INCLINE VILLAGE, Nev. — The recent news that the town of Mammoth Lakes, CA lost a $43 million judgment to a developer and had to file bankruptcy one week ago is causing shivers down the spine of many Incline Village and Crystal Bay property owners. The circumstances are very different between the property tax judgments that local residents here have won against Washoe County and the lawsuit that Mammoth Lakes, CA lost when they were judged guilty of breach of contract. However, the weak state of Washoe County finances should give rise for concern to anyone who looks at the Washoe County Budget Summary.
And the recent filing for bankruptcy by the city of Stockton, CA has many parallels to the financial situation currently facing Washoe County. Home prices in Stockton tripled during the real estate boom, but wages did not increase very much, similar to the situation in Reno and surrounding areas. Property tax collections went up concomitant with the increase in home prices, but so did local government spending. Public employee staffing was increased, but they received wages and benefits that were unsustainable absent the artificial real estate bubble.
As I reviewed the Washoe County budget summary with projections for fiscal year-end June 30, 2013, I found only $975,000 allocated for contingencies and no money specifically for the property tax refunds. When you look at the basic expense categories, there is no allocation for the property tax refunds. And it's unlikely that the refund money is buried in the general government, judicial, or public safety budgets, because those budgets appear to be relatively static for the three years from June 30, 2011 (prior to the court ordered refunds), through June 30, 2013.
The County is showing a projected loss of approximately $85 million for the fiscal year in June 30, 2013. That would leave just over $50 million in cash at the start of the next fiscal year. The tax refunds that are still owed to Incline Village and Crystal Bay property owners would wipe out the vast majority of that money. And, if we win the equalization lawsuit that is before the Supreme Court, the judgment against Washoe County will likely rise to somewhere between $90 million and $120 million.
The reality is, that even if we lose the equalization lawsuit, the County will have cash reserves equal to less than 10% of the annual budget and maybe as little as 5% based on their own projection. Since the County is also projecting losses into the future, the option of filing bankruptcy suddenly becomes a very plausible alternative for the leadership down in Reno.
By filing for bankruptcy and having it approved by the courts, the county could potentially get the amount of the remaining property tax refunds dramatically reduced. This creates a very bizarre situation of a violation of the equal protection clause. You could have neighbors who got refunds before the bankruptcy and neighbors who get refunds after the bankruptcy owning very similar properties and having paid similar taxes, receiving very different refund amounts.
I personally don't think the County would file for bankruptcy before the November elections. It would wreak havoc on the incumbents and their plans for the future. But it might also explain why the treasurer's office has been so slow to pay the tax refunds. It's commonly known that the interest alone during the first year after the Supreme Court judgment amounted to over $2 million. Any logical business person would have spent up to $2 million on labor if necessary to get all the refunds completed in 12 months or less. While the treasurer's office did hire some additional personnel, it was nowhere near enough to complete the refund process in a timely fashion. Incline Village and Crystal Bay property owners actually had to go back to court to get the treasurer's office to face a deadline of August 2013 for the payment of our property tax refunds. If the County leadership is planning to file bankruptcy, it would make sense to dole out the refunds as slowly as possible.
Now maybe we will all get lucky with the recent announcement that Apple and other high-tech companies are looking at moving business operations and computer services up to the Reno area. A significant expansion in the number of high-paying jobs along with an increase in related services would contribute significantly to the tax base. The question is will any of this come in time to bail out Washoe County? Or, are these corporations being offered tax incentives to relocate here with the payoff coming in the form of the additional payrolls and spending that will occur as a result of the new jobs that are created?
Regardless of all the various possible scenarios, if Washoe County does file for court protection from creditors it would raise future borrowing costs for many years to come after the County exits bankruptcy. It once again raises the issue of what will it take for Incline Village and Crystal Bay to sever themselves once and for all from Washoe County and join up with either Douglas or Carson City? With a potential Washoe County bankruptcy looming on the horizon it makes more sense now than ever for Incline Village and Crystal Bay property owners to consider their options and plan for the future.
— Don Kanare is a Realtor at RE/MAX Premier Properties. Read his blog and weekly stats on his website at www.InsideIncline.com.