BILL ANALYSIS                                                                                                                                                                                                    



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       SENATE THIRD READING
       SB 89 (Budget and Fiscal Review Committee)
       As Amended  June 28, 2011
       Majority vote.  Budget Bill Appropriation Takes Effect Immediately

        SENATE VOTE  :Vote not relevant  
        
       SUMMARY:   Makes various changes with respect to the motor vehicle 
       license fee revenue allocation and cost-sharing of Department of Motor 
       Vehicles' administrative expenses.  Provisions of the bill are 
       necessary to implement the 2011-12 Budget Act.  Specifically,  this 
       bill:  

       1)Clarifies the allocation of revenues derived from the vehicle 
         license fee (VLF) collected on vehicles through June 30, 2011, and 
         the period beginning after this date, by affirming that revenues 
         derived from the VLF for initial or renewal registrations due on or 
         after May 19, 2009 and before July 1, 2011 are attributable to the 
         2010-11 fiscal year.  Provides a technical adjustment to recalculate 
         the amount of the VLF allocated in 2010-11 to the existing Local 
         Revenue Fund.

       2)Adjusts the cost-sharing methodology used by the Department of Motor 
         Vehicles (DMV) for purposes of allocating various administrative 
         expenses.  Specifically:

          a)   Sets the cost share of the VLF for DMV administrative expenses 
            at $25 million in 2011-12, with future amounts for administrative 
            costs determined annually by the Legislature;

          b)   Provides intent language specifying that the Department of 
            Finance (DOF) and DMV are to develop a cost allocation model for 
            the purposes of allocating costs of the DMV's various activities 
            and submit this model to the Legislature for consideration; and, 

          c)   Increases the amount of the vehicle registration fee (VRF) by 
            $12, from $31 to $43, beginning July 1, 2011, reflecting adjusted 
            cost-sharing and specifying that amounts raised are used for 
            costs incurred in registration and regulation activities.

       3)Directs that specified VLF revenues collected after July 1, 2011 be 
         distributed to the Local Law Enforcement Services Account in the 
         Local Revenue Fund 2011 (established by Government Code Section 
         30025) for allocation to cities, counties and cities and counties 








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         for local public safety.

       4)Adds an appropriation allowing this bill to take effect immediately 
         upon enactment.

        FISCAL EFFECT  :  The measure will result in additional resources for 
       realignment purposes of $453 million, comprising $300 million from 
       adjusting the cost allocation methodology with respect to DMV 
       administrative costs and $153 million from directing certain VLF 
       revenues to the Local Revenue Fund 2011.

        COMMENTS  :

       1)DMV collects fees annually from the owners of motor vehicles that 
         support the operation of the DMV and the California Highway Patrol, 
         among other departments.  As part of the VRF collection, the DMV 
         also collects the VLF, which is an in-lieu local property tax based 
         on the value of the vehicle. The VLF rate was set at 2.0% of a 
         vehicle's value for a 50-year period ending in 1998.  The VLF rate 
         was reduced over time to a new base rate of 0.65%, and the state has 
         essentially "backfilled" the associated revenue loss to local 
         governments through a shift in property taxes.

         As part of the 2009-10 Budget, the VLF increased by 0.50%, from 
         0.65% to 1.15% (except for certain commercial vehicles). The 
         increase extended from May 19, 2009 to June 30, 2011.  Revenues from 
         0.35% of the increase went to the General Fund with revenues from 
         the remaining 0.15% of the increase directed to the newly created 
         Local Safety and Protection Account.  The Governor's January Budget 
         proposed to maintain the current 1.15% VLF rate for an additional 
         five-year period to support his state-local realignment proposal.  
         This budget proposal was adopted by the Budget Conference Committee, 
         but was not approved by the full Legislature.

         As part of the spring process, SB 94 (Budget and Fiscal Review 
         Committee), Chapter 21, Statutes of 2011 was adopted to provide DMV 
         additional administrative flexibility as the budget was deliberated 
         and the VLF rate was established.  Among other provisions, SB 94 
         relaxed the DMV requirement to bill vehicle owners at least 60-days 
         in advance of the payment and registration due date.  This provided 
         a delay, which together with other administrative flexibilities, 
         allowed DMV to avoid potentially erroneous billing, multiple 
         billing, or other confusion.  However, because of these delays, 
         there is now a need to add clarity regarding the appropriate 








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         distribution of revenues received on or after July 1, 2011.  Thus, 
         the bill clarifies that the fees billed prior to July 1, 2011 are 
         attributable to that period and directed to those designated 
         purposes.

       2)Support for DMV administrative costs are funded from different fees 
         and taxes collected on vehicles, including the VLF and VRF.  
         Currently, DMV administrative costs are over-attributed to the VLF 
         because its share is based on the higher VLF rate that was formerly 
         in effect.  Under the proposal, administrative costs paid by the VLF 
         would be reduced, and the administrative costs paid from other fees 
         would be increased, as indicated above.  By setting the 
         administrative costs for DMV of collecting the VLF at $25 million, 
         the costs of collection as a share of total VLF collected would be 
         roughly 1%. 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.

         If DOF finds in the future, through a cost sharing model developed 
         with DMV, that the amount provided from the VLF is not sufficient to 
         cover the DMV's costs of collecting the VLF, it would notify the 
         Legislature and propose the necessary budget adjustments. By 
         reducing the share of administrative costs paid out of the VLF, this 
         bill would result in an additional $300 million in VLF revenue to 
         allocate to cities and counties. The bill directs this $300 million 
         into the Local Revenue Fund 2011 to be used for public safety. As a 
         result, the amount of VLF directed to local governments would 
         increase by $300 million to support public safety realignment.

       3)Under current law, the 0.65% VLF is allocated to:  i) Local Revenue 
         Fund; ii) Orange County for the payment of indebtedness (the bonds 
         for which these revenues were pledged have been pre-refunded); and, 
         iii) cities, counties and cities and counties. This bill will 
         instead allocate specified revenues (excluding revenues allocated to 
         the Local Revenue Fund and to certain other purposes) to the Local 
         Law Enforcement Services Account within the Local Revenue Fund 2011.

       Analysis Prepared by  :   Mark Ibele / BUDGET / (916) 319-2099


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