BILL ANALYSIS SB 10 Page 1 Date of Hearing: August 19, 2009 ASSEMBLY COMMITTEE ON APPROPRIATIONS Kevin De Leon, Chair SB 10 (Leno) - As Amended: July 8, 2009 Policy Committee: Revenue and Taxation Vote: 6-2 Transportation 9-5 Urgency: No State Mandated Local Program: No Reimbursable: SUMMARY This bill authorizes counties to impose a vehicle license fee upon approval of two-thirds of the board of supervisors and a majority of local voters. The bill also: 1)Specifies that the assessment rate shall be equal to the difference between the historical 2% state VLF rate and the current statewide VLF rate. This would translate into a rate of .85% in 2010 (the difference between 2% and the current statewide rate of 1.15%), and 1.35% after May 2011 (when the recently enacted 0.5% increase in the statewide rate expires.) The local rate could vary in future years depending on statewide rate increases. 2)Requires any county imposing an assessment to contract with the Department of Motor Vehicles (DMV) to collect and administer the fee and to pay DMV for its initial setup and programming costs. 3)Requires that a portion of local VLF taxes be transferred to the GF to offset state revenue losses arising from the deductibility of VLF payment on state income tax returns. The transfers would be based on estimates made by the Franchise Tax Board using information from the DMV regarding local VLF payments. 4)Becomes effective January 1, 2010, and the increases would become operative when a majority of voters in a county approve an ordinance passed by the Board of Supervisors imposing the assessment. If voter approval occurs between January 1 and SB 10 Page 2 June 30, the bill would become operative on the following January. If the approval occurs in an election between July 1 and December 31, the bill would be operative the next July 1. FISCAL EFFECT 1)Revenue Impacts . The impact of this measure depends on how many counties approve the VLF rate increase. As an illustration, if all 58 counties adopted the increase to 2% in July 2011: a) Local VLF revenues would increase $3.8 billion annually beginning in 2011-12. b) The reduction in state personal income tax liabilities (because of increased VLF itemized deductions on state income tax returns) would be about $180 million beginning in 2011-12. Under the bill, the GF would be reimbursed for the losses arising from the increased VLF deductions, but with a one year lag. Thus, the GF would experience a one-time loss of about $180 million in 2011-12, and ongoing reductions of about $10 million per year. c) If just the City and County of San Francisco (the sponsor) adopted this increase, the comparable effects would be $43 million local revenue increase and a first year GF revenue loss of $1.5 million. d) Administration costs . The DMV would incur one time costs of up to $543,000 and ongoing costs of $112,000 to administer the program. Up front costs would be reimbursed by counties implementing the local VLF increase and ongoing costs would be deducted from VLF assessments. 2)Though the measure does not preclude the state from levying a higher statewide VLF to help it address its budgetary problems, its passage would make it more difficult to do so. This is because, under the proposed funding mechanism, any increase in state fees would result in an automatic reduction in local VLF funds available to support local programs. COMMENTS 1)Background . Existing law imposes a VLF, which is in lieu of a SB 10 Page 3 personal property tax on California motor vehicles, at a rate based on the taxable value of the vehicle. Historically since 2001, the VLF rate had been 0.65% of the depreciated value of a vehicle, with the proceeds allocated to counties and used for a variety of local purposes. Vehicles registered between May 19, 2009 and June 30, 2011 are subjected to an additional 0.5% rate [ABx3 3 (Evans), Chapter 18, Statutes of 2009], for a combined rate of 1.15%. Of the 0.5% increase, 0.35% is deposited in the state GF, and the remaining 0.15% is dedicated to specific local public safety programs. After June 30, 2011, the rate is scheduled to revert to 0.65%. 2)Rationale . The proponents of this bill (the City and County of San Francisco) state that counties face serious budget deficits that threaten many vital health, welfare, and public services. This bill is intended to provide local governments and voters with an option for funding these local public services. 3)Opponents of this bill (including the Alliance of Automobile Manufacturers) object to (a) VLF increases that place the rate further above the general property tax rate of 1%, and (b) the use of higher VLF taxes for purposes unrelated to transportation. 4)Related legislation . AB 1342 (Evans), introduced in the current legislative session, authorizes counties, under specified circumstances, to adopt a local PIT, a local VLF, or both. AB 1342 is pending in the Assembly Revenue and Taxation committee. AB 1590 (Leno), introduced in the 2007-08 Legislative Session, and AB 799 (Leno), introduced in the 2005-06 Legislative Session, were similar to this bill, but applied only to the City and County of San Francisco. AB 1590 was held in Senate Revenue and Taxation, and AB 799 was vetoed by the Governor. Analysis Prepared by : Brad Williams / APPR. / (916) 319-2081