BILL ANALYSIS Ó
AB 1521
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Date of Hearing: April 30, 2014
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
K.H. "Katcho" Achadjian, Chair
AB 1521 (Fox) - As Introduced: January 16, 2014
SUBJECT : Local government finance: property tax revenue
allocations: vehicle license fee adjustments.
SUMMARY : Modifies the amount of property tax in lieu of vehicle
license fees (VLF) allocated to counties and cities to include
changes in the assessed valuation within annexed areas.
Specifically, this bill :
1)Modifies the amount of property tax in lieu of vehicle license
fees (VLF adjustment amount) allocated to counties and cities
to include changes in the assessed valuation within annexed
areas.
2)Provides that the VLF adjustment amount formula in existing
law, which excludes the assessed valuation in an area upon
annexation, for the fiscal year (FY) 2006-07 and thereafter,
applies until FY 2013-14.
3)Establishes a formula to calculate the VLF adjustment amount
for FY 2014-15, that includes the percentage change from FY
2005-06 to FY 2014-15, in the gross taxable assessed valuation
within the jurisdiction, which includes the assessed valuation
of annexed territory.
4)Establishes a formula to calculate the VLF adjustment amount
for FY 2015-16 and each FY thereafter that includes the
percentage change from the immediately preceding FY to the
current FY in gross taxable assessed valuation.
5)Provides that the VLF adjustment amount for Orange County as
determined for FY 2013-14, FY 2014-15, and for FY 2015-16,
shall be increased by $53 million. Specifies for FY 2016-17
and each FY thereafter, the calculation of the VLF
adjustment amount for Orange County shall be based on the
prior fiscal year amount that reflects the full amount of the
one-time increase of $53 million.
6)Provides that, if the Commission on State Mandates determines
that this bill contains costs mandated by the state,
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reimbursement to local agencies and school districts for those
costs shall be made pursuant to current law governing state
mandated local costs.
7)Contains an urgency clause.
FISCAL EFFECT : This bill is keyed fiscal.
COMMENTS :
1)VLF . 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.
2)VLF-Property Tax Swap (2004-05 Budget) and subsequent
legislation . Prior to the 2004 budget agreement, the total
VLF revenue, including the backfill from the state General
Fund was allocated in proportion to population. 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 (dollar for
dollar) that otherwise would have gone to schools through the
Education Revenue Augmentation Fund (ERAF). This replacement
funding is known as the "VLF adjustment amount". The state
General Fund then backfilled schools for the lost ERAF money.
After the dollar for dollar swap in FY 04-05, property tax in
lieu of VLF payments (VLF adjustment amount) to cities and
counties is allocated in proportion to each jurisdiction's
annual change in gross assessed valuation (property tax
revenues).
The 2004-05 budget agreement did not provide compensating
property-tax-in-lieu-of-VLF for future new cities or for
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annexations to cities where there was pre-existing
development. During the first year of annexed inhabited area
into a city, that city does not receive the growth in the
assessed value in order to calculate the growth in the city's
property tax in lieu of VLF. Therefore, the loss was greater
for cities that annexed inhabited areas because the way growth
in the VLF adjustment amount is calculated is based on
property tax revenue.
The temporary remedy to address the lack of
property-tax-in-lieu-of-VLF for annexations and incorporations
after the budget agreement on August 5, 2004, came in the form
of
AB 1602 (Laird), Chapter 556, Statutes of 2006. AB 1602
specified that a city that annexes, or an unincorporated area
that incorporates after August 5, 2004, but prior to July 1,
2009, will receive special allocations from a portion of the
remaining VLF revenues. The funding formula contained in AB
1602 incorporated an artificially inflated population factor
during the first five years for start-up costs which roughly
replicated the broad fiscal incentive for city incorporations
that existed before the VLF-property tax swap in 2004.
Similarly, for annexations that had pre-existing residential
development, AB 1602 increased the per capita VLF allocation,
based on each person residing in an annexed area at the time
of annexation in addition to the allocation of VLF revenues,
to levels comparable to pre-2004 allocations. AB 1602 expired
on July 1, 2009, and gave communities five years to complete
annexations or incorporations that were initiated under the
assumption that VLF funding would be available. In 2008, SB
301 (Romero), Chapter 375, Statutes 2008, eliminated the
deadline that communities had to incorporate and eliminated
the sunset date for city annexations to receive additional
VLF.
SB 89 (Budget and Fiscal Review Committee), Chapter 35,
Statutes of 2011, redirected VLF revenues away from newly
incorporated cities, annexations, and diverted funds to the
Local Law Enforcement Account to help fund public safety
realignment. SB 89 also allocated $25 million to the
Department of Motor Vehicles (DMV) in FY 2011-12 for
administrative costs and increased the basic vehicle
registration fee from $31 to $43.
According to the Senate Appropriations Committee, SB 89 had
the effect of eliminating over $15 million in the Motor
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Vehicle License Fee (MVLFA) revenues in 2011-12 from four
newly incorporated cities (Menifee, Eastvale, Wildomar, and
Jurupa Valley), as well as over $4 million from cities that
have annexed inhabited areas. By abruptly cutting the
allocation of VLF funds to newly incorporated cities and for
inhabited city annexations, the realignment shift in 2011
disproportionally endangered the fiscal viability of
communities that rely on VLF revenues.
3)Purpose of this bill . Under this bill, the current formula
that excludes the assessed value within an annexed area would
only apply from FY 2006-07 to FY 2013-14. This bill changes
the way that the growth in the VLF adjustment amount (property
tax in lieu of VLF) is calculated starting in FY 2014-15 to
include the growth of assessed valuation, including in an
annexed area, from FY 2004 -05 to FY 2014-15. Beginning in FY
2015-16, the VLF adjustment amount would be the jurisdiction's
annual change in the assessed valuation. This bill is
author-sponsored.
4)Author's statement. According to the author, "The purpose of
this bill is to address the disproportionate impact the 2011
budget trailer bill, SB 89 had on communities that had annexed
inhabited territories. The Legislature has historically
encouraged inhabited annexations. Local government had funded
such annexations through an increased share of Motor Vehicle
License Fee (MVLF) revenue. In an effort to fund realignment,
SB 89 shifted approximately $150 million of MVLF revenue to
the Local Law Enforcement Services Account. This resulted in
a disproportionate impact on newly incorporated cities and
cities that had annexed inhabited territories, which forced
many cities to enact public safety cuts."
5)Previous legislative attempts to address the impacts of SB 89 .
SB 1566 (Negrete McLeod) and AB 1098 (Carter) of 2012 sought
to remedy the loss of ongoing revenues to new cities and
annexations after the 2004 VLF property tax swap, a fix that
was achieved by AB 1602 (Laird). SB 89 did not remove the
formulas to calculate the VLF revenue to incorporated or
annexed cities in statute. SB 1566 and AB 1098 would have
restored the funding allocations in AB 1602. SB 1566 died on
the Senate Appropriations Committee's suspense file. The
Governor vetoed AB 1098, stating that its reallocation of VLF
revenues "undermine the 2011 Realignment formulas that would
jeopardize dollars for local public safety programs, provides
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cities new funding beyond what existed under previous law, and
would create a hole in the General Fund to the tune of $18
million. Given the current fiscal uncertainties, this is not
acceptable."
SB 56 (Roth) of 2013 was returned to the Secretary of Senate
without further action, pursuant to Joint Rule 56. AB 677
(Fox) of 2013 was filed with the Chief Clerk without further
action, pursuant to Joint Rule 56. SB 56 and AB 677 would
have established VLF adjustment amounts similar to the
provisions in this bill for annexations, but also included a
formula for cities that incorporated after 2004.
AB 701 (Quirk-Silva), Chapter 393, Statutes of 2013, increased
Orange County's VLF adjustment amount 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. AB 701 increased Orange County's VLF
adjustment amount by $53 million in FY 2013-14 and required
that the calculation for FY 2014-15, and each FY thereafter,
is based on a prior FY amount that reflects the full amount of
the one-time increase of $53 million. The amount is adjusted
annually by the annual property tax growth rate in the County,
which is the same for all other counties.
SB 69 (Roth) of 2013, pending in the Assembly Rules Committee,
contains identical language to this bill.
6)Arguments in support . Supporters argue that this bill would
restore funding stability to cities that annex inhabited
territory, and reestablish a foundation that supports
sustainable and compact growth policies.
7)Arguments in opposition . None on file.
REGISTERED SUPPORT / OPPOSITION :
Support
California Association of Local Agency Formation Commissions
Cities of Eastvale, Jurupa Valley, La Mirada, Menifee, Norco,
Temecula, and Wildomar
League of California Cities
Riverside Local Agency Formation Commission
Southwest California Legislative Council
AB 1521
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Opposition
None on file
Analysis Prepared by : Misa Yokoi-Shelton / L. GOV. / (916)
319-3958