BILL ANALYSIS Ó
AB 1098
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Date of Hearing: August 31, 2012
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
Cameron Smyth, Chair
AB 1098 (Carter) - As Amended: August 30, 2012
SUBJECT : Vehicle license fees: allocation.
SUMMARY : Reallocates vehicle license fee (VLF) revenues to
recently incorporated cities and to cities that annexed
inhabited territory.
The Senate amendments delete the Assembly version of this bill,
and instead:
1)Require the State Controller, on and after July 1, 2012, to
allocate the balance of all VLF revenues and any other money
in the Motor Vehicle License Fee Account (MVLFA) as follows:
a) To a city incorporated from an unincorporated territory
after August 5, 2004, $50 per capita for the population as
specified in i), times the growth in total VLF revenues
from the most recent fiscal year since Fiscal Year
2004-2005 (FY 04-05), divided by the growth in population
in cities in the state from the most recent fiscal year
since FY 04-05;
i) Population determined for the first 12 months, 150%
of the city's actual population, for months 13 through
24, 140% of the city's actual population, for months 25
through 36, 130% of the city's actual population, for
months 37 through 48, 120% of the city's actual
population, for months 49 through 60, 110% of the city's
actual population, after month 60, the city's actual
population; and,
b) To a city incorporated before August 5, 2004, $50 per
capita for the population residing in those newly annexed
areas at the time of annexation, times the growth in total
VLF revenues from the most recent fiscal year since FY
04-05, divided by the growth in population in cities in the
state from the most recent fiscal year since FY 04-05.
2)Require the Controller, on and after July 1, 2011, and before
July 1, 2012, to allocate VLF revenues to the Local Law
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Enforcement Services Account in the Local Revenue Fund 2011
for allocation to cities and counties for local public safety.
3)Continue to allow the Legislature to determine and appropriate
an amount for the DMV and the Franchise Tax Board (FTB) to
collect vehicle registration fees, but prohibits this amount
from being appropriated from the MVLFA in the Transportation
Tax Fund.
4)Repeal $25 million previously allocated to the DMV for VLF
registration fee collection in the FY 2011-2012.
5)Make findings and declarations related to the passage of SB 89
(Budget and Fiscal Review Committee) of the 2011-12 regular
session that removed critical revenues from specified
communities.
6)Contain an urgency clause, allowing this bill to take effect
immediately upon enactment.
EXISTING LAW :
1)Establishes VLF, which is imposed on all registered vehicles
in California based on vehicle value or price at the time of
purchase and annually thereafter.
2)Distributes specified VLF revenues to the Local Law
Enforcement Services Account in the Local Revenue Fund 2011
for allocation to cities and counties for local public safety.
3)Establishes an annual legislative appropriation to the DMV for
costs associated with collecting the VLF.
4)Defines "actual population" to mean the population determined
by the last federal decennial or special census, or a
subsequent census validated by the Demographic Research Unit
of the Department of Finance.
AS PASSED BY THE ASSEMBLY , this bill required the Department of
Insurance to make a request in writing when they ask an insurer
to disclose the fact that they denied a registered auto body
repair shop participation in their direct repair program.
FISCAL EFFECT : According to the Senate Appropriations Committee
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analysis of SB 1566 (Negrete McLeod, 2012), a bill that is
substantially similar to this bill, cites the following costs:
1)Shift of approximately $18 million in DMV administrative costs
from the MVLFA (VLF revenues) to the Motor Vehicle Account;
and,
2)Allocation of approximately $14 million to recently
incorporated cities and approximately
$4 million to cities that have annexed inhabited territory
(MVLFA).
COMMENTS :
1)Current law imposes the VLF in lieu of personal property tax
on California motor vehicles, at a rate based on the taxable
value of the vehicle. The taxable value of a vehicle is
established by the purchase price of the vehicle, depreciated
annually according to a statutory schedule. The state
collects and allocates the VLF revenues, minus administrative
costs, to cities and counties. The VLF tax rate is currently
0.65% of the value of a vehicle, but historically it was 2%.
In 1998, the Legislature cut the VLF rate from 2% to 0.65 % of
a vehicle's value. The state General Fund backfilled the lost
revenues to cities and counties.
2)As part of the 2004-05 budget agreement, the Legislature
enacted the "VLF-property tax swap," which replaced the
backfill from the state General Fund with property tax
revenues that otherwise would have gone to schools through the
Education Revenue Augmentation Fund (ERAF). The state General
Fund then backfilled schools for the lost ERAF money.
The budget agreement, however, did not provide compensating
property-tax-in-lieu-of-VLF for future new cities or for
annexations to cities where there was pre-existing
development. Additionally, the agreement deleted the
seven-year boost for future new incorporations. The result of
these provisions was to make both annexation and incorporation
problematic because of the substantial financial losses.
3)The temporary remedy to address the lack of
property-tax-in-lieu-of-VLF for annexations and incorporations
after the budget agreement on August 5, 2004, came in the form
of AB 1602 (Laird), Chapter 556, Statutes of 2006. AB 1602
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specified that a city that annexes, or an unincorporated area
that incorporates after August 5, 2004, but prior to July 1,
2009, will receive special allocations from a portion of the
remaining VLF revenues. The funding formula contained in AB
1602 incorporated an artificially inflated population factor
during the first five years for start-up costs which roughly
replicated the broad fiscal incentive for city incorporations
that existed before the VLF-property tax swap in 2004.
Similarly for annexations that had pre-existing residential
development, AB 1602 increased the per capita VLF allocation,
based on each person residing in an annexed area at the time
of annexation in addition to the allocation of VLF revenues,
to levels comparable to pre-2004 allocations. AB 1602 expired
on July 1, 2009 and gave communities five years to complete
annexations or incorporations that were initiated under the
assumption that VLF funding would be available. In 2008, SB
301 (Romero), Chapter 375, Statutes 2008, eliminated the
deadline that communities had to incorporate and eliminated
the sunset date for city annexations to receive additional
VLF.
4)SB 89 (Budget and Fiscal Review Committee), Chapter 35,
Statutes of 2011, redirected VLF revenues away from newly
incorporated cities, annexations, and diverted funds to the
Local Law Enforcement Account to help fund public safety
realignment. SB 89 also allocated $25 million to DMV in FY
2011-12 for administrative costs and increased the basic
vehicle registration fee from $31 to $43.
According to the Senate Appropriations Committee, SB 89 had
the effect of eliminating over $15 million in the MVLFA
revenues in 2011-12 from four newly incorporated cities
(Menifee, Eastvale, Wildomar, and Jurupa Valley), as well as
over $4 million from cities that have annexed inhabited areas.
5)By abruptly cutting the allocation of VLF funs to newly
incorporated cities and for inhabited city annexations, the
realignment shift in 2011 disproportionally endangered the
fiscal viability of communities that rely on VLF revenues.
For example, the City of Jurupa Valley which incorporated
within days of the passage of SB 89, the anticipated VLF
revenues represented 46% of its General Fund Budget.
Throughout the state, local governments face distressed
economies and are forced to consider funding alternatives.
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Supporters argue that these newly incorporated cities face
insolvency and possible disincorporation and cities with
inhabited annexations will be forced to make additional cuts
to public safety.
6)This bill seeks to remedy the loss of ongoing revenues to new
cities and annexations after the 2004 VLF property tax swap, a
fix that was achieved by AB 1602 (Laird). SB 89 did not
remove the formulas to calculate the VLF revenue to
incorporated or annexed cities in statute. This bill would
restore the funding allocations in AB 1602.
7)A substantially similar bill, SB 1566 (Negrete McLeod) of
2012, died in the Senate Appropriations Committee. According
to Senate Appropriations Committee, SB 1566 would have shifted
approximately $18 million in DMV administrative costs from the
MVLFA to the Motor Vehicle Account and would have allocated
approximately $14 million to recently incorporated cities and
approximately $4 million to cities that have annexed inhabited
territory.
8)Support arguments: Supporters argue that this bill restores a
critical source of funding and removes the current revenue
diversion that is a disincentive for new incorporations and
annexations of inhabited areas. Additionally, supporters
argue that the reduction in property tax in lieu of VLF for
annexation to the extent that they are already developed,
creates a substantial fiscal disincentive for existing cities
to annex urbanized islands which is inconsistent to state and
local growth and governance policies.
Opposition arguments: The California State Association of
Counties argues that "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" funding that
was promised to counties as part of 2011 Realignment.
9)The subject matter of this bill, as amended in the Senate, has
not been heard in any Assembly policy committee this
legislative session.
REGISTERED SUPPORT / OPPOSITION :
Support
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Cities of Eastvale, Fontana, Jurupa Valley, Menifee, and
Wildomar
Opposition
California State Association of Counties
Analysis Prepared by : Misa Yokoi-Shelton / L.GOV. / (916)
319-3958