Modesto, other cities were overpaid thousands due to county errors. Will they pay it back?
An internal review determined that Stanislaus County overpaid almost $1 million in tax money to its nine cities over a two-year period.
Now, the county is asking the cities to give the money back. And cities seem to have a difference of opinion about what they owe.
In January, the county filed claims with Modesto and the eight other cities to recover overpayments totaling $925,625. The county says it overpaid $367,427 to Modesto and the city says paying it back all at once would hurt.
County Chief Executive Officer Jody Hayes said clerical errors in the Clerk-Recorder’s office caused documentary transfer taxes to be overpaid to the cities between April 2015 and March 2017.
The taxes are imposed on real estate transactions and are paid by the buyer or seller when property sales are recorded.
According to the state’s taxation code, the county is supposed to keep 50 percent of the taxes, and 50 percent is allocated to the city where the home purchases or real estate deal occurred. The county inadvertently gave the entire amount to the cities during the two-year period.
Hayes said some cities have agreed to repay the money or want to discuss terms of repayment over time. As of Thursday, some cities had not issued any formal response to the county.
The CEO said he has spoken with Modesto City Manager Joe Lopez and other managers about the overpayments and apologized for the error. But Modesto has not responded formally.
Modesto issued a statement Friday to the Modesto Bee.
“At a time when cities across the valley, including many in this county, are struggling to provide essential services in the midst of rising costs, this clerical error and subsequent demand for repayment couldn’t be more misjudged and disappointing,” the city’s statement said. “We’re evaluating the claim and the city’s options, and will hopefully land on a resolution that is fair and equitable for our residents.”
Hayes said the county expects to discuss a payment plan with Turlock. Oakdale and Newman have proposed reimbursements over three years. Hughson has offered to repay the entire $12,878.
Ceres Councilman Michael Kline said he had heard rumblings about the overpayments and expects to hear more details during a closed council session Monday. The county’s claim for $71,604 from Ceres will be discussed behind closed doors under potential litigation.
“I don’t know all the circumstances,” said Kline, who is running for the Board of Supervisors in the primary next month. “I could not make a comment until I find out more Monday.”
According to claims submitted by the county, Turlock was overpaid $188,324; Oakdale $166,031; Patterson $66,001; Riverbank $36,917; Newman $10,681; and Waterford $8,760.
“We are amenable to a variety of financial terms and are open for cities to propose a mechanism for correcting the error,” Hayes said.
Top officials said documentary transfer tax — equal to $1.10 for each $1,000 in property value — was properly allocated before April 2015 and after March 2017. The county’s audit systems failed to catch the mistakes during the two-year period.
The problem was discovered in February 2019 by an additional internal review implemented by Auditor-Controller Kashmir Gill, who was elected in November 2018.
Gill said an imbalance was discovered in the Clerk-Recorder’s fund and staff researched and confirmed there were mathematical errors in the spreadsheet calculations. “We worked on it for months,” Gill said.
The errors creating a headache for the cities did not result in disciplinary action. A clerical accounting employee who was responsible left the county workforce before the mistakes were discovered, the county said.
“There were some months that it was done right, and then some months not,” Gill said. The Auditor-Controller’s office relies on the Clerk-Recorder’s calculations in distributing the tax money to the cities.
Gill’s department has reviewed procedures in the Clerk-Recorder’s office to make sure the errors are not repeated. It is doing more reviews and a monthly reconciliation of funds, Gill said.
Citing an interpretation of law, some cities are claiming they shouldn’t have to repay the entire amounts because of a three-year limit on seeking reimbursement due to fraud or mistakes, Hayes said. The county disagrees with that interpretation.
Hayes wrote in a Jan. 8 letter to city managers that, if arrangements aren’t made with cities to repay the money, the auditor-controller will make adjustments to the tax payments to cities, so the overpayments are corrected by 2023.
Gill said oversights occur with the millions of dollars processed each month by county departments and other government agencies. She said mistakes have historically been resolved with local agencies and the state through adjustments in future allocations.
This story was originally published February 23, 2020 at 5:00 AM.
