BILL ANALYSIS Ó
AB 1098
Page 1
GOVERNOR'S VETO
AB 1098 (Carter)
As Amended August 30, 2012
2/3 vote
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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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|ASSEMBLY: |57-7 |(September 1, | | | |
| | |2012) | | | |
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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:
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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
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 Department of Motor Vehicles (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
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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
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
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(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
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
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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 funds 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. 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
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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.
GOVERNOR'S VETO MESSAGE :
"AB 1098 would reallocate vehicle license fee revenues to
recently incorporated cities that annexed inhabited territory.
"As drafted, this bill would undermine the 2011 Realignment
formulas in a manner that would jeopardize dollars for local
public safety programs, provides cities new funding beyond what
existed under previous law, and would create a hole in the
General Fund to the tune of $18 million. Given the current
fiscal uncertainties, this is not acceptable."
AB 1098
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Analysis Prepared by : Misa Yokoi-Shelton / L.GOV. / (916)
319-3958
FN: 0005921