Property tax bill error: what happened, what next

Marsha Sutton
Marsha Sutton

By Marsha Sutton

Following last week’s column on the property tax bill error caused jointly by the San Dieguito Union High School District and the county of San Diego, left unsaid was how it happened and what’s in place moving forward to ensure it never happens again.

San Dieguito’s $449 million general obligation bond, which passed by a narrow margin last fall, promised a maximum tax of $25 per $100,000 in property value. But the tax bill issued to all property owners in the San Dieguito district assessed $37.50 per $100,000.

The amount that would have had to be refunded, had the county and district not managed to revise and mail corrected tax bills before the due date, would have been about $7 million.

The error on the original property tax bill, mailed last fall, was first discovered and reported in this column on Oct. 24.

Rick Schmitt, SDUHSD superintendent, explained in an interview that the bond instructions for the county as the fiscal agent called for $160 million to be transferred to the school district and $8 million in premiums to stay with the county.

Instead, the county transferred the $8 million to the district along with the $160 million, and the $8 million sat unnoticed in a special school district account for six months.

Schmitt said mistakes were acknowledged on both sides. SDUHSD should have seen the $8 million and realized it was in the wrong place, and district staff didn’t read the bond instructions properly. The county, for its part, erred by sending the $8 million to the district in the first place, and county staff should have noticed it and asked for it back, he said.

“This [$8 million] was transferred to us but should have gone into the sinking fund on the day of the closing,” SDUHSD’s associate superintendent of business services Eric Dill said, calling that “an oversight on our side where we could have caught this in advance.”

Also, when the county asked the district where the funds should be transferred to, Dill said he didn’t realize that also meant the premium.

“I believe they should have known where to transfer the funds because it was in the closing instructions,” Dill said. “But when the funds were received by us, we should have noticed that and we didn’t.

“That ultimately was how they calculated the higher amount, because the funds weren’t sitting in the county treasury for them to consider as available.”

Dill in an understatement called it “a long and complicated issue.”

Two departments at the county were involved in discussions on the issue – the auditor/controller’s office and the tax collector’s office.

“While there is clear duty to check and recheck and double-check and triple-check numbers, sometimes the processes don’t happen,” said county Treasurer/Tax Collector Dan McAllister, whose department issues property tax bills based on numbers provided by the auditor/controller.

“We’re a large organization; the school district’s a large organization,” he said. “To think that mistakes don’t sometimes get made is sadly not true.”

Looking ahead

Both the county and the school district are anxious to focus on the future and how to use this unprecedented debacle to improve and streamline the property tax assessment process going forward.

Dill said he and the team at the county had many conversations working through what happened, how it happened, “and most importantly how to make sure this doesn’t happen again.”

In an email, Dill explained that the county is working on a standardized agreement for all districts to use, rather than each district drafting its own and negotiating the language with the county.

“That will help standardize how they interpret and handle funds as they flow in and out of the county treasury,” he wrote. “That should also save legal fees.”

A prior notification to each agency in advance of setting the tax rates to cover debt service will give agencies the chance to review the proposed tax bill before it is acted on by the board of supervisors, Dill said.

He said his district’s incorrect billing could have been prevented had he seen the tax rate in advance before it was calculated, printed and mailed.

“They now realize that it is a good practice to implement a notice to each one of the public agencies that they will be taking tax rates to the board of supervisors for approval, so that we have a chance to review that before the board of supervisors sees it,” Dill said.

Also, he said the treasurer’s office is creating standardized forms, “because they realized that every single bond issuer out there … they all create their own documents. They’re all different because they’re created by different attorneys.”

The purpose is to provide consistency and a standard template.

This will save the district money, Dill said, because San Dieguito won’t have to pay to draft everything from scratch. When the district issues its next series of bonds, “it will save us some legal fees,” he said.

Dill said the county “is flipping it around, saying, ‘If you want us to be your paying agent, here’s our standard form. If you need to make changes, we can talk about that. But let’s just start with something that we all know and understand.’ So that’s a good thing.”

Part of the difficulty, McAllister said, is that the general obligation bond process is too complex and cumbersome, as new language for each iteration is added by attorneys to avoid prior problems.

“It’s fed by mistakes from the past,” he said. “I think things could probably be done more simply in many instances.”

“That’s why I think you need checks and balances,” McAllister said.

Although the county and school district agreed to share blame for this error, McAllister suggested that perhaps it’s not only the agencies that are responsible.

“I would suggest that there is a responsibility on the part of taxpayers to check their bills, read their bills, and understand what they’re getting billed for, particularly in this era of more and more special districts issuing bonds for a variety of things,” he said.

McAllister was pleased that systems would soon be in place to prevent similar problems in the future, for all the county’s public agencies, not just San Dieguito.

“That’s one of the great byproducts of this whole exercise,” he said.

Positive relationship

Schmitt acknowledged that the district made mistakes, and supported the district’s payment of $80,000 to the county to partially pay for the $183,000 total cost associated with generating letters, refunds and corrected tax bills.

“It was an oversight on our part,” Schmitt said. “We need to take responsibility for that.”

But he applauded the SDUHSD and county staff for amiably working together to sort out the problems and find solutions. He said this collaborative interaction has cemented a positive relationship between the school district and the county.

“I see government agencies arguing with each other, suing each other, blaming each other,” Schmitt said at the May 1 school board meeting where the payment to the county was discussed. “Our community expects us to work together and collaborate.

“Most of our energy was spent working with the county for our community and for our taxpayers. It took a little bit of effort, a little bit of time, and quite honestly as you’ve heard tonight a little bit of money.”

Dill also commended the county staff and McAllister in particular, saying, “We had a very good relationship with the treasurer’s office before, but it is much stronger today, having gone through this together and come out the other side.”

For the next series of bonds, Dill said the district has a good partner at the county.

Although the error was certainly embarrassing and unfortunate, it appears the situation generated an improved relationship between San Dieguito and the county of San Diego and will result in better methods for property tax calculations and streamlined procedures with much-needed checks and balances.

And since I discovered and reported the error, many property owners, and not just from the San Dieguito district, have contacted me to say they plan to examine their tax bills more closely in the future.

So it is true that, as a result of this fiasco, many taxpayers have taken a closer look at their bills, are questioning the various charges, and are comparing current bills with past bills. So I suppose that can be counted as another positive development.

Despite the encouraging outcomes, this was an unprecedented occurrence that could have resulted in a major financial and political mess for both the school district and the county.

Yet both agencies speak almost exclusively about the upsides and sound as if they were almost grateful it happened. The spin on this near-disaster has made me dizzy.

One would think it’s almost as if this $7 million mistake were a good thing … but not quite.

Marsha Sutton can be reached at SuttComm@san.rr.com.

   
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