BILL ANALYSIS Ó
AB 1098
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Date of Hearing: August 31, 2012
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
AB 1098 (Carter) - As Amended: August 30, 2012
Policy Committee: Local
GovernmentVote: 7-0
Urgency: Yes State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill reallocates vehicle license fee (VLF) revenues to
recently incorporated cities and to cities that annexed
inhabited territory. Specifically, this bill:
1)Requires the State Controller, effective July 1, 2012, to
allocate VLF revenues and specified funds in the Motor Vehicle
License Fee Account (MVLFA), to newly incorporated cities and
cities that have annexed territory and to the Local Law
Enforcement Services Account in the Local Revenue Fund 2011,
for local public safety
2)Continues 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.
3)Repeals $25 million appropriated to DMV from the MVLFA for VLF
registration fee collection in the FY 2011-2012.
4)Contains an urgency clause.
FISCAL EFFECT
1)Shift of approximately $18 million in DMV administrative costs
from the MVLF Account to the Motor Vehicle Account.
2)Shift of approximately $6 million in FTB administrative costs
from the MVLF Account, which would shift the burden to the
General Fund.
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3)Allocations of approximately $14 million to recently
incorporated cities and approximately $4 million to cities
that have annexed inhabited territory (MVLF Account).
4)Increase of approximately $6 million of revenues for
realignment in the short term. Eventual growth in the
allocation to incorporated and annexing cities will lead to
reduced revenues for realignment.
COMMENTS
1)Purpose . According to the author, AB 1098 restores a portion
of VLF revenue to four newly incorporated cities and
approximately 100 cities that recently annexed inhabited
territories and lost a disproportionate share of their VLF
revenue under SB 89 (see background). For example, the City
of Jurupa Valley, which incorporated within days of the
passage of SB 89, the anticipated VLF revenues represent 46%
of its General Fund Budget. The author also argues this bill
merely restores funding that local governments would have
received under AB 1602 (see background).
2)Support . Supporters, including the affected cities, contend
this bill restores a critical source of funding and removes
the current revenue diversion. Additionally, supporters argue
the reduction of VLF for annexation creates a substantial
fiscal disincentive for existing cities to annex urbanized
islands which is inconsistent with state and local growth and
governance policies.
The California Police Chiefs Association argues the decisions
made in the 2011 budget had the unintended consequence of
severely undermining front line law enforcement in newly
incorporated cities and those cities that had recently annexed
inhabited land.
3)Background . 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 state collects and
allocates the VLF revenues, minus administrative costs, to
cities and counties. In 1998, the VLF rate was reduced and
the state General Fund backfilled the lost revenues to cities
and counties.
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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, making future annexations 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, as specified, will receive special
allocations from a portion of the remaining VLF revenues.
4)Related legislation . A substantially similar bill, SB 1566
(Negrete McLeod) of 2012, was held on the Senate
Appropriations Committee Suspense File this year.
5)Previous legislation . 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.
This action eliminated over $15 million in MVLFA revenues in
2011-12 from four newly incorporated cities (Menifee,
Eastvale, Wildomar, and Jurupa Valley), as well as over $4
million from cities (Chico, San Ramon, Santa Clarita,
Temecula, Fontana, San Jose, Porterville, Tulare and Visalia)
that have annexed inhabited areas.
6)Opposition . The California State Association of Counties
(CSAC) argues the amount of money that will be transferred to
newly incorporated cities and cities with recent inhabited
annexations will eventually interfere with the realignment
appropriation to counties funding that was promised as part of
2011 realignment. They note that if a large incorporation
were to occur, such as the unincorporated area of East Los
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Angeles, this bill could result in significantly less revenue
for counties. CSAC also states that under realignment,
counties take on the considerable risk that these funding
sources will be sufficient to fund the realigned services, and
that in return the shift in funding sources will be permanent
and uninterrupted. AB 1098 alters this agreement. CSAC
concludes that counties are already concerned the revenue for
realignment will be insufficient and that this bill further
jeopardizes realignment stability.
7)History . This bill left the Assembly dealing with insurance.
The current provisions were put into the bill Thursday.
Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081