BILL ANALYSIS Ó
AB 1098
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( Without Reference to File )
CONCURRENCE IN SENATE AMENDMENTS
AB 1098 (Carter)
As Amended August 30, 2012
2/3 vote. Urgency
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|ASSEMBLY: | |(May 26, 2011) |SENATE: |35-0 |(August 31, |
| | | | | |2012) |
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(vote not relevant)
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|COMMITTEE VOTE: |7-0 |(August 31, 2012) |RECOMMENDATION: |concur |
|(L. GOV.) | | | | |
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|COMMITTEE VOTE: |11-3 |(August 31, 2012) |RECOMMENDATION: |concur |
|(APPR.) | | | | |
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Original Committee Reference: INS.
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;
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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
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.
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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
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 : 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.
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
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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.
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 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.
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.
By abruptly cutting the allocation of VLF funs to newly
incorporated cities and for inhabited city annexations, the
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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. 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.
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.
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.
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.
Analysis Prepared by : Misa Yokoi-Shelton / L.GOV. / (916)
AB 1098
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319-3958
FN: 0005903