BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Christine Kehoe, Chair SB 1492 (Leno) - Vehicle license fee: San Francisco assessment Amended: April 9, 2012 Policy Vote: G&F 6-3, T&H 6-3 Urgency: No Mandate: No Hearing Date: May 24, 2012 Consultant: Mark McKenzie SUSPENSE FILE. Bill Summary: SB 1492 would authorize the City and County of San Francisco to impose a voter-approved local assessment on the value of motor vehicles registered within its jurisdiction at a rate that is equal to the difference between the statewide rate of the vehicle license fee (VLF) and 2% of a vehicle's market value. Fiscal Impact: One-time Department of Motor Vehicles (DMV) programming costs of $115,000, paid in advance by San Francisco. Ongoing DMV administrative costs of $112,000 would be deducted from assessments collected. Income tax revenue losses of $2.7 million in 2014-15, $1.6 million in 2015-16, and $200,000 in 2016-17. These losses are a result of taxpayers deducting the increased VLF amounts on income tax returns. Ongoing income tax losses are reimbursed from fees collected, but there would be a one-year delay between the tax year in which the VLF deduction is claimed and reimbursement to the General Fund from fee revenues, as provided in the bill. Potential annual revenue gains of up to $128 million for the City and County of San Francisco, assuming the maximum local rate of 1.35% is imposed. Background: Existing law imposes an annual vehicle license fee (in lieu of a personal property tax) on all motor vehicles not otherwise exempt. The VLF is calculated by multiplying the depreciated value of the vehicle by a specified rate. Although the current rate is 0.65 %, the rate had historically been 2% of a vehicle's value up until 2004. The rate was temporarily set at 1.15% from May 19, 2009 until July 1, 2011 as a result of AB SB 1492 (Leno) Page 1 3X 3 (Evans) 2009. There were approximately 466,448 fee paid vehicles registered in San Francisco in 2011. According to historical data from the State Controller's Office, approximately 2.7% of the statewide VLF revenues are derived from San Francisco, and the Department of Finance estimates that the total value of registered vehicles statewide is $352 billion. Proposed Law: SB 1492 would authorize the City and County of San Francisco, upon approval by a 2/3 vote of the board of supervisors and a majority of the electorate, to impose an assessment on the value of motor vehicles registered in the county. This local assessment rate would be equal to the difference between 2% of a vehicle's value and the rate levied by the state, and revenues collected would be for general purposes. San Francisco would be required to contract with DMV to collect and administer the fee. The bill would require San Francisco to pay DMV for initial setup and programming costs, and DMV would recover any ongoing administrative costs from assessment revenues collected. An assessment approved by voters between January 1 and June 30 would be operative the following January 1, and those approved between July 1 and December 31 would be operative the following July. Related Legislation: SB 223 (Leno), an identical bill to this measure, was vetoed by Governor Brown last year. The veto message included the following statement: Before we embark on a piecemeal approach for one city, we should try to fashion a broader revenue solution to our state's fiscal crisis. In addition to last year's bill, the author has authored the following substantially similar bills that would have authorized a locally-approved vehicle assessment: SB 10 (Leno) 2009 died on the Assembly Floor; AB 1590 (Leno) 2007 was held in the Senate Revenue and Taxation Committee; AB 799 (Leno) 2005 was vetoed by Governor Schwarzenegger, who viewed the bill as an unfair burden on motorists; AB 1187 (Leno) 2004 failed passage in the Senate Appropriations Committee. Another similar bill, AB 1208 (Yee) 2005, was vetoed by Governor Schwarzenegger, who indicated he believed fees should only be added with voter approval. SB 1492 (Leno) Page 2 Staff Comments: Existing law provides that the VLF, which is effectively a property tax on vehicles, is deductible for both the state and federal income tax purposes. SB 1492 would require DMV and the Franchise Tax Board (FTB) to develop a reporting process that enables the department to provide timely data to FTB indicating the amount of assessments paid in each participating county. By January 1 of the second year following the initial imposition of the assessment, FTB would estimate the increased amount of tax revenue loss due to deductibility of this additional assessment for state purposes. The estimated state revenue loss for the prior year would be deducted by DMV from the amount of fee revenue collected and deposited in the General Fund. FTB estimates a tax revenue loss as a result of increased VLF tax deductions of approximately $2.7 million in 2014-15, $1.6 million in 2015-16, and $200,000 in 2016-17. Deductions claimed in a fiscal year would be reimbursed to the General Fund from revenues collected by DMV in the next fiscal year. For purposes of this estimate, FTB assumes San Francisco would begin imposing the assessment at the maximum 2% rate on July 1 2014, resulting in deductions being claimed on 2014 tax returns that are filed in 2015. DMV would be required to administer the collection and distribution of the fees on behalf of San Francisco. Initial costs for programming the new fee into DMV's processing system would be $115,231, with ongoing administrative costs that include discount fees paid to credit card companies of $112,362 during the implementation year (half year costs) and $224,725 in subsequent years. Initial costs would be paid up front by San Francisco through a direct contract with DMV. Ongoing administrative costs to DMV would be deducted from fees collected prior to distribution to San Francisco.