Dated September 15, 2011, a letter went out to the various taxing entities served by the Blanco County Central Appraisal District (BCAD) stating, in essence, that the board had investigated the matter of tax certificate fees and earned interest that had been accumulated by the District over time and had concluded this money should be returned to the taxing entities that participated in the District during the years in which it accumulated. The decision was based on opinions issued by Texas attorneys general. The final amounts to be allocated would depend on year-end closing balances.
On January 13, 2012, Hollis Boatright, Chief Appraiser for BCAD, issued a letter to the various taxing entities indicating each would receive a credit and/or a refund check for the earned interest and tax certificate fees that had accumulated in the District’s tax collection fund while the taxing entities were participating. The final allocations were as follows:
Blanco ISD, $86,799.50; City of Blanco, $5,585.70; City of Johnson City, $6,345.31; County of Blanco, $74,497.67; Groundwater District, $26,559.24; Johnson City ISD, $72,883.08; North Blanco ESD, $22,897.89; South Blanco ESD, $23,160.59. The Grand total of all allocations is $318,728.98.
The decision to allocate the accumulated interest held by the Appraisal District is an interesting story in itself. During its fourth quarter meeting of the 2010 Board of Directors of the Blanco County Appraisal District on December 14, 2010, Ms. Hollis Boatright, Chief Appraiser, noted that the 2009 audit showed $8,279.00 left from the previous year’s budget and recommended that those funds be set aside for future software purchases.
Will Marasek countered that, due to the prospect of tight budgets the next year, it would be better to return the excess to the taxing entities. His motion passed unanimously. Ms. Boatright then noted there was enough money in the Appraisal District account of the Agency Fund to pay off the mortgage on the tax district’s new building. She produced a letter dated August 23, 2007, giving an attorney’s opinion that the board had full authority to use those funds for any lawful purpose and recommended the board authorize their use to pay off the mortgage. Mr. Shelton said that, since the account was earning only two percent interest while the mortgage was costing five percent, it would make sense financially to pay off the note, but that the taxing entities might not agree. He recommended that, in order to avoid any potential dispute, any further action on paying off the note should wait until after the district had notified the taxing entities of the proposal. His motion passed unanimously.
At its 2010 first quarter meeting of the Blanco County Appraisal District on March 10, 2011, Judith Hargrove, an attorney representing the appraisal district at the invitation of the chief appraiser, agreed every dollar that comes into the appraisal district comes either from taxpayers or from interest on taxpayer dollars. Brenda Adair noted that the expense of collecting taxes is paid for by the taxing entities funding the operating budget and not by the proceeds from tax certificate fees.
Discussion was temporarily suspended in order to allow discussion of the matter in Public Forum. Milton Hawkins characterized the interest and tax certificate fees accumulated by the district as a “slush fund,” whose existence was not consistent with his understanding of the budgeting process. He argued the money should be distributed to the taxing entities to relieve the tax burden.
Tex Riley advocated the accumulated funds be used to retire the district’s mortgage debt to save future interest payments. He characterized the accumulated interest and tax certificate fees as a reserve fund, comparing it to the reserve funds held by the taxing entities. He stated the district was fortunate to have access to the money for extraordinary uses. He recommended that the board seek the Attorney General’s opinion to resolve the issues regarding accumulated funds.
Chelita Riley said she also looked at the accumulated money as a reserve fund and said that paying the money to the taxing entities would merely be a short-term response to a long-term problem. Joe Stewart characterized the accumulated money as off-budget income and said that he didn’t understand why it wasn’t in the budget. Ms. Boatright restated her legal opinion that, because the money was not paid in by the taxing entities to operate the district, it was not required to be refunded to them. Will Shelton commented as a taxpayer he had difficulty understanding how all the operations of the district could be funded by the taxing entities, yet the taxing entities not be entitled to the income produced by those operations.
School Superintendent David Shanley stated that Johnson City ISD had projected a budget shortfall if the Legislature did not help local school districts with funding. He said he was looking for any source of money to save jobs that impact the community. He said JCISD had sent a letter to the appraisal district requesting the accumulated funds be returned to the taxing entities.
Mr. Shelton expressed his opinion that it was a waste of money to allow the fund to accumulate over a period of 18 years earning a low rate of interest, when it could have been put to better use by the taxing entities. Jack Felps said the best thing the board could do for the taxpayers was to pay off the note. Will Shelton made a motion to ask the taxing entities’ opinions relative to the use of the funds. His motion was not seconded. Brenda Adair asked for a special meeting to be called prior to the second quarter meeting. Will Shelton, Brenda Adair and Will Marasek voted in favor of the motion. Jack Felps and David Behrends voted against the motion and the item was tabled to be placed on a future agenda.
At its second quarter meeting on June 21, 2011, Attorney Hargrove addressed the board saying the board needed to make a decision about what to do with the accumulated funds. She declined to give an opinion as to whether the earned interest belonged to the district or the taxing entities. Mr. Shelton said that he understood common law provides for earned interest to stay with the principal on which it was earned and Texas subscribed to that rule.
A discussion followed about offering taxing entities a credit based on a rational allocation of the tax certificate fees and giving them the option to use their proceeds to pay off the district’s mortgage if they voted unanimously to do so. A letter to that effect was to be drafted to the taxing entities. Mr. Felps requested that the letter include how much would be saved if the mortgage were paid off. The motion passed unanimously.
At the third quarter meeting on September 13, 2011, Mr. Shelton asked whether everyone agreed that, if the taxing entities opted to prepay the mortgage, the board would meet before December to revise the 2012 budget to include the mortgage payoff cost and then allocate the remaining balance of the funds using the prescribed method. There was general agreement, with no objections. The rest is history. The accumulated interest inured to the benefit of the taxing entities.
The new Policy Manual also addresses how interest earned on the district’s operating budget will be treated in the future: “All interest earned on budgetary funds held in the depository during a fiscal year will be credited to the participating taxing units in proportion to their respective allocations for that year, unless such interest is applied to another purpose by action of a duly approved budget amendment.
If BCAD has contracted with one or more taxing entities to collect taxes, all interest earned on collected taxes and fees held by the depository during a fiscal year will be credited to the participating taxing units in proportion to their respective allocations for that year. All fees collected by BCAD will be fully credited to the appropriate taxing entity unless otherwise specified in their contract. All fees for which the appropriate taxing entity cannot be determined will be credited to each participating taxing entity in proportion to its budget allocation for that fiscal year.”