Her Side Funnies

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Colorado tax lien sales are a mystery to a lot of people.  For that reason, I took my freshly-turned-18-year-old out of school to attend her first tax lien sale in nearby Montrose County.  She was wide-eyed at the process and the people.  She returned to school and bragged to her high school civics teacher that she had done something “civic” during her absence.  She now knew about tax liens.  The teacher requested that I come to class and share the lesson with the other students.  I agreed, but struggled with how to put the enormous importance of tax lien sales into a lesson that a high school student would understand.

This Chinese restaurant in our local small town did not pay their taxes of $16,000.  A buyer who pays this amount for three years can apply for the deed to the property.  At present, this concept has benefits and drawbacks.

I gathered some facts and figures for the 28 students.  Dry statistics lose audiences, so I took a few pages of the tax lien along.  I created alphabetical jobs (26 occupations), plus one retiree, and one unemployed person.   I also grabbed some “Life” game cards with houses on them, and divided them into similar ratios as we have in our county, i.e., there are more mobile homes than mansions, and only a few very large properties.

I took the kids, one at a time, and let the first ones arriving to the class pick their careers.  (This means that the lawyer, surgeon, and engineer jobs went first.)  As later-arriving students joined the “county” they quickly discovered that their dream jobs were unavailable–they would have to pick some other way to earn a living. 

“What?  Why can’t I be a surgeon or a lawyer?” they asked, incredulously.  “Well, someone got here sooner than you and now that job is taken,” I replied.  The jobs “nanny” and “quiltmaker” lingered on the list.  By the time the “coolest” kids arrived, there were some seriously un-cool employment options.

Next, each student had to pick their home.  The students who thought they understood taxation quickly picked all the mobile homes, leaving more expensive homes for those who arrived later.  This meant that those with the less desireable (and lower paying) jobs had to pick higher end homes.  This, I knew, would work out nicely for the mock tax lien sale. 

Everyone in the pretend county now had jobs and homes.  An efficient ”county,” in today’s times, as this is not the case across America.  Next the salaries were revealed.  They ranged widely with the yodeler earning $4,000 per year and the surgeon earning $150,000 per year.  Housing ranged from rentals of $8,000 per year to a home business for $8 million.  The retired person earned $30,000 on social security and the unemployed person earned $12,000 on welfare.  This caused hate and discontent as the yodeler shouted out that he was working full time and only earning $4,000 a year while the unemployed student was making $12,000.  Such is a common complaint of the American system.

“Your county needs a government,” I said.  ”What kind of government will you have?”  Four choices emerged:  Fantastic government, moderate government, minimal government, or dirt-poor government.  A vote was held.  Three students wanted a fantastic government; 16 wanted a moderate government, four wanted minimal government and five rowdy boys in the back wanted a dirt-poor government.  I looked at them and smiled.  “What is the main purpose of government?” I asked.  None knew.  “To protect property rights.  That’s why having a dirt poor government might be a more exciting choice.”  I explained that if a dirt-poor government had won the vote, perhaps they would not have enough funds to pay policemen to protect their land.  Hearing this, hoodlums would soon come and take it from them.   They did not like that idea much.  

One student raised her hand to ask what kind of government we had in our non-pretend small town.    I considered this.  “We have just barely above a dirt-poor government,” I answered.  She was shocked.  Our town has no stop lights.  We have no hospital.  The fire department is volunteer.  Our library is small, and our roads are checkered with pot holes.  The schools, however, are quite sufficient.  A miminal government. 

I asked how many of the students, looking at their finances, could afford to pay their taxes.  Most could.  A couple were in trouble, the funny yodeler among the troubled ones.  The large business owner fell among those unhappy with their taxes, as her income did not match her tax bill.  Good, I thought.  “How many of you want to pay for someone else’s tax bill?”  None wanted this opportunity.  I explained that this is true in our county and many others across the nation.  “But,” I explained, “the government has to have funding, and that comes from property taxes, so that is why the government offers a higher interest to those who pay for other people’s taxes. ”

The students looked at me with glassy-eyed looks.  None were aware that the prime rate had been one-half of one percent in September and that the tax sale rate was nine points above prime, rounded to the next higher number.  In our state, the tax rate was 10 percent this year.  Some of the kids grew more interested as they considered investing at one-half of one percent versus ten. 

“What if they don’t pay me back?” asked a student in the back?

“They’ll throw them in jail,” piped a student from the front. 

No, they won’t throw them in jail, I said.  Because they would not be earning taxes and the government would have to PAY to house and feed them.  That’s certainly not what the government wants to encourage.  The government will offer to give your land to someone else if you refuse to pay taxes for over three years on it. 

I explained that my debate partner in high school had attended a tax lien sale for his 18th birthday.  He invested $137 on a 40-acre parcel of vacant land in western Colorado.  For three years he paid the taxes and then filed for ownership.  The previous owner was arrested for drug dealing and had escaped and fled.  My friend eventually gained ownership of the property for less than $1,000 including all costs.  The property was worth over $100,000 at the time.  It was a beautiful tract.  This sparked the students’ interest. 

I explained that there are also risks.  Several of the kids in the class had purchased condominiums.  An investor explained that he had lost his money investing in a tax lien on a condo, because the owners set it on fire before they left, leaving him owning thin air.  “You have to be careful,” he said.

We then pulled three pages from the neighboring county’s tax lien sale from a couple weeks ago.  The taxes for sale ranged from $135 to $115,000.  Many of the kids passed their turns.  No one wanted to pay the largest bill.  This, I knew, would cause a problem for their pretend county. 

In our county, between 50-55 percent of the property taxes collected go directly to the local school system.  The remaining 45-50 percent is divided with approximately 30 percent going to the local municalities, and the remainder going to various programs like mosquito control districts and such.

The students began to realize that when the taxes are not paid, their schools get hit the hardest.  Salaries of teachers, sporting programs and clubs all must be scrutinized.  Many are cut when money gets thin.  They also never considered that when fewer people pay the taxes, many counties increase the taxes on those who remain.  This makes property ownership burdensome.   That also explains why we no longer have a Safeway, a JCPenney’s store, or ladies and men’s apparel stores, like we did 40 years ago.  Though the needs stayed constant, these companies stopped making a profit and were moved to larger towns.  Companies, I explained, must consider taxes, and do so when choosing their locations.  If the taxes become too high, they move the company location.  The students considered this concept.  Many were unaware we lost these businesses and found that concerning.

Seeing that they were not going to generate enough from the mock tax lien sale, I asked, “What will you cut?  Will you cut your police force?  Your hospital?  Your schools or libraries?  Road maintenance?”  The kids did not like these choices.  They said they would cut the libraries first.  Not essential, they said. “Ah, but that is the free education system in America.  You can get a college education there at no cost.  How will denying this free education impact your county?”  Ugly choices.  Real choices.

In real life, our county had some big ticket tax liens this year. In some cases, the price of the tax lien exceeds the value of owning the property.  A Chinese restaurant, for instance, owes $16,000/year in taxes.  Their tax lien was on the roster this year.  Whoever buys that tax lien needs a business plan idea in place.  Even without a mortgage to pay, three years of $16,000 is $48,000 and for that price, no equipment has been purchased, no labor, no merchandise to sell, or food to serve.  Whatever business goes into that vacant building must earn $1,333.33/month just to pay the taxes.  In our small town, they must earn a $44 every day, seven days a week, to pay the taxes.  This, of course, does not reflect that most businesses close at least one day per week; many close two days per week.  It also does not reflect that salary, utilities and merchandise costs come on top of that charge.  One must have a pretty successful business idea in a town of 900 residents to not lose their properties to pay taxes. 

If you close two days a week, you must earn $60.61 per day just to pay taxes.  Your own time is valuable, too.  At minimum wage of $7.24/hour, one would have to earn an additional $57.92 to pay minimum wage.  (Not many businesses entrust their companies to someone earning minimum wage.  A manager would be required, but for this example, just one minimum wage employee will be hired.)  Then insurance costs, the mortgage on the $48,000 tax lien cost for paying it for three years (which is much cheaper than buying the business outright), the utilities. In a hurry, it is clear that to operate a business in this town, one must earn over $200 profit per day (this does not include the merchandise, i.e., if you sold $200 of merchandise in a day, the merchandise price often doubles the cost.  That means you would have to sell $400 per day to just pay base expenses and keep the tax man from seizing the property. 

The local coal mine is hitting the headlines.  They are our county’s biggest tax payer.  At the time of this post (November 16, 2009, they owe $1.5 million in back taxes.  If the government seizes their equipment to sell it, hundreds of jobs will be lost.  The second highest property tax payer is the railroads, who depend on the coal mines.  The third highest property tax payer is the electric company, whose biggest customer is the coal mines. 

Even a high school student can figure out the domino effect of this picture.  Unfortunately, many never get that opportunity.  Many teachers use the civics classes to teach them terms, but not concepts; memorization, not creative problem solving. 

One cannot help but wonder, if only their parents, who kept voting in favor of programs that increased property taxes, had realized the problem sooner, could our outcome have been different?   Residential homes in our county are taxed at eight percent (multiplied by a mil levy).   A $100,000 home will pay approximately $480 in property taxes.  In contrast, businesses in our county are taxed over three times that much.  At 29 percent (multiplied by a mil levy), a $100,000 business will have to pay $1,740 a year in property taxes, plus, all their equipment is also taxed at the higher rate.  As more and more businesses struggle to make ends meet, more and more of them will fail and their properties will hit the tax lien rosters.  Residents here are beginning to realize their jobs are insecure and thus, the residential property taxes become harder and harder to pay. 

I believe in American ingenuity.  I want to believe the answers lie with the next generation of our population.  It is absolutely essential that this generation understands the foundation of our government and how it is funded.  As long as we, as parents, teachers and friends continue to allow the fantasy of magically funded government to thrive, we do no favor to ourselves, our neighbors, our friends or our future.  In a direct way, every year, when residents cannot pay their taxes, that lapse in payment is invisible to the community at large.  It is invisible because a handful of investors are paying the tab so the governments, roads, hospitals, libraries carry on uninterrupted. 

That handful of investors pay that which the owners, for whatever reason, cannot pay.  In many ways, the future of your communities is hugely dependent on this handful of investors.

For high school students, those who will fill those seats as the older investors die off, they must have an understanding of this process.  Without this understanding, this next generation cannot be expected to navigate our future successfully.  Voters who know nothing of the process and continue to vote in shiny new government programs, become a liability to us all – without ever realizing the back room reality of the tax lien sale.

Explore posts in the same categories: OMG Kids, On a serious note, Stuff to do when you're over 40, Tax lien information

This entry was posted on Wednesday, November 18th, 2009 at 6:02 pm and is filed under OMG Kids, On a serious note, Stuff to do when you're over 40, Tax lien information. You can subscribe via RSS 2.0 feed to this post's comments. You can comment below, or link to this permanent URL from your own site. Your comments will be moderated but will appear as soon as humanly possible.