BILL ANALYSIS Ó
Senate Appropriations Committee Fiscal Summary
Senator Kevin de León, Chair
AB 1521 (Fox) - Vehicle license fee allocations: city
annexations.
Amended: August 4, 2014 Policy Vote: G&F 7-0
Urgency: Yes Mandate: Yes
Hearing Date: August 4, 2014
Consultant: Mark McKenzie
This bill meets the criteria for referral to the Suspense File.
Bill Summary: AB 1521, an urgency measure, would revise the
formulas for allocating annual "vehicle license fee (VLF)
adjustment amounts" to account for city annexations of inhabited
territory since 2004. The bill would result in a one-time
permanent shift of property tax revenues to those cities from
the school share, which would be built into property tax
allocation formulas going forward.
Fiscal Impact:
One-time, permanent shift of approximately $5 million in
property tax revenues in 2014-15 from the Educational
Revenue Augmentation Fund (ERAF) in certain counties to
cities that have annexed inhabited areas since 2004. The
General Fund would generally backfill the reductions from
ERAF to replace funding that would otherwise go to schools
pursuant to Proposition 98 minimum funding guarantees. The
initial $5 million General Fund backfill payments would
increase each year thereafter at the property tax growth
rate.
To the extent that revisions to the formulas for allocating
VLF adjustment amounts removes a disincentive for other
cities to annex inhabited territory, the General Fund
impacts could increase in the future.
Unknown state reimbursable costs to county officials to
adjust property tax allocation formulas to account for city
annexations going back to 2004 (General Fund). It is
unlikely that counties would file a claim for reimbursement
for these one-time costs.
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Background: 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,
depreciated annually according to a statutory schedule. DMV
collects the VLF annually from vehicle owners at the time of
registration. The VLF tax rate is currently 0.65 percent of the
value of a vehicle, but the historical rate beginning in 1948
was 2 percent. Beginning in 1998, the state reduced the VLF
rate and offset the loss of local revenues from the General
Fund.
As part of the 2004 budget agreement, the Legislature repealed
the offset system, reduced the VLF rate to 0.65 percent, and
replaced lost local revenues with property taxes that would
otherwise have gone to schools through the ERAF in each county
(known as the VLF-property tax swap). The replacement funding
was known as the "VLF adjustment amount." The state General
Fund backfills school funding that is reduced through the ERAF
shift.
The state has also historically provided additional VLF revenue
to newly incorporated cities and cities that annex inhabited
territory, but when the Legislature cut the VLF rate, the amount
of VLF revenue available to cities annexing an inhabited area
was also reduced . Following the passage of AB 1602 (Laird)
Chap 556/2006 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.
As part of the realignment proposal in the 2011-12 Budget, SB 89
(Committee on Budget and Fiscal Review) Chap 35/2011 deemed
DMV's VLF collection costs as $25 million for 2011-12, increased
the vehicle registration fee by $12, and shifted $153 million in
VLF revenues from cities to fund local law enforcement grants
through the newly established Local Law Enforcement Services
Account. SB 89 also eliminated the formulas established by AB
1602 (Laird) that provided a five-year VLF "bump" to newly
incorporated cities and an extra per capital allocation to
cities that annex inhabited territory. SB 89 had the effect of
eliminating over $15 million in MVLF revenues in 2011-12 from
four newly incorporated cities (Menifee, Eastvale, Wildomar, and
Jurupa Valley), as well as over $4 million from cities that had
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annexed inhabited areas.
Proposition 30, which was approved by the voters in 2012,
amended the Constitution to permanently dedicate a portion of
the sales tax and VLF to local governments to pay for the
programs realigned as part of the 2011-12 Budget.
Proposed Law: AB 1521 would modify the formulas for allocating
annual "vehicle license fee (VLF) adjustment amounts" to account
for city annexations of inhabited territory since 2004.
Specifically, this bill would make the following adjustments:
For the 2014-15 fiscal year, county auditors would
calculate the VLF adjustment amount for cities and counties
using a specified formula that accounts for the percentage
change in assessed property values within each jurisdiction
from the 2004-05 fiscal year through the 2014-15 fiscal
year.
For the 2015-16 fiscal year, and each year thereafter,
county auditors would calculate the VLF adjustment amount
for cities and counties by adjusting the prior year's
amount by a growth factor to reflect year-to-year changes
in assessed property values within each jurisdiction.
The bill also includes double-jointing language to avoid
chaptering conflicts with SB 69 (Roth).
Related Legislation: SB 69 (Roth), currently pending in the
Assembly Appropriations Committee, would make adjustments to
formulas allocating annual VLF adjustment amounts to account for
cities that incorporated from January 1, 2004 until January 1,
2012. SB 69 has not been heard in the Senate in its current
form.
Staff Comments: AB 1521 would make changes to property tax
allocations to benefit cities that annexed inhabited territory
since 2004 at the expense of the General Fund. This would
result in a one-time adjustment by shifting approximately $5
million statewide from certain county ERAF accounts to those
cities, and permanently "re-base" the VLF adjustment amount
going forward. Any reductions to ERAF allocations are typically
backfilled by the state General Fund pursuant to Proposition 98
minimum funding guarantees. As such, the bill would result in
an annual General Fund impact of $5 million, which would grow
each year by the property tax growth rate. The General Fund
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impact would increase to the extent the bill removes
disincentives for cities to annex inhabited territory in the
future.