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
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