BILL ANALYSIS Ó
SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: SB 1566
SENATOR MARK DESAULNIER, CHAIRMAN AUTHOR:
negrete Mcleod
VERSION: 4/10/12
Analysis by: Carrie Cornwell FISCAL: yes
Hearing date: April 24, 2012
SUBJECT:
Vehicle license fee: allocations
DESCRIPTION:
This bill reallocates vehicle license fee (VLF) revenues to
recently incorporated cities and to cities that annexed
inhabited territory. The bill prohibits the Department of Motor
Vehicles (DMV) from receiving its VLF collection costs from the
proceeds of VLF revenues.
ANALYSIS:
Existing state law imposes the VLF, which is in lieu of a
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. DMV
collects the VLF on a vehicle annually when the owner originally
registers or renews the registration of the vehicle.
The VLF tax rate is currently 0.65 percent of the value of a
vehicle, but historically it was 2 percent of the vehicle value.
The state backfilled the loss of local revenue resulting from
dropping the VLF rate to 0.65, first from the General Fund and
later from property taxes that would otherwise have gone to
schools. Also, historically the state provided newly
incorporated cities additional VLF revenue. From 2004 until
July 1, 2011, this additional revenue came from reallocating a
portion of existing cities' VLF funds to new cities and cities
that annexed inhabited areas in order to make new incorporations
and annexations financially feasible.
Last year, SB 89 (Budget and Fiscal Review Committee), Chapter
35,
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Redirected VLF revenues away from newly incorporated
cities, annexations, and DMV administration to the Local
Law Enforcement Account to help fund public safety
realignment.
Stated that DMV's costs for collecting the VLF would
come through annual legislative appropriation and set DMV's
costs at $25 million for the 2011-12 fiscal year.
Expressed the intent of the Legislature that the DMV, in
conjunction with the Department of Finance, develop a
method and cost model to allocate DMV costs associated with
the vehicle registration fee, the collection of the VLF,
and the collection of other fees and taxes.
Increased the basic vehicle registration fee from $31 to
$43.
This bill :
1.Prohibits the payment of DMV costs for collecting the VLF from
the Motor Vehicle License Fee Account, which is the depository
of VLF revenues.
2.Changes the allocation formula of VLF revenues to newly
incorporated cities and cities that have annexed inhabited
territory, providing them with additional revenues.
COMMENTS:
1.Purpose . The author introduced this bill to restore
historical funding allocations formulas for newly-incorporated
cities and cities with recent inhabited annexations. She
argues that without these additional funds, these cities will
be forced to make additional cuts to public safety.
The revenue required to restore this funding would come from
the same fund it has historically been allocated through, the
VLF account. Proponents estimate that the restored funding
would total $18 million and state that without restoring the
funding, four newly-incorporated cities will face insolvency
and possible disincorporation.
2.Collecting taxes . This bill eliminates the VLF as a source of
funding for DMV's collection of the VLF, which while called a
fee is actually a personal property tax on vehicles. The
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governor's 2012-13 budget proposes $18.2 million in VLF
revenues for DMV. It is unclear how the bill intends for DMV
to pay for VLF collection, but most likely basic vehicle
registration fees would cover the collection costs. It seems
more appropriate that DMV collection efforts be funded from
the revenues it collects or from the entity it collects those
revenues for. For example, when DMV collects fees imposed by
local air districts, the air districts pay DMV costs
associated with collection of those fees from the resulting
revenue. This bill sets the precedent of the basic
registration fee paying the costs associated with collecting
the VLF or other fees.
3.Historical cost allocation and last year's bill . Prior to SB
89, state law required DMV to use the proportionate
benefit-proportionate cost methodology for the fee collection
activities associated with vehicle registration. Using this
methodology, DMV apportioned collection costs based on
revenues raised between three different fees:
Basic vehicle registration fees which go into the Motor
Vehicle Account (MVA);
VLF collections that flow into the Motor Vehicle License
Fee Account (MVLFA); and
Commercial vehicle weight fees that flow into the State
Highway Account (SHA).
To illustrate with an example, if the total amount of revenue
DMV collected on vehicle registrations flowed to each of the
three fund sources as follows: 70% to the MVLFA, 20% to the
MVA, and 10% to the SHA, then the funding for DMV's vehicle
registration program would be split by the same proportions.
During last year's budget process, this historical cost
allocation methodology came into question. SB 89's changes
codified the cost allocation by capping MVLFA amounts at $25
million, raising the basic registration fee - an MVA revenue -
by $12 per vehicle, and asking DMV and DOF to study the cost
allocation methodology.
The $18.2 million included in the governor's budget for
2012-13 results from the new methodology.
1.Constitutional requirements . Using the basic registration fee
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to pay DMV's costs of VLF collection may violate provisions of
the California Constitution, including Article XIX and Article
XIIIA. Neither appears to allow the basic registration fee to
be used to pay for DMVs costs to collect the VLF, as this bill
appears to do.
Article XIX limits the use of fees the state collects on motor
vehicles, including the basic registration fee, to the cost of
collection of those fees and "the state administration and
enforcement of laws regulating the use, operation, or
registration of vehicles used upon the public streets and
highways of this State, including the enforcement of traffic
and vehicle laws by state agencies and the mitigation of the
environmental effects of motor vehicle operation due to air
and sound emissions."
Article XIIIA requires a two-thirds vote of the Legislature to
impose a tax, but excepts from the definition of a tax a
"charge imposed for a specific benefit conferred or privilege
granted directly to the payor that is not provided to those
not charged, and which does not exceed the reasonable costs to
the State of conferring the benefit or granting the privilege
to the payor." The basic vehicle registration fee appears to
fall under this exception, provided that it is used to benefit
its payors and not for other purposes, such as the collection
of other revenues.
To resolve these constitutional issues, the committee may wish
to amend the bill to delete the provision prohibiting DMV from
using VLF revenues to pay its VLF collection costs (page 3,
delete lines 1-2, and insert "part.").
2.Committee of second referral . The Rules Committee referred
this bill to the Governance and Finance Committee and to the
Transportation and Housing Committee. This bill passed that
committee on April 18 by a 9 to 0 vote. The Governance and
Finance Committee's analysis and hearing of the bill dealt
primarily with the provisions of the bill related to the local
government finance provisions, leaving the DMV administrative
provisions for review in this committee.
POSITIONS: (Communicated to the committee before noon on
Wednesday, April 18,
2012)
SUPPORT: City of Fontana (sponsor)
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City of Eastvale (sponsor)
City of Jurupa Valley (sponsor)
City of Menifee (sponsor)
City of Wildomar (sponsor)
California Association of Local Agency Formation
Commissions
Town of Los Altos Hills
City of Madera
City of Oakley
City of San Ramon
City of Selma
Southwest California Legislative Council
Southwest Riverside Association of Realtors
City of Visalia
City of Vista
OPPOSED: None received.