BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 1098|
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THIRD READING
Bill No: AB 1098
Author: Carter (D), et al.
Amended: 8/30/12 in Senate
Vote: 27 - Urgency
PRIOR VOTES NOT RELEVANT
SUBJECT : Vehicle license fees: allocation
SOURCE : Author
DIGEST : This bill reallocates vehicle license fee (VLF)
revenues to recently incorporated cities and to cities that
annexed inhabited territory. This bill prohibits the
Department of Motor Vehicles (DMV) from receiving its VLF
collection costs from the proceeds of VLF revenues.
NOTE: This bill is identical to SB 1566 (Negrete McLeod)
which was held on the Senate Appropriations Suspense
File.
ANALYSIS : In lieu of a property tax on motor vehicles,
the state collects an annual VLF and allocates the
revenues, minus administrative costs, to cities and
counties. In 1998, the Legislature began cutting the VLF
rate from two percent to 0.65% of a vehicle's value. The
State General Fund backfilled the lost VLF revenues to
cities and counties. As part of the 2004-05 Budget
agreement, the Legislature enacted the "VLF-property tax
swap," which replaced the backfill from the State General
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Fund with property tax revenues that otherwise would have
gone to schools through the Educational Revenue
Augmentation Fund (ERAF). In turn, the State General Fund
backfills schools for their lost ERAF money.
Previously, for the first seven years after incorporation,
new cities received VLF funds under a formula that
calculated their population as three times the number of
the city's registered voters. That formula deliberately
overstated a new city's population, resulting in a higher
share of VLF funds. The VLF-property tax swap eliminated
the VLF bump for newly incorporated cities and cities that
annex inhabited areas. Advocates for cities asked the
Legislature to reallocate a portion of existing cities'
remaining VLF funds to new cities and to cities that annex
inhabited areas to help make new city incorporations and
city annexations financially feasible. In response, the
Legislature passed AB 1602 (Laird), Chapter 556, Statues of
2006, which changed the allocation of VLF funds to cities
in three ways:
For cities that incorporated between August 5, 2004 and
July 1, 2009, AB 1602 allocates an additional $50 per
capita that is adjusted over time to reflect changes in
total VLF revenues relative to changes in the total
population of all cities.
For cities that incorporated between August 5, 2004 and
July 1, 2009, those cities' shares of VLF funds and
revenues from specified state fuel taxes are allocated
according to a formula that increases a new city's actual
population by 50% in its first year after incorporation,
40 percent in the second year, 30% in the third year, 20%
in the fourth year, and 10% in the fifth year. After
five years, cities receive VLF funding and fuel tax
revenues in proportion to their actual populations.
For cities that incorporated before August 5, 2004, which
annex new areas, AB 1602 allocated an additional $50 per
capita for the population in those newly annexed areas at
the time of annexation. This per capita amount is
adjusted over time to reflect changes in total VLF
revenues relative to changes in the total population of
all cities.
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Last year, Governor Brown's Realignment Proposal shifted
several state pro-grams and commensurate revenues to local
governments. The Legislature passed SB 89 (Senate Budget
and Fiscal Review Committee), Chapter 35, Statutes of 2011,
which recalculates the DMV's administration fund to $25
million and increased vehicle license registration by $12
per vehicle to offset DMV's cut budget. SB 89 also
eliminates the $153 million in VLF revenues allocated to
cities and shifted those revenues to fund public safety
realignment.
VLF Revenues . This bill changes the allocation of the VLF
to cities in three ways. On and after July 2012, this bill
requires the State Controller to allocate the balance of
all motor VLFs and other monies in the Motor Vehicle
License Fee (MVLF) Account, in the following manner:
I. For a city that incorporated from an unincorporated
territory after August 5, 2004:
An additional $50 per capita that is adjusted
over time to reflect changes in total VLF revenues
relative to changes in the total population of all
cities.
Its share of VLF funds and revenues from
specified state fuel taxes that are allocated
according to a formula that increases a new city's
actual population by 50% in its first year after
incorporation, 40 percent in the second year, 30% in
the third year, 20% in the fourth year, and 10% in
the fifth year. After five years, cities receive VLF
funding and fuel tax revenues in proportion to their
actual populations.
II.For a city that incorporated before August 5, 2004,
which annexed new areas:
An additional $50 per capita for the population
in those newly annexed areas at the time of
annexation. This per capita amount is adjusted over
time to reflect changes in total VLF revenues
relative to changes in the total population of all
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cities.
Its share of VLF funds and revenues from
specified state fuel taxes that are allocated
according to a formula that increases a new city's
actual population by 50% in its first year after
incorporation, 40 percent in the second year, 30% in
the third year, 20% in the fourth year, and 10% in
the fifth year. After five years, cities receive VLF
funding and fuel tax revenues in proportion to their
actual populations.
III.This bill requires the Controller to allocate the
balance of all motor VLFs and other monies in the MVLF
Account on and after July 1, 2011 and before July 1,
2012, to the Local Law Enforcement Services Account in
the Local Revenue Fund 2011 for allocation to cities,
counties, and cities and counties.
Department of Motor Vehicles . This bill repeals the DMV's
$25 million administrative budget for VLF registration fee
collection and allows the Legislature to annually determine
and appropriate an amount for the DMV and the Franchise Tax
Board to collect vehicle registration fees and other fees.
This bill prohibits the amount from being appropriated from
the MVLF Account in the Transportation Tax Fund.
Findings and declarations . This bill makes several
findings and declarations to support its purpose.
Comments
This bill restores a portion of lost VLF revenues to four
newly incorporated cities -- Menifee, Eastvale, Wildomar,
and Jurupa Valley -- and cities that recently annexed
inhabited territories, like Fontana and Santa Clarita.
When SB 89 shifted VLF funds to support local public safety
realignment, it diverted $153 million from local
governments. $14 million would have been allocated to the
four nearly incorporated cities in Riverside County and $4
million to cities that recently annexed inhabited areas.
Specifically, Wildomar lost $2 million, Eastvale lost $3
million, Menifee lost $3.8 million, and Jurupa Valley lost
$6.5 million. Coupled with redevelopment agencies'
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elimination, receiving zero VLF revenues obliterates local
coffers -- leaving recently incorporated cities few fiscal
options. This bill restores necessary, and promised,
funding to keep newly-incorporated cities and cities that
annexed inhabited areas from facing severe fisal challenge.
Communities throughout California stand to benefit from the
new annexations and incorporations that will be facilitated
by this bill's restoration of the VLF funding.
FISCAL EFFECT : Appropriation: Yes Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee:
Shift of approximately $18 million in DMV
administrative costs from the MVLF Account to the Motor
Vehicle Account.
Shift of approximately $5.6 million in Franchise Tax
Board administrative costs from the MVLF Account to the
General Fund.
Allocations of approximately $14 million to recently
incorporated cities and approximately $4 million to
cities that have annexed inhabited territory (MVLF
Account).
Revenue gain of approximately $5.6 million to the Local
Law Enforcement Services Account for realignment
purposes.
SUPPORT : (Verified 8/31/12)
Cities of Fontana, Eastvale, Jurupa Valley, Menifee, and
Wildomar
NOTE: Below is the support for SB 1566 as listed in the
Senate Governance and Finance Committee analysis as
heard 4/18/12.
California Professional Firefighters
California Association of Local Agency Formation
Commissions
Cities of: Madera, San Ramon, Vista, and Visalia
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Town of Los Altos Hills
Riverside County Sheriff
Riverside Sheriff's Association
Southwest California Legislative Council
Southwest Riverside County Association of Realtors
OPPOSITION : (Verified 8/31/12)
California State Association of Counties
ARGUMENTS IN SUPPORT : The cities of Fontana, Eastvale,
Jurupa Valley, Menifee and Wildomar state in support:
Since the passage of AB 1602, the residents of Eastvale,
Jurupa Valley, Menifee and Wildomar voted to become
cities, likewise the cities of Fontana, Santa Clarita
and San Ramon annexed inhabited areas.
As part of last year's Budget, SB 89 ÝSection 9 of SB 89
(Chapter 35, statutes of 2011)] shifted $137 million
from local government's MVLF revenues to public safety.
$14 million, of which, would have been allocated to the
4 newly incorporated cities in Riverside County and $4
million from the cities that recently annexed inhabited
areas.
While we very much appreciate SB 89's intent to protect
public safety, unfortunately, it had a disproportionate
impact on newly incorporated cities and cities with
recent annexations. Consequently, these communities
have been forced to make public safety cuts and consider
disincorporation.
For these reasons, we respectfully request you support
AB 1098 in order to restore this critical source of
funding.
ARGUMENTS IN OPPOSITION : California State Association of
Counties states in opposition:
The explicit understanding of 2011 Realignment is that
counties take on the considerable risk that these
funding sources will be sufficient to fund the realigned
services, and in return the shift in funding sources
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will be permanent and uninterrupted. AB 1098 would
alter this agreement. It does so in two ways.
First, under the bill's provisions, the amount of money
transferred to newly incorporated cities and cities with
recent inhabited annexations will eventually interfere
with the realignment appropriation to counties. The
bill removes DMV's appropriation of $25 million from the
Motor Vehicle License Fee Account, but at some point in
the future the calculation will grant these cities more
than that amount, thus directly reducing realignment
funding.
Second, AB 1098 would grant these cities, as well as any
future new cities and cities that annex territory
permanent funding out of VLF. Prior to realignment, all
cities received a share of VLF revenues based on their
population. New cities received a greater share of VLF
that stepped down over five years to the amount that all
other cities received. This bill would give new cities
both the startup amount and the ongoing amount,
guaranteeing that over time the amount appropriated
would take away money guaranteed to public safety
realignment.
Counties are already nervous that the revenue for
realignment will be insufficient to its purposes. To
put this promised money in jeopardy,
especially in the early stages of its implementation, is
a cause of great concern, and for the reasons state
above, CSAC must oppose AB 1098.
JJA:k 8/31/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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