BILL ANALYSIS                                                                                                                                                                                                    


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                              UNFINISHED BUSINESS

          Bill No:  SB 89
          Author:   Senate Budget and Fiscal Review Committee
          Amended:  6/27/11
          Vote:     21


           SUBJECT  :    Budget Act of 2011:  Vehicle License Fee and 

           SOURCE  :     Author

           DIGEST  :    This bill recalculates the cost shares for 
          Department of Motor Vehicles (DMV) administration funded 
          from different fees and taxes collected on vehicles, and 
          additionally directs existing local government revenue from 
          the vehicle license fee (VLF) to support local public 
          safety realignment.  For DMV, the administrative costs paid 
          by the VLF tax will be reduced, and the administrative 
          costs paid from vehicle registration fees will be 
          increased.  As a result, the amount of VLF directed to 
          local governments will increase by $300 million to support 
          public safety realignment.  Vehicle registration fees will 
          be increased by $12 per vehicle to cover the new cost share 
          from registration fees.  Shifted local VLF funds will 
          provide another $153 million for public safety realignment 
          - for a total of $453 million.  

           Assembly Amendments  delete the prior version of the bill 


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          and insert statutory changes in the area of vehicle fees 
          and tax collection in order to enact revisions to the 2011 
          Budget Act related to public safety realignment.

           ANALYSIS  :    

           Existing Law
          1. Under current law, the VLF rate will fall from 1.15 
             percent of a vehicle's assessed value to 0.65 percent of 
             the vehicle's assessed value on July 1, 2011.  Section 
             15 of Article XI of the California Constitution 
             specifies that revenue received from the 0.65 VLF rate 
             be expended as follows:  (1) the cost of collection at 
             the DMV and the Franchise Tax Board, (2) allocated to 
             cities and counties for 1991 realignment, and (3) to 
             cities and counties as specified in statute.  

          2. Current law assigns cost shares for DMV's administrative 
             costs based on the proportional amount of revenue 
             collected from different fees and taxes.  However, the 
             cost share for the VLF is set in statute at what the tax 
             revenue would otherwise be if the rate was still set at 
             two percent of a vehicle's value.  Instead, the 
             permanent base rate for the VLF is now set at 0.65 
          3. The base rate for the vehicle registration fee is $31 
             annually per vehicle.  The rate has not been increased 
             since 2004.  Other fees are applied on top of the base 
             rate, for the Department of the California Highway 
             Patrol and other purposes.

          4. The California Constitution specifies in Section 3 of 
             Article XIIIA that a charge imposed for the reasonable 
             regulatory costs to the state incident to issuing 
             licenses and permits and the administrative enforcement 
             and adjudication thereof are defined as fees and not 

          5. SB 94 (Senate Budget and Fiscal Review Committee), 
             Chapter 21, Statutes of 2011, permits the Administration 
             to delay the mailing of vehicle registration notices 
             while the levels of related fees and taxes are 



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             determined for the 2011-12 budget.  

          This bill:

          1. Sets the cost share of the VLF for DMV administration at 
             $25 million in 2011-12 and directs the Department of 
             Finance to work with the DMV to update the methodology 
             for allocating costs.  By reducing the share of 
             administrative costs paid out of the VLF, this bill 
             results in an additional $300 million in VLF revenue to 
             allocate to cities and counties.  This bill directs this 
             $300 million into the Local Law Enforcement Services 
             Account in the Local Revenue Fund 2011 to be used for 
             Public Safety Realignment.

          2. Increases the base motor vehicle registration fee by $12 
             per year.  This fee increase will result in new annual 
             fee revenue of about $300 million to cover the 
             administration costs of the DMV that this bill is 
             shifting to registration fees.

          3. Clarifies that fee and tax payment on vehicles with a 
             due date prior to July 1, 2011, shall be attributed to 
             the 2010-11 fiscal year and allocated accordingly - even 
             if the revenue is collected on or after July 1, 2011.  
             This clarification is related to SB 94 (Senate Budget 
             and Fiscal Review Committee) that delayed DMV billing 
             for vehicle registration in May and June of 2011.

          4. Shifts the portion of the 0.65 rate VLF that is 
             allocated for general local government purposes, to the 
             specific purpose of 2011 public-safety realignment.  
             These changes provide a total of $153 million for 


          AB 22X1 (Blumenfield), was adopted by both houses of the 
          Legislature on June 15, 2011, but has not been sent to the 
          Governor as of June 27.  
          AB 22X1 includes some similar provisions as this bill 
          related to the VLF used for DMV administration.  It is 
          assumed AB 22X1 will not be enacted into law, and this bill 
          will be the implementing legislation for changes in this 



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          This bill provides a total of approximately $453 million 
          for public safety realignment.  Other trailer bills in this 
          budget package provide additional revenue and provide for 
          the allocation of public-safety realignment revenues.  

          By setting the administrative costs for DMV of collecting 
          the VLF at $25 million, the costs or collection as a share 
          of total VLF tax collected is approximately one percent.  
          This is proportionally similar to the cost of collection 
          for the Franchise Tax Board for the personal income tax and 
          the corporate tax, and similar to the cost of collection 
          for the Board of Equalization for the sales tax.

          Of the VLF revenue currently allocated to local governments 
          for general purposes, a portion is directed to Orange 
          County as relief for that county's financial crisis of the 
          mid-1990s, and the remainder is allocated to cities.

           FISCAL EFFECT  :    Appropriation:  Yes   Fiscal Com.:  Yes   
          Local:  No

          DLW:do  6/28/11   Senate Floor Analyses 


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