What is the Delinquent Tax Revolving Fund, and how does it work?
Under state law, Michigan counties may act as delinquent property tax collectors for their local units of government. They do this using what is called a Delinquent Tax Revolving Fund (DTRF). Here’s how it works.
After one year, local governments hand over delinquent tax collections to the county. The counties “make them whole” by forwarding money from the DTRF to local governments to cover the debt. Then the county sets about collecting those taxes.
To cover DTRF costs, counties use short-term borrowing. They are typically able to borrow money at about 1.25-3% interest. But when the county receives delinquent tax payments from property owners, they collect it at 6-18% interest, plus fees. So, counties effectively turn delinquent tax payments into a revenue stream through the DTRF. This is where the vast majority of the funds in DTRFs come from.
After taxes are delinquent for three years, counties are supposed to foreclose on a property. They can then try to sell the property at auction. Any proceeds from the tax auction also go to the DTRF. Counties can then “charge back” any debts they were unable collect to local governments.
This cycle typically leaves counties with surplus, unrestricted funds in their DTRFs. These funds can be transferred out to supplement county budgets. An analysis by Michigan Radio shows from 2016-2018, five counties — Wayne, Oakland, Macomb, Genesee, and Kent — all transferred money out of their DTRFs to supplement other parts of the county budget, usually its general fund. Wayne County has been heavily dependent on these transfers to balance its budget in recent years; from 2016-18 alone, the county used $123.3 million in DTRF money to boost its general fund.