BILL #    SB 1201

TITLE:     delinquent property taxes; interest

SPONSOR:   Bundgaard

STATUS:    As Introduced

REQUESTED BY:    Senate

PREPARED BY:   Hans Olofsson

 

 

FISCAL YEAR

 

 

2002

 

2003

 

2004

 

 

 

 

 

 

 

 

REVENUES

 

 

 

 

 

 

 

 

 

 

 

 

 

General Fund

$-0-

 

Cannot be 1/

determined

 

Cannot be 1/

determined

 

____________

 

 

 

 

 

 

1/  Potential revenue losses could result from this legislation as described below.

 

 

FISCAL ANALYSIS

 

 

Description

 

This bill would change the interest rate on delinquent property taxes charged by county treasurers from 16% to the prime rate plus 2% per year.  The prime rate, which is the interest rate charged by banks on short-term business loans, was 4.75% as of February 1, 2002.  The prime rate is generally tied to the Federal Funds rate set by the Federal Reserve Bank.

 

Estimated Impact

 

This bill could potentially result in revenue losses.  In that circumstance, the state impact would occur if the lower interest rates on delinquent taxes result in more taxpayers choosing not to pay their taxes in minimum QTR and unorganized districts, the only local jurisdictions where the state currently collects property taxes.  This is described in the section below.

 

Assumptions

 

This bill would have no fiscal impact as long as it does not incentivize taxpayers to change their behavior.  However, the greater the interest rate differential (i.e., 16% minus the prime rate plus 2%) is, the greater is also the risk that more taxpayers decide not to pay their taxes.  According to the Maricopa County Treasurer’s Office, it is not unreasonable to expect the current delinquency rate of 2 - 4% to increase to as much as 25% under this bill.  The JLBC Staff, however, has currently no means to independently estimate the potential revenue loss from this legislation.

 

Local Government Impact

 

Besides the potential revenue loss from an increase in delinquent taxes, the county treasurers in Maricopa and Yavapai also mentioned two other factors that would adversely affect local governments.  First, tax lien sales would decrease, as investors would be less likely to assume the greater risk associated with variable interest rates.  This in turn would result in reduced revenues for local taxing jurisdictions.  Second, the use of variable interest rates would also present considerable computer programming problems for the counties that could be costly to solve.

 

Amendments

 

None

 

2/12/02