BILL ANALYSIS �
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|SENATE RULES COMMITTEE | AB 701|
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THIRD READING
Bill No: AB 701
Author: Quirk-Silva (D), et al.
Amended: 9/4/13 in Senate
Vote: 21
PRIOR VOTES NOT RELEVANT
SUBJECT : General Subject: local government finance:
property tax revenue
allocation: vehicle license fee adjustments:
County of Orange.
SOURCE : Author
DIGEST : This bill increases, by $53 million, Orange County's
vehicle license fee (VLF) adjustment amount for the 2012-2013
fiscal year; deletes a statute that requires a $50 million
increase in the annual amount of ad valorem property tax revenue
that otherwise must to be allocated to Orange County; and
directs the Department of Finance (DOF) and the Chancellor of
the California Community Colleges (CCC) to work with Orange
County officials to obtain a judgment that is a final and
complete resolution to DOF v. Grimes.
Senate Floor Amendments of 9/4/13 change the bill's author,
delete the bill's contents, and insert language relating to
Orange County's VLF adjustment amount.
ANALYSIS : Existing law provides, in lieu of a property tax on
motor vehicles, the state collects an annual VLF and allocates
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the revenues, minus administrative costs, to cities and
counties. In 1998, the Legislature began cutting the VLF rate
from 2% to 0.65% of a vehicle's value. The state General Fund
backfilled the lost VLF revenues to cities and counties.
As part of the 2004-05 Budget agreement, the Legislature enacted
the "VLF-property tax swap" (SB 1096, Senate Budget and Fiscal
Review Committee, Chapter 211, Statutes of 2004) which replaced
the state General Fund backfill with property tax revenues that
otherwise would have gone to schools through the Educational
Revenue Augmentation Fund (ERAF). This replacement funding is
known as the "VLF adjustment amount." The state General Fund
backfills schools for their lost ERAF money.
This bill:
1. Deletes a statute requiring the Orange County Auditor to
increase, by $50 million, the amount of ad valorem property
tax revenue that would otherwise be allocated annually to
Orange County.
2. Requires, in the 2013-14 fiscal year only, that Orange
County's VLF adjustment amount for the prior fiscal year, as
specified in state law, must be increased by $53 million.
3. Directs the DOF and the Chancellor of the CCCs to work with
Orange County officials to obtain a judgment that is a final
and complete resolution to DOF v. Grimes in which all parties
agree not to seek appellate review.
4. Expresses legislative findings and declarations specifying
terms under which Orange County may repay specified amounts
of property tax revenue and settle other matters related to
the Orange County Superior Court's judgment in DOF v. Grimes.
Background
To help Orange County sell bonds and other indebtedness related
to its 1994 bankruptcy, the 2004-05 Budget agreement provided
the county with an exception to the VLF-property tax swap (SB
1096, Senate Budget Committee, 2004). State law allowed Orange
County to retain some VLF revenues, which were dedicated first
to repaying the County's bankruptcy debt and then as general
county revenue (AB 2115, Assembly Budget Committee, Chapter 610,
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Statutes of 2004). Orange County received a lower VLF
adjustment amount to offset the amount of VLF revenues that the
county retained.
In 2005, Orange County refinanced its bankruptcy-related debts
in a manner that no longer required the county to pledge VLF
revenues as security to bond holders.
As part of the 2011-12 Budget Plan, the Legislature enacted a
major shift-or "realignment"-of state program responsibilities
and revenues to local governments. As part of this realignment
plan the Budget redirected an estimated $453 million from the
base 0.65% VLF rate to pay for local law enforcement grant
programs (SB 89, Senate Budget and Fiscal Review Committee,
Chapter 35, Statutes of 2011). The realignment legislation
eliminated the annual share of VLF revenues that Orange County
would have received under SB 1096, which would have been
approximately $48 million in 2011-12.
In response, the Orange County Board of Supervisors directed the
County's auditor-controller to recalculate and allocate the
County's VLF adjustment amount for the 2011-12 fiscal year, and
each following year, without reducing the VLF adjustment by the
amount necessary to offset the VLF revenues that the county
received before SB 89's enactment. The recalculated VLF
adjustment amount reduced the amount of property taxes that
Orange County shifted to ERAF by approximately $75 million in
the 2011-12 and 2012-13 fiscal years. The state General Fund
backfilled schools for the reduced ERAF funding. The DOF sued
the Orange County Auditor Controller, claiming that state law
does not allow the County to recalculate the County's VLF
adjustment amount in the manner specified by the Board of
Supervisors. In May, a Superior Court judge ruled in favor of
the DOF.
In 2009, the Legislature increased Orange County's share of
property tax revenues by giving the County $35 million of
property tax revenues from the County's non-basic-aid schools in
the 2009-10 fiscal year and $50 million in each fiscal year
thereafter (SB 8 X3, Ducheny, Chapter 4, Statues of 2009 of the
Third Extraordinary Session). The state General Fund backfills
the amount shifted from the schools.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
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Local: Yes
SUPPORT : (Verified 9/5/13)
California State Association of Counties
Urban County Caucus
AB:de 9/5/13 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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