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 








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          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.









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          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.