BILL ANALYSIS �
AB 701
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 701 (Quirk-Silva)
As Amended September 4, 2013
Majority vote
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|ASSEMBLY: | |(April 22, |SENATE: |37-0 |(September 11, 2013) |
| | |2013) | | | |
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(vote not relevant)
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|COMMITTEE VOTE: |9-0 |(September 11, |RECOMMENDATION: |concur |
|(L. GOV.) | |2013) | | |
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Original Committee Reference: J., E.D., & E.
SUMMARY : Increases the vehicle license fee (VLF) adjustment amount
for Orange County by $53 million and repeals a statute that
requires a $50 million increase in the annual amount of ad valorem
property tax allocated to Orange County.
The Senate amendments delete the Assembly version of this bill, and
instead:
1)Increase, for the 2013-14 fiscal year (FY), the VLF adjustment
amount for Orange County by $53 million, and increase for the FY
2014-15 and each fiscal year thereafter, the VLF adjustment
amount for Orange County based on a prior fiscal year amount that
reflects the full amount of this one-time increase of $53
million.
2)Repeal a statute that requires an increase of $50 million in the
amount of ad valorem property tax revenue that would otherwise be
allocated annually to Orange County.
3)State that the Legislature directs the Department of Finance and
the Chancellor of the California Community Colleges to work with
Orange County, the Orange County Auditor-Controller, and the
intervenors in obtaining a judgment that is a final and complete
resolution to Department of Finance v. Grimes in which all
parties agree not to seek appellate review.
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4)Make findings and declarations that an appropriate resolution
would be for the County of Orange to repay the amount owed
pursuant to the Department of Finance v. Grimes as follows:
a) $5 million in FY 2014-15;
b) $15 million in FY 2015-16;
c) $25 million in FY 2016-17;
d) $50 million in FY 2017-18; and,
e) $55 million in FY 2018-19.
5)Make findings and declarations that a special law is necessary
because of the unique fiscal pressures being encountered by
Orange County due to the decrease in the County's allocation of
VLF revenues as a result of Chapter 35 of the Statutes of 2011.
6)Provide that if the Commission on State Mandates determines that
this bill contains costs mandated by the state, reimbursement to
local agencies and school districts for those costs shall be made
pursuant to current law governing state mandated local costs.
EXISTING LAW :
1)Establishes VLF, which is imposed on all registered vehicles in
California based on vehicle value or price at the time of
purchase and annually thereafter.
2)Requires, beginning with FY 2004-05, county auditors to reduce
the total amount of ad valorem property tax revenue that is
otherwise required to be allocated to a county's Educational
Revenue Augmentation Fund (ERAF) by the countywide VLF adjustment
amount.
AS PASSED BY THE ASSEMBLY , this bill authorized the California
Infrastructure and Economic Development Bank to serve as the
primary state agency for applying to any federal infrastructure
bank or financing authority. Further, this bill expanded the
membership of the board of directors from five to seven members and
specifies that legislative members will be nonvoting members.
FISCAL EFFECT : According to the Senate Appropriations Committee,
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this bill would result in a net General Fund loss of $3 million in
2013-14. The impact would grow annually each year by the growth in
property tax revenues in Orange County.
COMMENTS : The VLF is a tax on the ownership of a registered
vehicle in place of taxing vehicles as personal property. Prior to
1935 vehicles in California were subject to property tax, but the
Legislature decided to create a state-wide system of vehicle
taxation. The taxable value of a vehicle is established by the
purchase price of the vehicle, depreciated annually according to a
statutory schedule. Prior to recent budget actions, the state
collected and allocated the VLF revenues, minus administrative
costs, to cities and counties. The VLF tax rate is currently 0.65%
of the value of a vehicle, but historically (from 1948-2004) it was
2%. In 1998, the Legislature cut the VLF rate from 2% to 0.65 % of
a vehicle's value. The state General Fund backfilled the lost
revenues to cities and counties with revenues equivalent to the
full 2% VLF tax rate.
As part of the 2004-05 Budget agreement, the Legislature enacted
the "VLF-property tax swap," which replaced the backfill from the
state General Fund with property tax revenues, this replacement
funding is known as the "VLF adjustment amount." The property tax
revenues would have otherwise gone to schools through ERAF. The
state General Fund then backfilled schools for the lost ERAF money.
The 2004-05 budget agreement also included an exemption for Orange
County (County) from the VLF-property tax swap because a portion of
the County's VLF allocation was pledged to bonded debt related to
the County's bankruptcy proceeding that took place in 1996. The
Legislature allocated $54 million to Orange County annually (plus
growth) to first repay the bankruptcy debt and then as general fund
revenue. The State Controller intercepted approximately $54
million to directly repay the bankruptcy debt until 2005 when
Orange County refinanced its bankruptcy debts and no longer needed
the VLF revenue to pledge to bond holders. In calculating the
County's VLF-Property Tax Swap in 2004, the County's property tax
in lieu of VLF was reduced by $54 million, which was the amount
intercepted by the state to support the County's bankruptcy debt
payment. In other words, Orange County received a lower VLF
adjustment amount to offset the amount of VLF revenues that the
County retained.
As part of the FY 2011-12 Budget agreement, SB 89 (Budget and
Fiscal Review Committee), Chapter 35, Statutes of 2011, the
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Legislature redirected an estimated $453 million from the base
0.65% VLF rate to the Local Law Enforcement Account to help fund
public safety realignment. By doing this SB 89 eliminated the
annual share of VLF revenues that Orange County received following
the 2004-05 budget agreement, which was approximately $48 million
in FY 2011-12.
Orange County sponsored legislation to try and remedy the loss of
VLF revenues with AB 43 X1 (Solorio) of the 2011-12 First
Extraordinary Session, which would have increased, for FY 2011-12,
the VLF adjustment amount for the County by $48 million and would
have required this increase to be included in the calculation of
the VLF adjustment amount for the County for each year thereafter,
so long as certain conditions were met.
At the same time, the Orange County Board of Supervisors also
directed the County's Auditor-Controller to recalculate the
County's VLF adjustment amount for FY 2011-12, 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 $73 million in both the 2011-12 and 2012-13 fiscal
years. The General Fund backfilled schools for the reduced ERAF
funding. The Department of Finance 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 of 2013, a Superior
Court judge ruled in favor of the Department of Finance in the case
Department of Finance v. Grimes. The County was ordered to pay
approximately $150 million to the K-14 schools.
Supporters of the bill argue that this bill sets the path for
resolving litigation in this matter by including intent language
directing a settlement that includes a repayment plan from FY
2014-15 to FY 2018-19. This bill also states that the Legislature
directs the parties of the case to agree to not seek appellate
review.
This bill increases the County's VLF adjustment amount in future
years to reflect the amount that the County would receive if its
VLF adjustment amount hadn't been offset, in 2004, to help the
County finance its bankruptcy-related debt. Under this bill, in FY
2013-14 Orange County's VLF adjustment amount would increase by $53
million. This bill also requires that the calculation of Orange
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County's VLF adjustment amount for the FY 2014-15, and each fiscal
year thereafter, is based on a prior FY amount that reflects the
full amount of the one-time increase of $53 million. The amount
would be adjusted annually by the annual property tax growth rate
in the County.
This bill also repeals the statute enacted by SB 8 X3, Chapter 4,
Statutes of 2009-10 Third Extraordinary Session, as part of the FY
2009-10 Budget agreement which increased the property tax revenue
allocation to Orange County by $35 million annually in FY 2009-10
and FY 2010-11, and by $50 million annually in each FY thereafter.
Support arguments: Supporters argue that this bill places Orange
County in the funding formula for the VLF adjustment amount in a
manner comparable to California's other 57 counties and provides
certainty and growth to Orange County's local property tax revenues
and fiscal stability in future years.
Opposition arguments: Opposition could argue that this bill will
result in a loss to the general fund and provides a remedy only to
Orange County, but does not include a fix for newly incorporated
cities and cities that annexed inhabited areas that were also
adversely impacted by the redirected VLF funds in SB 89 (Budget
Committee), Chapter 35, Statutes of 2011.
Analysis Prepared by : Misa Yokoi-Shelton / L. GOV. / (916)
319-3958
FN: 0002825