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2002-2 Delinquent Tax Revolving Funds Change per Uniform Chart of Accounts

January 14, 2002

To:    County Treasurers, Controllers, Board of Auditors, Board of Commissioners

From:    Richard L. Baldermann, CPA, CGFM Administrator, Local Audit and Finance Division Bureau of Local Government Services

RE:    Accounting for Delinquent Tax Revolving Funds (100% Tax Payment Funds)

In the revised Uniform Chart of Accounts, which will be issued in the first quarter of year 2002, the delinquent tax revolving fund has been reclassified as an enterprise fund using the fund number "516." In prior years, the delinquent tax revolving fund has been accounted for as an internal service fund with the fund number "616." The change was necessary primarily due to the Government Accounting Standards Board Statement No. 34.

GASB No. 34 requires that enterprise funds may be used to report any activity for which a fee is charged to external users for goods or services. Activities are required to be reported as enterprise funds if any one of the following criteria is met. Governments should apply each of these criteria in the context of the activity’s principal revenue source.

a) The activity is financed by debt that is secured solely by a pledge of the net revenues from fees and charges of the activity. Debt that is secured by a pledge of net revenues from fees and charges and the full faith and credit of a related primary government or component unit--even if that government is not expected to make any payments--is not payable solely from fees and charges of the activity. (Some debt may be secured, in part, by a portion of its own proceeds but should be considered as payable "solely" from the revenues of the activity.)

b) Laws or regulations require that the activity’s costs of providing services, including capital costs (such as depreciation or debt service), be recovered with fees and charges rather than with taxes or similar revenues.

c) The pricing policies of the activity should establish fees and charges designed to recover its costs, including capital costs (such as depreciation or debt service).

(GASB Statement 34, paragraph 67)

In the case of the Delinquent Tax Revolving Funds, the activity within the fund is financed with debt in most cases which is secured solely by a pledge of the net revenues from fees and charges of the activity. The General Property Tax Act requires that the activity’s costs of providing the services be covered with fees and charges.

The Delinquent Tax Revolving Fund may be established by resolution by the county board of commissioners pursuant to MCL 211.87b. This fund must be segregated into separate funds or accounts for each year’s delinquent taxes. Each year’s separate fund or accounts continue in existence until the delinquent taxes for that tax year have been collected and the county board of commissioners have transferred any surplus to the county’s general fund, in accordance with MCL section 211.87b. (7). The county retains all delinquent taxes, interest and penalties collected to offset its tax collection costs.

The surplus earned, after any borrowing is paid off, is under the control of the board of commissioners. The surplus may be accumulated to reduce or avoid future borrowings, or expended for other purposes as authorized by the board of commissioners.

The Delinquent Tax Revolving Fund accounts for money, either advanced by a county or by the issuance of general obligation limited tax notes, to pay other taxing units and various county funds for their delinquent taxes.

The cash and investments of the Delinquent Tax Revolving Fund are subject to the requirements of Public Act 20 of 1943 as amended, (MCL 129.91) and may be included in a pooled cash and investment account unless restricted by a bond ordinance or authorizing resolution.

Please call (517) 373-3227 or write our office if you have any questions.

Michigan Department of Treasury
Local Audit and Finance Division
P.O. Box 30728
Lansing, Michigan 48909-8228