measure their performance in meeting customers’ needs. In January 2006, 11 of 47 customers surveyed responded. Five of the respondents rated their overall satisfaction with the Property Tax Division excellent, 5 rated it good, and 1 rated it poor. Thirty- six customers did not respond. Despite the many improvements mentioned above, there are other actions that indicate a need for the continued development of Controller’s Office expertise.
Related Recommendations (1)
R4
The Board of Supervisors should: 4.1 Take the following steps to assure that cities, schools, and special districts in the County can rely on figures generated by the County Controller. 4.1.1. Provide funds for the Property Tax and Special Accounting Manager to actively and consistently participate in the County Property Tax Manager’s subcommittee of the CAAC. 4.1.2. Monitor the results of customer surveys conducted by the Controller’s Office and bring concerns to the Controller’s attention,. 4.2 Extend the responsibilities of the Deputy County Manager for Legislative Affairs and County Counsel to include informing elected officials of the County of legislation that might impact their departments. 4.3 Monitor the progress of and review the results of the Controller’s mini- compliance audit of current property tax allocation practices and take further actions as deemed necessary to assure that the County accurately allocates property taxes. 14
F19
The Code (§96.1) stipulates that “If it is determined that an allocation method is required to be adjusted and a reallocation is required for previous fiscal years, the cumulative reallocation or adjustment may not exceed 1% of the total amount levied at a 1% rate of the current year’s original secured tax roll. The reallocation shall be completed in equal increments within the following three years.” The Controller adjusted in a single payment the reallocation to the four qualifying low/no-tax cities by an amount greater than 1%.
No recommendations for this finding
F20
The Code (§96.1) further stipulates “any allocation of property tax revenue that was subjected to a prior completed audit by the Controller, where all finding have been resolved, shall be deemed correct.” The last State Controller’s audit, covering the years 7-1-99 to 6-30-03 was completed August 13, 2004. There are no formal documents resolving the one finding contained in that audit. If the years covered by this audit are deemed eligible for retroactive TEA payments, it is estimated that an additional $3.2 million will be payable to the four qualifying cities. The recent widespread use of the Internet has made it much easier for organizations to inform their members of relevant issues and for communities of interest to support one another. 8
No recommendations for this finding
F21
The County Property Tax Manager’s Association (a subcommittee of the CAAC) is a state organization that stays on top of changes in the Code. This organization of county property tax managers is an excellent source of information and forum for the exchange of practices. In 2003 it published a 599 page “California Property Tax Managers’ Reference Manual,” which is currently posted on the Controller’s website. It describes TEA.
No recommendations for this finding
F22
The Controller has also posted on its website “Demystifying the California Property Tax Apportionment System” (written Feb. 2006). It describes TEA. The Board of Supervisors is responsible for the County’s efforts to affect state legislation. The Grand Jury learned that in the 1980’s the Controller’s Office relied on the County Manager’s Office to inform it of legislation that might impact them.
No recommendations for this finding
F23
In 1985, the County lobbied against SB 1091, a predecessor TEA bill that was never enacted. The County Manager’s Office coordinated these efforts that at a minimum involved the County Manager, Controller, and various budget analysts. They relied at the time on Legislative Bulletins issued by the County Supervisors Association of California, which is today named the California State Association of Counties (CSAC). However, despite receiving legislative bulletins from CSAC, the County Manager’s Office apparently failed to identify, or at a minimum, failed to notify the Controller’s Office of the passage of SB 709 two years later or AB 1197 three years later.
No recommendations for this finding
F24
The present County Manager believes that in the 1985-88 time period the County did not have a legislative affairs office. A formal office was formed in the early ‘90’s and is headed today by a Deputy County Manager. However, that perception is inconsistent with a document the Grand Jury has reviewed dated 1985 with the following letterhead: “County Manager’s Office, Legislative Affairs.” That document addresses “No Prop Tax Cities.” In 1985, the County lobbied against legislation to set a 10% minimum for no/low-tax cities.
No recommendations for this finding
F25
Today, the monitoring of legislation is distributed throughout the County and not centralized in only the County Manager’s Office. Departments do their own monitoring through participation with professional state organizations, server lists, and websites. Additionally, more formal attention is paid to such monitoring in the County Manager’s Office. The Deputy County Manager for Legislative Affairs monitors state and federal bills that impact the County so the Supervisors can address them appropriately. Participation with the California State Association of Counties (CSAC) remains one means of monitoring. The Deputy County Manager notifies impacted departments and discusses with them what if any position the County should take.
No recommendations for this finding
F26
The County Manager believes that elected officials are responsible for their own agencies and that the County Manager is responsible for all other departments. Thus, it would be inappropriate for an elected official to rely on the County Manager. Findings 2: The Four Qualifying Cites Colma, Half Moon Bay, Portola Valley, and Woodside qualify as no/low-tax cites under the TEA formula adopted by the state legislature in 1988 (AB 1197) and as currently contained in §98 of the Code. All four were identified in an analysis of AB 1197’s property tax shifts to no/low-tax cities prepared by the State Legislative Analyst in 1988. All four cities were members of the League of California Cities in 1988. The League issued at least 23 bulletins in 1988 that contained articles on “no/low-property tax cities.” The League identified by name all four San Mateo cities as eligible no/low-tax cities. On the eve of AB 1197 passing (Aug 26, 1988), the League indicated in one of its bulletins that it would send a special bulletin to all “no/low-tax cities” as soon as it knew the Conference Committee’s decision. Despite this plethora of information, none of the four cities communicated with the Controller regarding its TEA status nor monitored its property tax allocations. In 2005, Portola Valley’s Town Attorney identified TEA legislation in response to persistent questioning from the town’s mayor as to why the town received such a small percentage of property taxes. The Town Attorney was aware of TEA as a result of her previous work in Santa Clara County. The mayor persisted because by 2004 the town was in need of identifying new sources of revenue. Previously, there had been no pressing needs because the town had adopted a utility tax in 1985. All four cities relied on their attorneys to keep them informed of state legislation that impacted them.
No recommendations for this finding
F27
In the early ‘90’s, all four no/low-tax cities outsourced their city attorney functions. At that time, one individual was the city attorney for both Woodside and Half Moon Bay. This attorney believes that while his retainer agreement with Woodside provided that “The Town Attorney shall comment … on any new legislation or new cases that may affect the Town,” financial issues were not included in the “standard of care.”
Related Recommendations (1)
R1
Cities: Cities should not rely entirely on the county to look after their interests. As demonstrated here, to do so is a false economy. The city councils of Colma, Half Moon Bay, Woodside, and Portola Valley should: 1.1 Align their expectations of receiving services with those of the professionals providing services. Contracts should clearly specify all expectations. Specifically, agreements with contract city attorneys should clearly state the scope of the city’s expectations with regard to their monitoring and reporting of state legislation that impacts the city. Likewise, job descriptions for full-time city attorneys should also clearly state the full scope of activities expected of them by the city council. 1.2 Assign city staff to participate in relevant financial organizations such as SAMFOG or CSMFO, participate in and monitor bulletins of the League of California Cities and report on items of interest at city council meetings.
F28
Woodside’s current town attorney interprets her standard of care to include “any law that impacts the town,” even if it overlaps with other professionals’ roles.
No recommendations for this finding
F29
In the early 1990’s, Portola Valley was in the process of slowly transitioning from the town’s founding Town Attorney to another attorney. In the early 1990s, Portola Valley and Woodside did not have full-time finance professionals. Half Moon Bay did. None of the four cities were members of SAMFOG, though all belonged to the California League of Cities. Since 1987 the Colma and Half Moon Bay city councils have taken significant steps to upgrade the quality and quantity of their professional staffs. This, along with monitoring information from the League of California Cities, Association of Bay Area Governments 10 (ABAG), and City/County Association of Governments of San Mateo County (C/CAG) and participation in organizations such as California Society of Municipal Finance Officers (CSMFO) and SAMFOG results in the cities being more informed of the impact of state legislation today then they were in the past. Since 1987, Woodside and Portola Valley city councils have also taken significant steps to upgrade the quality of their professional staffs and Woodside is currently a member of SAMFOG. The four no/low-tax cities rely on the County to allocate property taxes accurately in accordance with state law and on the state to audit the County accurately. They believe the fact that the SCO approved audits, where the County allocated property taxes without regard to TEA, is an inadequate basis for not fully refunding the amounts due them. Conclusions California property tax laws, especially, those that were enacted more recently, are complicated and difficult to interpret. This increases the risk of improper application of the law and confusion among the affected taxing agencies. The most profound changes in property tax laws have happened in the last few years as funds are shifted from local to state needs. Errors introduced in the past impact the future and are difficult to spot. The Grand Jury believes San Mateo is the only county in the state with qualifying no/low-tax cities that failed to implement the 1988 TEA legislation (AB 1197) in a timely manner. The County’s failure was overlooked by the SCO in three successive audits in which it failed to discover the error, thus demonstrating the hazards of relying solely on the SCO to monitor city or county obligations. The Controller’s Office could have responded better to Portola Valley’s claim for an additional share of property taxes. While seeking County Counsel’s and surrounding counties’ guidance was appropriate, it should also have sought SCO guidance, consulted the Property Tax Manager’s Reference Manual on its own website, kept Portola Valley better informed, complied with §96.1 of the Code, and calculated payments accurately. A more considered response would have minimized the loss of confidence in the Controller’s Office currently shared by some of the low-tax cities. There are three major risks that would lead the County to fail to allocate property taxes properly:
Related Recommendations (1)
R1
Cities: Cities should not rely entirely on the county to look after their interests. As demonstrated here, to do so is a false economy. The city councils of Colma, Half Moon Bay, Woodside, and Portola Valley should: 1.1 Align their expectations of receiving services with those of the professionals providing services. Contracts should clearly specify all expectations. Specifically, agreements with contract city attorneys should clearly state the scope of the city’s expectations with regard to their monitoring and reporting of state legislation that impacts the city. Likewise, job descriptions for full-time city attorneys should also clearly state the full scope of activities expected of them by the city council. 1.2 Assign city staff to participate in relevant financial organizations such as SAMFOG or CSMFO, participate in and monitor bulletins of the League of California Cities and report on items of interest at city council meetings.
F30
Risk 1 is failing to understand fully or identify changes to the Tax and Revenue Code. It is not reasonable for the Controller to rely solely on the SCO to catch such failures. The SCO did not correct the County’s failure to identify the TEA legislation in 1988. The County has an obligation to establish procedures that minimize the possibility of misapplying the Code or of failing to identify changes to the Code. 11
Related Recommendations (2)
R2
The County Controller should: 2.1 Proactively monitor its allocation of property taxes and not rely entirely on the state audit to identify errors of calculation, interpretation, or omission. By December 31, 2006, the Controller should conduct a mini-compliance audit of current property tax allocation practices by comparing them to the entire California Property Tax Managers’ Reference Manual. The results should be reported to the Board of Supervisors and Grand Jury. Response: Concur. We will conduct a compliance audit of the property tax allocation practices of the Property Tax Division. We will begin the audit before December 31, 2006 and plan to complete it before June 30, 2007. The purpose of the audit will be to determine if the Property Tax Division complied with the requirements of the California Property Tax Manager’s Reference Manual in apportioning property taxes 2.2 Work to rebuild and retain the confidence of the County’s agencies by: 2.2.1 Expanding its cooperation with SAMFOG and encouraging those agencies that don’t currently participate in SAMFOG to do so. Additionally, the Controller should use SAMFOG to disseminate timely information regarding the distribution of property taxes that can assist local agencies to budget future revenues. Response: Concur. We recently issued a publication titled “Property Tax Highlights”, which provides an overview of the processes of assessment, collection and distribution of property taxes. It also provides, by taxing agency, a detail distribution of taxes for the year. The information found in this report will help taxing agencies better understand the property tax apportionment process and assist in developing more effective tax revenue projection methodologies. This publication is currently available on our website www.co.sanmateo.ca.us/controller ‘What’s New.’ We will print a limited number of copies for distribution. We have used SAMFOG meetings to discuss important issues relating to property tax. Recently, our office, in collaboration with the County Assessor, made presentations covering the property tax process and handling of the settlement with the airlines. We also made presentations covering changes in the property tax laws. We plan to continue working with the local taxing agencies through SAMFOG. 2.2.2 Establishing guidelines to communicate more openly, frequently, and accurately with customers. Response: Concur. As part of our survey and our attendance in the SAMFOG meetings, we will solicit from taxing agencies their opinion as to the accuracy and timelines of information we currently provide. We will make changes in our policies and procedures as warranted. 2.2.3 Encouraging more agencies to participate in the annual customer survey. At a minimum, steps should be taken to assure a broad sampling of opinion, so as to accommodate the needs of both large and small, and sophisticated and less sophisticated agencies. Response: Concur. We will explore means to encourage higher level of participation in the surveys. We will consider providing users of our website ability to provide input and suggestions online. 2 2.2.4 Explaining to affected agencies the reasoning behind all interpretations of the Code that result in benefiting the County at the expense of local agencies. Response: Concur. Through SAMFOG and individual communications to taxing agencies, we currently provide explanation of all changes in the property tax laws that affect apportionments. 2.3 Institutionalize means to monitor legislative actions that impact them, independently of the County Manager’s Office. Both the Controller and the Property Tax and Special Accounting Manager should actively and consistently participate with the CAAC and the County Property Tax Managers’ Sub-Committee respectively and endeavor to form mutually beneficial relationships with professionals in other counties. Response: Concur. We have developed means, independent of the County Manager’s Office, to identify and analyze pending legislative actions relating to property taxes. We subscribe to the “Legislative Bulletin” published by California State Association of Counties (CSAC). This publication identifies pending legislation of interest to counties and it separately lists changes to Revenue and Taxation Code (R&T Code). CSAC also allows us to track legislation as it makes its way through the process of becoming law. We review the annual State budget legislation to identify changes in areas such as school funding that can have an impact on property tax apportionment. We obtain primary guidance from the publication identified in Recommendation 2.1 called “California Property Tax Managers’ Reference Manual”. Property Tax Managers from various counties wrote this six hundred-page manual. It underwent a series of reviews and approval with final submission to the State Association of County Auditor-Controllers (SACA). The same Association produced a one hundred and sixty-page guideline for the implementation of SB1096. We utilized this guideline to implement the last major change in property tax apportionment. We maintain close contact with Property Tax Managers of all counties in the State through a discussion forum using email. Individual members post their comments, questions, or concerns and receive input from other members. Members who are not involved in the exchange can view the inquiries and responses as well. This is a very valuable tool for reviewing procedures of other counties, receiving opinion of the more experienced and knowledgeable Property Tax Managers and for participating in the analysis of new or pending legislations. We consult the San Mateo County Counsel’s office routinely to make sure that we correctly interpret and apply new legislations. We view the participation of the Controller and the Property Tax Manager in the SACA and County Property Tax Managers’ Sub-Committee respectively as part of our internal controls. The objective of this set of internal controls is to provide assurance that property tax laws are identified in a timely manner and implemented correctly. We will participate in these organizations to the degree necessary to meet this objective. 2.4 Continuously improve its procedures and tools by having the Controller and Property Tax and Special Accounting Manager periodically visit other counties to compare process and adopt their best practices. Response: Concur. We review procedures of other counties primarily through participation in the discussion forum described above. We also contact counties directly whose issues are similar to ours. Recently, we visited the City and County of San Francisco to learn more about their automated tax roll change process. We will continue to compare processes of other counties with ours as described above to identify opportunities for improvements in our processes. Yours truly, Tom Huening Controller TH:of ferrando\hue\grandjuryresponse06 cc: Members, Board of Supervisors John Maltbie, County Manager 4 July 12, 2006 The Honorable Stephen M. Hall Judge of the Superior Court Hall of Justice 400 County Center, 2nd Floor Redwood City, CA 94063-1655 RE: 2005-06 GRAND JURY REPORT – SUMMARY OF OLD MYTHS AND NEW REALITIES: WHO’S RESPONSIBLE FOR TAKING CARE OF BUSINESS? Dear Judge Hall: The Town of Woodside received a copy of the above captioned Grand Jury Report on June 21, 2006, and the staff has studied the report and recommendations contained therein. On behalf of the Town Council, I would like to offer several comments and responses. First, the Town Council greatly appreciates the efforts of the Grand Jury in investigating the County’s multi-year misallocation of property tax revenues to the Town of Woodside and the other three cities named in the report. The Grand Jury’s overview of the legislative and administrative history of the Tax Equity Allocation (TEA) formula was well researched and added clarity to a rather complicated and cumbersome process. Second, the Town Council is in full agreement with the two recommendations in the report that are directed to the four involved cities. In fact, the Town’s current practices already incorporate both recommendations. Specifically, the Town’s formal agreement with the law firm that provides Town Attorney services includes a requirement for the Town Attorney to provide a monthly report to the Town Council, in which she is to report on new legislation or recent court cases that may affect the Town. Further, the Town Manager, who also serves as the Town’s Finance Director, is a finance professional who is already a member of several municipal finance officers associations, including the two referenced by the Grand Jury. She also regularly monitors legislation through the League of California Cities and reports items of interest or import to the Town Council. We intend to continue to adhere to these practices, in full compliance with the recommendations of the Grand Jury. Finally, I would like to report that the Town Council agrees with the Grand Jury’s assertion that cities should not rely entirely on the County to look after their interests. To that end, the Town has joined with Colma, Portola Valley, and Half Moon Bay and hired special counsel expert in tax law to ascertain the appropriateness of the County’s actions thus far in response to the administration of the TEA formula. While we appreciate the efforts of the current County Controller and his staff in trying to rectify an error that first occurred almost twenty years ago, we are looking out for our own interests and not passively accepting the County’s interpretations or calculations. On behalf of the Town Council, I would like to extend our thanks for an opportunity to respond to the work of the 2005-06 Grand Jury. Please do not hesitate to call our Town Manager, Susan George, should you require any further information. Sincerely, Deborah Gordon Mayor Town of Woodside
R3
The County Assessor should: 3.1 Monitor legislation that affects the Revenue and Tax Code and share its findings with the County Controller and County Manager.
F31
Risk 2 is failing to implement the Code properly. Current results seemingly indicate proper implementation of identified changes to the Code. It is reasonable for the Controller and agencies to rely on SCO to catch any misapplication or mis- interpretation of the law. The SCO identifies shortcomings with each audit. However, this conclusion of proper implementation is tempered by the fact that in November 2005, when the Controller’s Office paid the four qualifying low-tax cities their TEA adjusted taxes, it did not compensate them as prescribed by §96.1 of the Code.
Related Recommendations (1)
R2
The County Controller should: 2.1 Proactively monitor its allocation of property taxes and not rely entirely on the state audit to identify errors of calculation, interpretation, or omission. By December 31, 2006, the Controller should conduct a mini-compliance audit of current property tax allocation practices by comparing them to the entire California Property Tax Managers’ Reference Manual. The results should be reported to the Board of Supervisors and Grand Jury. Response: Concur. We will conduct a compliance audit of the property tax allocation practices of the Property Tax Division. We will begin the audit before December 31, 2006 and plan to complete it before June 30, 2007. The purpose of the audit will be to determine if the Property Tax Division complied with the requirements of the California Property Tax Manager’s Reference Manual in apportioning property taxes 2.2 Work to rebuild and retain the confidence of the County’s agencies by: 2.2.1 Expanding its cooperation with SAMFOG and encouraging those agencies that don’t currently participate in SAMFOG to do so. Additionally, the Controller should use SAMFOG to disseminate timely information regarding the distribution of property taxes that can assist local agencies to budget future revenues. Response: Concur. We recently issued a publication titled “Property Tax Highlights”, which provides an overview of the processes of assessment, collection and distribution of property taxes. It also provides, by taxing agency, a detail distribution of taxes for the year. The information found in this report will help taxing agencies better understand the property tax apportionment process and assist in developing more effective tax revenue projection methodologies. This publication is currently available on our website www.co.sanmateo.ca.us/controller ‘What’s New.’ We will print a limited number of copies for distribution. We have used SAMFOG meetings to discuss important issues relating to property tax. Recently, our office, in collaboration with the County Assessor, made presentations covering the property tax process and handling of the settlement with the airlines. We also made presentations covering changes in the property tax laws. We plan to continue working with the local taxing agencies through SAMFOG. 2.2.2 Establishing guidelines to communicate more openly, frequently, and accurately with customers. Response: Concur. As part of our survey and our attendance in the SAMFOG meetings, we will solicit from taxing agencies their opinion as to the accuracy and timelines of information we currently provide. We will make changes in our policies and procedures as warranted. 2.2.3 Encouraging more agencies to participate in the annual customer survey. At a minimum, steps should be taken to assure a broad sampling of opinion, so as to accommodate the needs of both large and small, and sophisticated and less sophisticated agencies. Response: Concur. We will explore means to encourage higher level of participation in the surveys. We will consider providing users of our website ability to provide input and suggestions online. 2 2.2.4 Explaining to affected agencies the reasoning behind all interpretations of the Code that result in benefiting the County at the expense of local agencies. Response: Concur. Through SAMFOG and individual communications to taxing agencies, we currently provide explanation of all changes in the property tax laws that affect apportionments. 2.3 Institutionalize means to monitor legislative actions that impact them, independently of the County Manager’s Office. Both the Controller and the Property Tax and Special Accounting Manager should actively and consistently participate with the CAAC and the County Property Tax Managers’ Sub-Committee respectively and endeavor to form mutually beneficial relationships with professionals in other counties. Response: Concur. We have developed means, independent of the County Manager’s Office, to identify and analyze pending legislative actions relating to property taxes. We subscribe to the “Legislative Bulletin” published by California State Association of Counties (CSAC). This publication identifies pending legislation of interest to counties and it separately lists changes to Revenue and Taxation Code (R&T Code). CSAC also allows us to track legislation as it makes its way through the process of becoming law. We review the annual State budget legislation to identify changes in areas such as school funding that can have an impact on property tax apportionment. We obtain primary guidance from the publication identified in Recommendation 2.1 called “California Property Tax Managers’ Reference Manual”. Property Tax Managers from various counties wrote this six hundred-page manual. It underwent a series of reviews and approval with final submission to the State Association of County Auditor-Controllers (SACA). The same Association produced a one hundred and sixty-page guideline for the implementation of SB1096. We utilized this guideline to implement the last major change in property tax apportionment. We maintain close contact with Property Tax Managers of all counties in the State through a discussion forum using email. Individual members post their comments, questions, or concerns and receive input from other members. Members who are not involved in the exchange can view the inquiries and responses as well. This is a very valuable tool for reviewing procedures of other counties, receiving opinion of the more experienced and knowledgeable Property Tax Managers and for participating in the analysis of new or pending legislations. We consult the San Mateo County Counsel’s office routinely to make sure that we correctly interpret and apply new legislations. We view the participation of the Controller and the Property Tax Manager in the SACA and County Property Tax Managers’ Sub-Committee respectively as part of our internal controls. The objective of this set of internal controls is to provide assurance that property tax laws are identified in a timely manner and implemented correctly. We will participate in these organizations to the degree necessary to meet this objective. 2.4 Continuously improve its procedures and tools by having the Controller and Property Tax and Special Accounting Manager periodically visit other counties to compare process and adopt their best practices. Response: Concur. We review procedures of other counties primarily through participation in the discussion forum described above. We also contact counties directly whose issues are similar to ours. Recently, we visited the City and County of San Francisco to learn more about their automated tax roll change process. We will continue to compare processes of other counties with ours as described above to identify opportunities for improvements in our processes. Yours truly, Tom Huening Controller TH:of ferrando\hue\grandjuryresponse06 cc: Members, Board of Supervisors John Maltbie, County Manager 4 July 12, 2006 The Honorable Stephen M. Hall Judge of the Superior Court Hall of Justice 400 County Center, 2nd Floor Redwood City, CA 94063-1655 RE: 2005-06 GRAND JURY REPORT – SUMMARY OF OLD MYTHS AND NEW REALITIES: WHO’S RESPONSIBLE FOR TAKING CARE OF BUSINESS? Dear Judge Hall: The Town of Woodside received a copy of the above captioned Grand Jury Report on June 21, 2006, and the staff has studied the report and recommendations contained therein. On behalf of the Town Council, I would like to offer several comments and responses. First, the Town Council greatly appreciates the efforts of the Grand Jury in investigating the County’s multi-year misallocation of property tax revenues to the Town of Woodside and the other three cities named in the report. The Grand Jury’s overview of the legislative and administrative history of the Tax Equity Allocation (TEA) formula was well researched and added clarity to a rather complicated and cumbersome process. Second, the Town Council is in full agreement with the two recommendations in the report that are directed to the four involved cities. In fact, the Town’s current practices already incorporate both recommendations. Specifically, the Town’s formal agreement with the law firm that provides Town Attorney services includes a requirement for the Town Attorney to provide a monthly report to the Town Council, in which she is to report on new legislation or recent court cases that may affect the Town. Further, the Town Manager, who also serves as the Town’s Finance Director, is a finance professional who is already a member of several municipal finance officers associations, including the two referenced by the Grand Jury. She also regularly monitors legislation through the League of California Cities and reports items of interest or import to the Town Council. We intend to continue to adhere to these practices, in full compliance with the recommendations of the Grand Jury. Finally, I would like to report that the Town Council agrees with the Grand Jury’s assertion that cities should not rely entirely on the County to look after their interests. To that end, the Town has joined with Colma, Portola Valley, and Half Moon Bay and hired special counsel expert in tax law to ascertain the appropriateness of the County’s actions thus far in response to the administration of the TEA formula. While we appreciate the efforts of the current County Controller and his staff in trying to rectify an error that first occurred almost twenty years ago, we are looking out for our own interests and not passively accepting the County’s interpretations or calculations. On behalf of the Town Council, I would like to extend our thanks for an opportunity to respond to the work of the 2005-06 Grand Jury. Please do not hesitate to call our Town Manager, Susan George, should you require any further information. Sincerely, Deborah Gordon Mayor Town of Woodside
F32
Risk 3 is failing to interpret the Code impartially. The situation described in this report clearly favored the County. The Controller is an elected official and must have an independent, unbiased perspective when interpreting the Code. Allocating property taxes is a zero-sum game, and all agencies must have confidence that the County is not advantaged at the expense of any of the 103 other taxing agencies. The confusion associated with three County Controllers in 12 years, combined with the serious deficiencies in the Controller’s Office at that time, and the fact that TEA was phased in over seven years probably contributed to the failure in 1988 to identify and implement TEA legislation. Additionally, no help was forthcoming from either the County Manager or County Counsel. The Controller’s Office has improved its performance, processes, and infrastructure since the 1988-90 timeframe. It is more connected to and active in state organizations such as CAAC to stay abreast of legislative changes and SAMFOG to keep the County’s agencies informed. Also, it posts information on its website to keep agencies and individuals informed. Cities are responsible for identifying and protecting their own financial interests. Despite receiving at least 23 bulletins addressing the subject, the four low/no-tax cities of the County failed to identify TEA as legislation that would benefit them. It is reasonable for cities to rely on the County to allocate taxes accurately and on the state to catch any failures of the County, but it might not be wise. It is unfortunate that Portola Valley imposed a utility tax in 1985 and reauthorized it several times since to obtain necessary funds when AB 1197 (1987-88) was designed to provide them additional funds from their existing property tax payments to the County. 12
No recommendations for this finding
F33
Risk 1 is failing to understand fully or identify changes to the Tax and Revenue Code. It is not reasonable for the Controller to rely solely on the SCO to catch such failures. The SCO did not correct the County’s failure to identify the TEA legislation in 1988. The County has an obligation to establish procedures that minimize the possibility of misapplying the Code or of failing to identify changes to the Code. 11
Related Recommendations (2)
R2
The County Controller should: 2.1 Proactively monitor its allocation of property taxes and not rely entirely on the state audit to identify errors of calculation, interpretation, or omission. By December 31, 2006, the Controller should conduct a mini-compliance audit of current property tax allocation practices by comparing them to the entire California Property Tax Managers’ Reference Manual. The results should be reported to the Board of Supervisors and Grand Jury. Response: Concur. We will conduct a compliance audit of the property tax allocation practices of the Property Tax Division. We will begin the audit before December 31, 2006 and plan to complete it before June 30, 2007. The purpose of the audit will be to determine if the Property Tax Division complied with the requirements of the California Property Tax Manager’s Reference Manual in apportioning property taxes 2.2 Work to rebuild and retain the confidence of the County’s agencies by: 2.2.1 Expanding its cooperation with SAMFOG and encouraging those agencies that don’t currently participate in SAMFOG to do so. Additionally, the Controller should use SAMFOG to disseminate timely information regarding the distribution of property taxes that can assist local agencies to budget future revenues. Response: Concur. We recently issued a publication titled “Property Tax Highlights”, which provides an overview of the processes of assessment, collection and distribution of property taxes. It also provides, by taxing agency, a detail distribution of taxes for the year. The information found in this report will help taxing agencies better understand the property tax apportionment process and assist in developing more effective tax revenue projection methodologies. This publication is currently available on our website www.co.sanmateo.ca.us/controller ‘What’s New.’ We will print a limited number of copies for distribution. We have used SAMFOG meetings to discuss important issues relating to property tax. Recently, our office, in collaboration with the County Assessor, made presentations covering the property tax process and handling of the settlement with the airlines. We also made presentations covering changes in the property tax laws. We plan to continue working with the local taxing agencies through SAMFOG. 2.2.2 Establishing guidelines to communicate more openly, frequently, and accurately with customers. Response: Concur. As part of our survey and our attendance in the SAMFOG meetings, we will solicit from taxing agencies their opinion as to the accuracy and timelines of information we currently provide. We will make changes in our policies and procedures as warranted. 2.2.3 Encouraging more agencies to participate in the annual customer survey. At a minimum, steps should be taken to assure a broad sampling of opinion, so as to accommodate the needs of both large and small, and sophisticated and less sophisticated agencies. Response: Concur. We will explore means to encourage higher level of participation in the surveys. We will consider providing users of our website ability to provide input and suggestions online. 2 2.2.4 Explaining to affected agencies the reasoning behind all interpretations of the Code that result in benefiting the County at the expense of local agencies. Response: Concur. Through SAMFOG and individual communications to taxing agencies, we currently provide explanation of all changes in the property tax laws that affect apportionments. 2.3 Institutionalize means to monitor legislative actions that impact them, independently of the County Manager’s Office. Both the Controller and the Property Tax and Special Accounting Manager should actively and consistently participate with the CAAC and the County Property Tax Managers’ Sub-Committee respectively and endeavor to form mutually beneficial relationships with professionals in other counties. Response: Concur. We have developed means, independent of the County Manager’s Office, to identify and analyze pending legislative actions relating to property taxes. We subscribe to the “Legislative Bulletin” published by California State Association of Counties (CSAC). This publication identifies pending legislation of interest to counties and it separately lists changes to Revenue and Taxation Code (R&T Code). CSAC also allows us to track legislation as it makes its way through the process of becoming law. We review the annual State budget legislation to identify changes in areas such as school funding that can have an impact on property tax apportionment. We obtain primary guidance from the publication identified in Recommendation 2.1 called “California Property Tax Managers’ Reference Manual”. Property Tax Managers from various counties wrote this six hundred-page manual. It underwent a series of reviews and approval with final submission to the State Association of County Auditor-Controllers (SACA). The same Association produced a one hundred and sixty-page guideline for the implementation of SB1096. We utilized this guideline to implement the last major change in property tax apportionment. We maintain close contact with Property Tax Managers of all counties in the State through a discussion forum using email. Individual members post their comments, questions, or concerns and receive input from other members. Members who are not involved in the exchange can view the inquiries and responses as well. This is a very valuable tool for reviewing procedures of other counties, receiving opinion of the more experienced and knowledgeable Property Tax Managers and for participating in the analysis of new or pending legislations. We consult the San Mateo County Counsel’s office routinely to make sure that we correctly interpret and apply new legislations. We view the participation of the Controller and the Property Tax Manager in the SACA and County Property Tax Managers’ Sub-Committee respectively as part of our internal controls. The objective of this set of internal controls is to provide assurance that property tax laws are identified in a timely manner and implemented correctly. We will participate in these organizations to the degree necessary to meet this objective. 2.4 Continuously improve its procedures and tools by having the Controller and Property Tax and Special Accounting Manager periodically visit other counties to compare process and adopt their best practices. Response: Concur. We review procedures of other counties primarily through participation in the discussion forum described above. We also contact counties directly whose issues are similar to ours. Recently, we visited the City and County of San Francisco to learn more about their automated tax roll change process. We will continue to compare processes of other counties with ours as described above to identify opportunities for improvements in our processes. Yours truly, Tom Huening Controller TH:of ferrando\hue\grandjuryresponse06 cc: Members, Board of Supervisors John Maltbie, County Manager 4 July 12, 2006 The Honorable Stephen M. Hall Judge of the Superior Court Hall of Justice 400 County Center, 2nd Floor Redwood City, CA 94063-1655 RE: 2005-06 GRAND JURY REPORT – SUMMARY OF OLD MYTHS AND NEW REALITIES: WHO’S RESPONSIBLE FOR TAKING CARE OF BUSINESS? Dear Judge Hall: The Town of Woodside received a copy of the above captioned Grand Jury Report on June 21, 2006, and the staff has studied the report and recommendations contained therein. On behalf of the Town Council, I would like to offer several comments and responses. First, the Town Council greatly appreciates the efforts of the Grand Jury in investigating the County’s multi-year misallocation of property tax revenues to the Town of Woodside and the other three cities named in the report. The Grand Jury’s overview of the legislative and administrative history of the Tax Equity Allocation (TEA) formula was well researched and added clarity to a rather complicated and cumbersome process. Second, the Town Council is in full agreement with the two recommendations in the report that are directed to the four involved cities. In fact, the Town’s current practices already incorporate both recommendations. Specifically, the Town’s formal agreement with the law firm that provides Town Attorney services includes a requirement for the Town Attorney to provide a monthly report to the Town Council, in which she is to report on new legislation or recent court cases that may affect the Town. Further, the Town Manager, who also serves as the Town’s Finance Director, is a finance professional who is already a member of several municipal finance officers associations, including the two referenced by the Grand Jury. She also regularly monitors legislation through the League of California Cities and reports items of interest or import to the Town Council. We intend to continue to adhere to these practices, in full compliance with the recommendations of the Grand Jury. Finally, I would like to report that the Town Council agrees with the Grand Jury’s assertion that cities should not rely entirely on the County to look after their interests. To that end, the Town has joined with Colma, Portola Valley, and Half Moon Bay and hired special counsel expert in tax law to ascertain the appropriateness of the County’s actions thus far in response to the administration of the TEA formula. While we appreciate the efforts of the current County Controller and his staff in trying to rectify an error that first occurred almost twenty years ago, we are looking out for our own interests and not passively accepting the County’s interpretations or calculations. On behalf of the Town Council, I would like to extend our thanks for an opportunity to respond to the work of the 2005-06 Grand Jury. Please do not hesitate to call our Town Manager, Susan George, should you require any further information. Sincerely, Deborah Gordon Mayor Town of Woodside
R3
The County Assessor should: 3.1 Monitor legislation that affects the Revenue and Tax Code and share its findings with the County Controller and County Manager.
F34
Risk 2 is failing to implement the Code properly. Current results seemingly indicate proper implementation of identified changes to the Code. It is reasonable for the Controller and agencies to rely on SCO to catch any misapplication or mis- interpretation of the law. The SCO identifies shortcomings with each audit. However, this conclusion of proper implementation is tempered by the fact that in November 2005, when the Controller’s Office paid the four qualifying low-tax cities their TEA adjusted taxes, it did not compensate them as prescribed by §96.1 of the Code.
Related Recommendations (1)
R2
The County Controller should: 2.1 Proactively monitor its allocation of property taxes and not rely entirely on the state audit to identify errors of calculation, interpretation, or omission. By December 31, 2006, the Controller should conduct a mini-compliance audit of current property tax allocation practices by comparing them to the entire California Property Tax Managers’ Reference Manual. The results should be reported to the Board of Supervisors and Grand Jury. Response: Concur. We will conduct a compliance audit of the property tax allocation practices of the Property Tax Division. We will begin the audit before December 31, 2006 and plan to complete it before June 30, 2007. The purpose of the audit will be to determine if the Property Tax Division complied with the requirements of the California Property Tax Manager’s Reference Manual in apportioning property taxes 2.2 Work to rebuild and retain the confidence of the County’s agencies by: 2.2.1 Expanding its cooperation with SAMFOG and encouraging those agencies that don’t currently participate in SAMFOG to do so. Additionally, the Controller should use SAMFOG to disseminate timely information regarding the distribution of property taxes that can assist local agencies to budget future revenues. Response: Concur. We recently issued a publication titled “Property Tax Highlights”, which provides an overview of the processes of assessment, collection and distribution of property taxes. It also provides, by taxing agency, a detail distribution of taxes for the year. The information found in this report will help taxing agencies better understand the property tax apportionment process and assist in developing more effective tax revenue projection methodologies. This publication is currently available on our website www.co.sanmateo.ca.us/controller ‘What’s New.’ We will print a limited number of copies for distribution. We have used SAMFOG meetings to discuss important issues relating to property tax. Recently, our office, in collaboration with the County Assessor, made presentations covering the property tax process and handling of the settlement with the airlines. We also made presentations covering changes in the property tax laws. We plan to continue working with the local taxing agencies through SAMFOG. 2.2.2 Establishing guidelines to communicate more openly, frequently, and accurately with customers. Response: Concur. As part of our survey and our attendance in the SAMFOG meetings, we will solicit from taxing agencies their opinion as to the accuracy and timelines of information we currently provide. We will make changes in our policies and procedures as warranted. 2.2.3 Encouraging more agencies to participate in the annual customer survey. At a minimum, steps should be taken to assure a broad sampling of opinion, so as to accommodate the needs of both large and small, and sophisticated and less sophisticated agencies. Response: Concur. We will explore means to encourage higher level of participation in the surveys. We will consider providing users of our website ability to provide input and suggestions online. 2 2.2.4 Explaining to affected agencies the reasoning behind all interpretations of the Code that result in benefiting the County at the expense of local agencies. Response: Concur. Through SAMFOG and individual communications to taxing agencies, we currently provide explanation of all changes in the property tax laws that affect apportionments. 2.3 Institutionalize means to monitor legislative actions that impact them, independently of the County Manager’s Office. Both the Controller and the Property Tax and Special Accounting Manager should actively and consistently participate with the CAAC and the County Property Tax Managers’ Sub-Committee respectively and endeavor to form mutually beneficial relationships with professionals in other counties. Response: Concur. We have developed means, independent of the County Manager’s Office, to identify and analyze pending legislative actions relating to property taxes. We subscribe to the “Legislative Bulletin” published by California State Association of Counties (CSAC). This publication identifies pending legislation of interest to counties and it separately lists changes to Revenue and Taxation Code (R&T Code). CSAC also allows us to track legislation as it makes its way through the process of becoming law. We review the annual State budget legislation to identify changes in areas such as school funding that can have an impact on property tax apportionment. We obtain primary guidance from the publication identified in Recommendation 2.1 called “California Property Tax Managers’ Reference Manual”. Property Tax Managers from various counties wrote this six hundred-page manual. It underwent a series of reviews and approval with final submission to the State Association of County Auditor-Controllers (SACA). The same Association produced a one hundred and sixty-page guideline for the implementation of SB1096. We utilized this guideline to implement the last major change in property tax apportionment. We maintain close contact with Property Tax Managers of all counties in the State through a discussion forum using email. Individual members post their comments, questions, or concerns and receive input from other members. Members who are not involved in the exchange can view the inquiries and responses as well. This is a very valuable tool for reviewing procedures of other counties, receiving opinion of the more experienced and knowledgeable Property Tax Managers and for participating in the analysis of new or pending legislations. We consult the San Mateo County Counsel’s office routinely to make sure that we correctly interpret and apply new legislations. We view the participation of the Controller and the Property Tax Manager in the SACA and County Property Tax Managers’ Sub-Committee respectively as part of our internal controls. The objective of this set of internal controls is to provide assurance that property tax laws are identified in a timely manner and implemented correctly. We will participate in these organizations to the degree necessary to meet this objective. 2.4 Continuously improve its procedures and tools by having the Controller and Property Tax and Special Accounting Manager periodically visit other counties to compare process and adopt their best practices. Response: Concur. We review procedures of other counties primarily through participation in the discussion forum described above. We also contact counties directly whose issues are similar to ours. Recently, we visited the City and County of San Francisco to learn more about their automated tax roll change process. We will continue to compare processes of other counties with ours as described above to identify opportunities for improvements in our processes. Yours truly, Tom Huening Controller TH:of ferrando\hue\grandjuryresponse06 cc: Members, Board of Supervisors John Maltbie, County Manager 4 July 12, 2006 The Honorable Stephen M. Hall Judge of the Superior Court Hall of Justice 400 County Center, 2nd Floor Redwood City, CA 94063-1655 RE: 2005-06 GRAND JURY REPORT – SUMMARY OF OLD MYTHS AND NEW REALITIES: WHO’S RESPONSIBLE FOR TAKING CARE OF BUSINESS? Dear Judge Hall: The Town of Woodside received a copy of the above captioned Grand Jury Report on June 21, 2006, and the staff has studied the report and recommendations contained therein. On behalf of the Town Council, I would like to offer several comments and responses. First, the Town Council greatly appreciates the efforts of the Grand Jury in investigating the County’s multi-year misallocation of property tax revenues to the Town of Woodside and the other three cities named in the report. The Grand Jury’s overview of the legislative and administrative history of the Tax Equity Allocation (TEA) formula was well researched and added clarity to a rather complicated and cumbersome process. Second, the Town Council is in full agreement with the two recommendations in the report that are directed to the four involved cities. In fact, the Town’s current practices already incorporate both recommendations. Specifically, the Town’s formal agreement with the law firm that provides Town Attorney services includes a requirement for the Town Attorney to provide a monthly report to the Town Council, in which she is to report on new legislation or recent court cases that may affect the Town. Further, the Town Manager, who also serves as the Town’s Finance Director, is a finance professional who is already a member of several municipal finance officers associations, including the two referenced by the Grand Jury. She also regularly monitors legislation through the League of California Cities and reports items of interest or import to the Town Council. We intend to continue to adhere to these practices, in full compliance with the recommendations of the Grand Jury. Finally, I would like to report that the Town Council agrees with the Grand Jury’s assertion that cities should not rely entirely on the County to look after their interests. To that end, the Town has joined with Colma, Portola Valley, and Half Moon Bay and hired special counsel expert in tax law to ascertain the appropriateness of the County’s actions thus far in response to the administration of the TEA formula. While we appreciate the efforts of the current County Controller and his staff in trying to rectify an error that first occurred almost twenty years ago, we are looking out for our own interests and not passively accepting the County’s interpretations or calculations. On behalf of the Town Council, I would like to extend our thanks for an opportunity to respond to the work of the 2005-06 Grand Jury. Please do not hesitate to call our Town Manager, Susan George, should you require any further information. Sincerely, Deborah Gordon Mayor Town of Woodside
F35
Risk 3 is failing to interpret the Code impartially. The situation described in this report clearly favored the County. The Controller is an elected official and must have an independent, unbiased perspective when interpreting the Code. Allocating property taxes is a zero-sum game, and all agencies must have confidence that the County is not advantaged at the expense of any of the 103 other taxing agencies. The confusion associated with three County Controllers in 12 years, combined with the serious deficiencies in the Controller’s Office at that time, and the fact that TEA was phased in over seven years probably contributed to the failure in 1988 to identify and implement TEA legislation. Additionally, no help was forthcoming from either the County Manager or County Counsel. The Controller’s Office has improved its performance, processes, and infrastructure since the 1988-90 timeframe. It is more connected to and active in state organizations such as CAAC to stay abreast of legislative changes and SAMFOG to keep the County’s agencies informed. Also, it posts information on its website to keep agencies and individuals informed. Cities are responsible for identifying and protecting their own financial interests. Despite receiving at least 23 bulletins addressing the subject, the four low/no-tax cities of the County failed to identify TEA as legislation that would benefit them. It is reasonable for cities to rely on the County to allocate taxes accurately and on the state to catch any failures of the County, but it might not be wise. It is unfortunate that Portola Valley imposed a utility tax in 1985 and reauthorized it several times since to obtain necessary funds when AB 1197 (1987-88) was designed to provide them additional funds from their existing property tax payments to the County. 12
No recommendations for this finding
F1986 Page 4
The current Controller, Tom Huening, was elected in 1998. • Grand Jury Reports in 1989 and 1990 identified significant deficiencies in the operation and management of the Controller’s Office, including the misallocation of property taxes. On September 4, 1990, the Board of Supervisors reached agreement with the elected County Controller to add a Deputy Controller to the department to help address the deficiencies. A new Controller was elected in November 1998. • In 1988, the State Legislative Analyst identified 17 counties as having qualifying no/low-tax cites. Thirteen of them identified the 1988 TEA legislation and implemented the requisite changes. Another three were incorrectly identified as having qualifying no/low-tax cities. San Mateo is the only county with qualifying low/no-tax cities to have failed to implement the TEA legislation. All 13 counties that correctly implemented the legislation indicated that their participation in the County Auditor’s Association of California (CAAC) and County Property Tax Managers’ Association Sub-Committee was instrumental in their identifying the TEA provisions. • In the fall of 1987 and 1988, the State Board of Equalization sent all county assessors a table of Tax and Revenue Code sections that were affected by legislation of interest to assessors. The 1987 list identifies SB 709, and the 1988 list included AB 1197, the two generalized TEA legislative actions which the County Controller failed to identify and implement. Currently, the Controller’s Office appears to operate professionally and has put many of its earlier problems behind them. For example: • In 2003, in cooperation with the County Counsel’s Office, the Property Tax Division determined that the Educational Revenue Augmentation Fund (ERAF) owed the County, cities, and special districts $33.7 million in excess property tax shift as defined by the law. Since that initial determination in 2003, the Controller has issued refunds totaling $135 million to the County and $59 million to cities and special districts, funds that might have been distributed three years later or not at all. • Until the four no/low-tax cities discovered the TEA provisions, no misallocations of property taxes had been identified since the grand jury reported in 1990 that 23 school districts identified mistakes in the allocation of supplemental property taxes. Actually, few County agencies ever question their property tax allocation. 7 • Mistakes discovered during the SCO’s quadrennial audits are adjusted. The most recent audit, completed August 13, 2004, identified only one shortcoming. The County did not properly record secure parcels in redevelopment project tax rate areas, which is actually the responsibility of the County Assessor. As of March 2006, the Assessor had put in place a number of quality assurance measures to improve tax rate area (TRA) assignments. • The Controller reaches out to local agencies in the County primarily through the San Mateo County Financial Officer’s Group (SAMFOG). Additionally, when addressing issues impacting the County’s 23 school districts, the Controller works directly with the County Office of Education who in turn communicates with individual school districts. • The Controller’s Office conducts an annual survey of all cities, special districts, and RDA’s in the County. The purpose of the survey is to measure their performance in meeting customers’ needs. In January 2006, 11 of 47 customers surveyed responded. Five of the respondents rated their overall satisfaction with the Property Tax Division excellent, 5 rated it good, and 1 rated it poor. Thirty- six customers did not respond. Despite the many improvements mentioned above, there are other actions that indicate a need for the continued development of Controller’s Office expertise. • The Code (§96.1) stipulates that “If it is determined that an allocation method is required to be adjusted and a reallocation is required for previous fiscal years, the cumulative reallocation or adjustment may not exceed 1% of the total amount levied at a 1% rate of the current year’s original secured tax roll. The reallocation shall be completed in equal increments within the following three years.” The Controller adjusted in a single payment the reallocation to the four qualifying low/no-tax cities by an amount greater than 1%. • The Code (§96.1) further stipulates “any allocation of property tax revenue that was subjected to a prior completed audit by the Controller, where all finding have been resolved, shall be deemed correct.” The last State Controller’s audit, covering the years 7-1-99 to 6-30-03 was completed August 13, 2004. There are no formal documents resolving the one finding contained in that audit. If the years covered by this audit are deemed eligible for retroactive TEA payments, it is estimated that an additional $3.2 million will be payable to the four qualifying cities. The recent widespread use of the Internet has made it much easier for organizations to inform their members of relevant issues and for communities of interest to support one another. 8 • The County Property Tax Manager’s Association (a subcommittee of the CAAC) is a state organization that stays on top of changes in the Code. This organization of county property tax managers is an excellent source of information and forum for the exchange of practices. In 2003 it published a 599 page “California Property Tax Managers’ Reference Manual,” which is currently posted on the Controller’s website. It describes TEA. • The Controller has also posted on its website “Demystifying the California Property Tax Apportionment System” (written Feb. 2006). It describes TEA. The Board of Supervisors is responsible for the County’s efforts to affect state legislation. The Grand Jury learned that in the 1980’s the Controller’s Office relied on the County Manager’s Office to inform it of legislation that might impact them. • In 1985, the County lobbied against SB 1091, a predecessor TEA bill that was never enacted. The County Manager’s Office coordinated these efforts that at a minimum involved the County Manager, Controller, and various budget analysts. They relied at the time on Legislative Bulletins issued by the County Supervisors Association of California, which is today named the California State Association of Counties (CSAC). However, despite receiving legislative bulletins from CSAC, the County Manager’s Office apparently failed to identify, or at a minimum, failed to notify the Controller’s Office of the passage of SB 709 two years later or AB 1197 three years later. • The present County Manager believes that in the 1985-88 time period the County did not have a legislative affairs office. A formal office was formed in the early ‘90’s and is headed today by a Deputy County Manager. However, that perception is inconsistent with a document the Grand Jury has reviewed dated 1985 with the following letterhead: “County Manager’s Office, Legislative Affairs.” That document addresses “No Prop Tax Cities.” In 1985, the County lobbied against legislation to set a 10% minimum for no/low-tax cities. • Today, the monitoring of legislation is distributed throughout the County and not centralized in only the County Manager’s Office. Departments do their own monitoring through participation with professional state organizations, server lists, and websites. Additionally, more formal attention is paid to such monitoring in the County Manager’s Office. The Deputy County Manager for Legislative Affairs monitors state and federal bills that impact the County so the Supervisors can address them appropriately. Participation with the California State Association of Counties (CSAC) remains one means of monitoring. The Deputy County Manager notifies impacted departments and discusses with them what if any position the County should take. • The County Manager believes that elected officials are responsible for their own agencies and that the County Manager is responsible for all other departments. Thus, it would be inappropriate for an elected official to rely on the County Manager. Findings 2: The Four Qualifying Cites Colma, Half Moon Bay, Portola Valley, and Woodside qualify as no/low-tax cites under the TEA formula adopted by the state legislature in 1988 (AB 1197) and as currently contained in §98 of the Code. All four were identified in an analysis of AB 1197’s property tax shifts to no/low-tax cities prepared by the State Legislative Analyst in 1988. All four cities were members of the League of California Cities in 1988. The League issued at least 23 bulletins in 1988 that contained articles on “no/low-property tax cities.” The League identified by name all four San Mateo cities as eligible no/low-tax cities. On the eve of AB 1197 passing (Aug 26, 1988), the League indicated in one of its bulletins that it would send a special bulletin to all “no/low-tax cities” as soon as it knew the Conference Committee’s decision. Despite this plethora of information, none of the four cities communicated with the Controller regarding its TEA status nor monitored its property tax allocations. In 2005, Portola Valley’s Town Attorney identified TEA legislation in response to persistent questioning from the town’s mayor as to why the town received such a small percentage of property taxes. The Town Attorney was aware of TEA as a result of her previous work in Santa Clara County. The mayor persisted because by 2004 the town was in need of identifying new sources of revenue. Previously, there had been no pressing needs because the town had adopted a utility tax in 1985. All four cities relied on their attorneys to keep them informed of state legislation that impacted them. • In the early ‘90’s, all four no/low-tax cities outsourced their city attorney functions. At that time, one individual was the city attorney for both Woodside and Half Moon Bay. This attorney believes that while his retainer agreement with Woodside provided that “The Town Attorney shall comment … on any new legislation or new cases that may affect the Town,” financial issues were not included in the “standard of care.” • Woodside’s current town attorney interprets her standard of care to include “any law that impacts the town,” even if it overlaps with other professionals’ roles. • In the early 1990’s, Portola Valley was in the process of slowly transitioning from the town’s founding Town Attorney to another attorney. In the early 1990s, Portola Valley and Woodside did not have full-time finance professionals. Half Moon Bay did. None of the four cities were members of SAMFOG, though all belonged to the California League of Cities. Since 1987 the Colma and Half Moon Bay city councils have taken significant steps to upgrade the quality and quantity of their professional staffs. This, along with monitoring information from the League of California Cities, Association of Bay Area Governments 10 (ABAG), and City/County Association of Governments of San Mateo County (C/CAG) and participation in organizations such as California Society of Municipal Finance Officers (CSMFO) and SAMFOG results in the cities being more informed of the impact of state legislation today then they were in the past. Since 1987, Woodside and Portola Valley city councils have also taken significant steps to upgrade the quality of their professional staffs and Woodside is currently a member of SAMFOG. The four no/low-tax cities rely on the County to allocate property taxes accurately in accordance with state law and on the state to audit the County accurately. They believe the fact that the SCO approved audits, where the County allocated property taxes without regard to TEA, is an inadequate basis for not fully refunding the amounts due them. Conclusions California property tax laws, especially, those that were enacted more recently, are complicated and difficult to interpret. This increases the risk of improper application of the law and confusion among the affected taxing agencies. The most profound changes in property tax laws have happened in the last few years as funds are shifted from local to state needs. Errors introduced in the past impact the future and are difficult to spot. The Grand Jury believes San Mateo is the only county in the state with qualifying no/low-tax cities that failed to implement the 1988 TEA legislation (AB 1197) in a timely manner. The County’s failure was overlooked by the SCO in three successive audits in which it failed to discover the error, thus demonstrating the hazards of relying solely on the SCO to monitor city or county obligations. The Controller’s Office could have responded better to Portola Valley’s claim for an additional share of property taxes. While seeking County Counsel’s and surrounding counties’ guidance was appropriate, it should also have sought SCO guidance, consulted the Property Tax Manager’s Reference Manual on its own website, kept Portola Valley better informed, complied with §96.1 of the Code, and calculated payments accurately. A more considered response would have minimized the loss of confidence in the Controller’s Office currently shared by some of the low-tax cities. There are three major risks that would lead the County to fail to allocate property taxes properly: • Risk 1 is failing to understand fully or identify changes to the Tax and Revenue Code. It is not reasonable for the Controller to rely solely on the SCO to catch such failures. The SCO did not correct the County’s failure to identify the TEA legislation in 1988. The County has an obligation to establish procedures that minimize the possibility of misapplying the Code or of failing to identify changes to the Code. 11 • Risk 2 is failing to implement the Code properly. Current results seemingly indicate proper implementation of identified changes to the Code. It is reasonable for the Controller and agencies to rely on SCO to catch any misapplication or mis- interpretation of the law. The SCO identifies shortcomings with each audit. However, this conclusion of proper implementation is tempered by the fact that in November 2005, when the Controller’s Office paid the four qualifying low-tax cities their TEA adjusted taxes, it did not compensate them as prescribed by §96.1 of the Code. • Risk 3 is failing to interpret the Code impartially. The situation described in this report clearly favored the County. The Controller is an elected official and must have an independent, unbiased perspective when interpreting the Code. Allocating property taxes is a zero-sum game, and all agencies must have confidence that the County is not advantaged at the expense of any of the 103 other taxing agencies. The confusion associated with three County Controllers in 12 years, combined with the serious deficiencies in the Controller’s Office at that time, and the fact that TEA was phased in over seven years probably contributed to the failure in 1988 to identify and implement TEA legislation. Additionally, no help was forthcoming from either the County Manager or County Counsel. The Controller’s Office has improved its performance, processes, and infrastructure since the 1988-90 timeframe. It is more connected to and active in state organizations such as CAAC to stay abreast of legislative changes and SAMFOG to keep the County’s agencies informed. Also, it posts information on its website to keep agencies and individuals informed. Cities are responsible for identifying and protecting their own financial interests. Despite receiving at least 23 bulletins addressing the subject, the four low/no-tax cities of the County failed to identify TEA as legislation that would benefit them. It is reasonable for cities to rely on the County to allocate taxes accurately and on the state to catch any failures of the County, but it might not be wise. It is unfortunate that Portola Valley imposed a utility tax in 1985 and reauthorized it several times since to obtain necessary funds when AB 1197 (1987-88) was designed to provide them additional funds from their existing property tax payments to the County.
No recommendations for this finding

Conclusions 3

No Responses Found 2

Government entities assigned to respond to this report. No response documents have been linked in our database.

San Mateo County Auditor-Controller Elected County Office
San Mateo County Office of Education Agency