BILL ANALYSIS
AB 4 X1
Page 1
(Without Reference to File)
ASSEMBLY THIRD READING
AB 4 X1 (Wesson)
As Amended January 28, 2003
Majority vote
BUDGET 19-9
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|Ayes:|Oropeza, Bermudez, | | |
| |Canciamilla, Chan, Chu, | | |
| |Diaz, Dutra, Dymally, | | |
| |Frommer, Goldberg, | | |
| |Jackson, Levine, Liu, | | |
| |Montanez, Nakano, Pavley, | | |
| |Reyes, Simitian, Wolk | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Campbell, Benoit, | | |
| |Daucher, Haynes, Keene, | | |
| |Maze, McCarthy, Pacheco, | | |
| |Runner | | |
| | | | |
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SUMMARY : Clarifies responsibility for implementing the
"trigger" provision in existing law that restores the Vehicle
License Fee (VLF) rate in the event that the General Fund (GF)
is insufficient to finance "backfill' payments to local
governments and exempts certain vehicles from a VLF increase if
the trigger is activated. Specifically, this bill :
1)Clarifies that the Director of Finance is the state official
required to make the determination, under the existing VLF
trigger provisions, of whether there are insufficient moneys
in the GF for the State Controller (Controller) to make
backfill payments to fully reimburse local governments for
their revenue losses resulting from the VLF reduction.
2)Requires the Controller to provide the Director of Finance
with any information available to the Controller that is
requested for the purpose of making the trigger determination.
3)Clarifies that the term "General Fund," as used with reference
to the VLF trigger determination, does not include borrowed
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funds, which are defined as moneys that fall in either of the
following two categories:
a) Moneys "that the state is obligated to either repay or
return to the source, fund, account, or any successor
thereof, from which the money was received;" or,
b) Moneys "that are derived from short-term obligations,
loans, sales of bonds or debentures, or other forms of
indebtedness."
4)Makes the current 67.5% VLF offset permanent (not subject to
the trigger) for vehicles purchased for $5,000 or less and
removes the state "backfill" requirement for the offsets of
these vehicles.
EXISTING LAW reduces the VLF rate, provided that the GF has
sufficient money to fully offset local governments' revenue loss
from the reduced rate. Specifically, the VLF law:
1) Establishes, in lieu of any ad valorem property tax upon
vehicles, an annual license fee for any vehicle subject to
registration in this state in the amount of 2% of the
market value of that vehicle, as specified. The California
Constitution requires the state to allocate VLF revenues to
cities and counties.
2) Offsets the annual 2% fee by 67.5% for vehicle license
fees with a final due date on or after July 1, 2001.
3) Requires the Controller, upon receipt of monthly
notification from the Department of Motor Vehicles (DMV) of
the amount of offsets applied, to transfer GF moneys to the
Motor Vehicle License Fee (MVLF) Account in the
Transportation Tax Fund to reimburse local governments for
their revenue losses resulting from the VLF offset.
4) Requires, in the event there are insufficient moneys in
the GF for the Controller to fully reimburse local
governments for losses resulting from the vehicle license
fee offset, that the offset amount be reduced in proportion
to the shortfall in funding. This "trigger" mechanism
provides that the reduction or elimination of the GF
backfill results in an automatic adjustment to VLF
assessments that increases local government revenues by the
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amount of the offset reduction.
5) Requires the Controller to determine that an
insufficiency of funds exists in the GF prior to a request
to the StateTreasurer to issue Revenue Anticipation Notes
or prior to borrowing from special funds on behalf of the
General Cash Revolving Fund as a prerequisite to issuance
of Revenue Anticipation Warrants. Requires the Controller
to make a finding that the GF will be "exhausted" prior to
borrowing from special fund balances invested in the Pooled
Money Investment Account.
FISCAL EFFECT : The trigger clarification provisions simply
clarify existing law and therefore have no fiscal effect. For
information purposes, committee staff estimate that a "trigger
pull" eliminating the backfill payments effective July 1, 2003
would reduce GF spending by approximately $3.9 billion in fiscal
year (FY) 2003-04. VLF revenues to local governments would
increase by an equivalent amount. Fiscal effects in subsequent
years would depend on the availability of sufficient GF money to
make backfill payments.
The exemption for vehicles purchased for $5,000 or less would
reduce state VLF backfill payments (and therefore local
revenues) by approximately $80 million annually. The reduction
occurs because the offsets for the exempted vehicles would be
applied under Revenue and Taxation Code Section 10754 (d) (added
by this bill). Revenue and Taxation Code Section 11000 requires
the Controller to make GF transfers to the MVLF Account and to
the Local Revenue Fund to backfill local revenue losses due to
VLF offsets applied pursuant to Vehicle Code Section 9551.2,
which references only VLF offsets applied under existing Revenue
and Taxation Code Section 10754(a).
COMMENTS : As of December 31, 2002, the Controller reported that
the GF had outstanding cash borrowing of $12.7 billion,
consisting of $12.5 billion of revenue anticipation notes and
$151 million of internal short-term cash borrowing from special
funds. In addition, the GF owed more than $2 billion to special
funds for longer-term loans authorized by the 2002-03 Budget.
The GF is almost certain to remain in a net borrowing position
through FY 2003-04.
The Governor's 2003-04 Budget does not assume a VLF trigger
pull. Instead, the Budget calls for the elimination of the
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state's backfill payments to cities and counties (excluding
amounts for realignment and Orange County bankruptcy debt)
effective February 1, 2003. The Budget assumes General Fund
savings of $1.3 billion in FY 2002-03 and $2.9 billion in FY
2003-04 from this proposal. Local governments would not receive
any offsetting increase in VLF revenues under the Budget
proposal.
Compared with the Governor's proposal, a trigger pull effective
for backfill payments on or after July 1, 2003 would result in
$1.3 billion less savings in FY 2002-03 and $986 million of
additional savings in FY 2003-04. The total GF savings would be
about $274 million less than the Governor's proposal over the
two years without any revenue loss to local governments.
Given the massive Budget shortfall facing the state and the
current large amounts of GF borrowing, it is difficult to
imagine that the threshold for activating the VLF trigger has
not yet been reached.
The bill would go into immediate effect as a tax levy.
Analysis Prepared by : Dan Rabovsky / BUDGET / (916) 319-2099
FN: 0000085