3.3.5 Teeter Bonds

3.3.5 Teeter Bonds

A “Teeter Plan” is an alternative method for the distribution of secured property taxes. Upon adoption and implementation of this method by a county board of supervisors, local agencies for which the county acts as “bank” (including the county) and certain other public agencies in the county receive annually the full amount of their share of property taxes on the secured rolls regardless of the amount of tax collection. Because a Teeter Plan creates a timing gap between the county’s advance of funds and its collection of delinquent taxes the county bears the risk of delinquencies and losses and in return receives any interest and delinquency penalties it collects. See California Revenue and Taxation Code Sections 4701–4717. 

Most counties finance the distributions of “Teetered” delinquencies through loans from their treasurers’ investment pools. These loans may run as long as 9 years and are likely to run, on average, 3 to 3.5 years. As an alternative, a county may finance distributions through the issuance of “Teeter bonds” (which may take the form of commercial paper or other notes) under California Government Code Sections 54773–54783. Teeter bonds may be issued in the amount of the current fiscal year’s delinquencies and may have a maturity of up to 7 years. Teeter bonds are secured by a pledge of the delinquent property tax receivables and are generally also payable from the county’s general fund. To be issued on a federally tax exempt basis, the bond issue must satisfy the requirements for a long term working capital borrowing. See Section 4.5, Cash Flow Borrowings.

Because Teeter bonds are multi year obligations payable from tax revenues and general county funds, an exception to the constitutional debt limit is necessary. Teeter bond issuers generally rely upon the Obligations Imposed by Law Exception on the theory that once a county has established a Teeter Plan it is obligated by law to make advances to the entities receiving tax revenues. See Section 1.2.4.6, Obligations Imposed by Law Exception. Teeter bonds generally require a validation action.