LOS ANGELES - The federal agency responsible for cleaning up problems in the savings and loan industry appears to have retreated from a hard-line policy that threw doubt on its willingness to pay special taxes and assessment bond levies in California.
The agency now says it will pay any taxes and assessments that were placed on a property before the property went into receivership. That statement will "close the book on this issue, for now," said Steve Juarez, executive director of the California Debt Advisory Commission.
"The RTC now recognizes the legitimacy of these special taxes and assessments in virtually all cases and has indicated its willingness to be reasonable with regard to local agency requests for foreclosure," Juarez said.
The policy statement follows almost 18 months of letters and meetings between RTC representatives and California Treasurer Kathleen Brown, chairwoman of the debt commission.
U.S. Rep. Lucille Roybal-Allard, D-Calif., helped the commission "get tbe agency's attention," Juarez said.
Until now, Resolution Trust's policy on Mello-Roos special taxes and assessments had been so ambiguous that bond counsel routinely made sure that official statements warned bondholders that the agency might not make payments on properties it owns, market observers say.
Complicating matters was the trouble some issuers have in determining whether Resolution Trust owns property in a given assessment district.
Resolution Trust is the four-year-old U.S. government agency responsible for cleaning up the nation's troubled savings and loan industry. To do so, it is selling or liquidating more than 700 insolvent savings and loan institutions.
The federal agency caused considerable anxiety in the public finance community last year when Lamar C. Kelly Jr., Resolution Trust's senior vice president for asset management and sales, told Brown that the federal oversight agency has the right to invoke federal immunity from paying certain taxes or levies on properties in which the agency has a security interest.
Market participants worried that the RTC would defy the special property taxes levied by Mello-Roos districts. Nearly $4 billion in Mello-Roos bonds have been issued under the Mello-Roos Community Facilities Act of 1982. The securities are a popular financing tool used by local governments to fund roads, sewers, schools, and other infrastructure improvements.
Resolution Trust's "State and Local Property Taxation Policies Manual," adopted in 1991, says the agency is immune from taxation except for ad valorem real property taxes. Debt commission and Resolution Trust representatives met last summer in Sacramento to clarify the policy, which Juarez said could cause delinquencies in the payment of assessments in which the agency has an interest.
But now, Kelly has clarified Resolution Trust's policy. In a recent letter to Roybal-Allard, he wrote, "For real property owned by an institution in RTC receivership, the RTC will pay Mello-Roos special taxes and other special assessments and related interest where those taxes and assessments were imposed prior to receivership. However, Mello-Roos special taxes and other special assessments that are imposed on property when the institution owning the property is in receivership will not be paid."
Kelly's letter continues, "While the RTC cannot commit to pay all Mello-Roos and other special taxes regardless of the date of their imposition, we feel that under the liberal construction adopted by the RTC there should be no adverse effects upon local government bond markets."
Juarez said Resolution Trust will now make payments even in situations in which the Mello-Roos special tax is increased as the result of additional bond issuance.
Kelly also clarified the agency's position on foreclosures. California issuers said their normal recourse, foreclosure, would be denied if Resolution Trust-controlled property is late in payments. That understanding was bolstered by an agency policy stating that no Resolution Trust property is subject to levy, attachment, garnishment, foreclosure, or sale without agency consent.
But Kelly told Juarez in a July 30 letter that Resolution Trust "has not denied any requests for consent to foreclose. And ... to date we have not received any requests for consent to foreclose by any California municipality.
Juarez said Resolution Trust will continue to require local agencies seeking to foreclose on property to obtain its consent before such action when the agency has a security interest. Moreover, Juarez said, it is his understanding that the agency will attempt to respond in 30 to 60 days to such actions and will not unreasonably withhold its consent when requested on a case-by-case basis.
Juarez said Brown is writing a letter to admintstrators of Mello-Roos and special assessment districts asking them to notify her if any districts experience problems in collecting taxes or assessments on property where Resolution Trust has a security interest.
"I haven't heard conclusively of an incident where bonds were put in jeopardy because RTC refused to pay, " Juarez said. He said he would like to "catalog those cases" if they exist.
Further, Juarez said, Brown will recommend that local officials who are considering creation of a community facilities or special assessment district conduct a thorough title search on major pieces of property that may be subject to new special taxes or assessments in order to identify property where Resolution Trust may have'a security interest.
Juarez said knowledge of Resolution Trust's presence before the creation of such districts is important because the agency "clearly won't be responsible after the fact." But even if the district is formed and Resolution Trust controls some parcels, Juarez said, "The RTC is going to sell that property and eventually it will go back on the tax rolls."
If issuers have problems that cannot be resolved under this policy, "we may pursue additional measures," which include legal remedies or federal legislation, Juarez said. "We are accepting them at their word and assuming we won't have any problems."