BILL ANALYSIS Ó
AB 1521
Page 1
GOVERNOR'S VETO
AB 1521 (Fox)
As Amended August 4, 2014
2/3 vote
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|ASSEMBLY: |75-0 |(May 27, 2014) |SENATE: |35-0 |(August 20, |
| | | | | |2014) |
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|ASSEMBLY: |75-0 |(August 22, | | | |
| | |2014) | | | |
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Original Committee Reference: L. GOV.
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.
The Senate amendments :
1)Add double-jointing language to avoid chaptering conflicts
with SB 69 (Roth) of 2014.
2)Revise language relating to the VLF adjustment amount for
Orange County.
FISCAL EFFECT : According to the Senate Appropriations
Committee:
1)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
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year thereafter at the property tax growth rate.
2)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.
3)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.
AS PASSED BY THE ASSEMBLY , this bill:
1)Modified 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)Provided 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)Established 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)Established 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)Provided 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 FY amount
that reflects the full amount of the one-time increase of $53
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million.
6)Provided 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.
7)Contained an urgency clause.
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
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
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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
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,
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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 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
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
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many cities to enact public safety cuts."
5)Previous legislative attempts to address the impacts of SB 89.
SB 1566 (Negrete McLeod) of 2012, 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. 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
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 died in the Senate, pursuant to Joint
Rule 56. AB 677 (Fox) of 2013 died in the Assembly, 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 Orange County would receive if its VLF adjustment amount
had not been offset in 2004, to help Orange 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 Orange
County, which is the same for all other counties.
SB 69, which was vetoed by the Governor, would have provided a
city incorporating after January 1, 2004, and on or before
January 1, 2012, with property tax in lieu of VLF.
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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.
GOVERNOR'S VETO MESSAGE :
"This bill changes the formula for calculating annual vehicle
license fee adjustment amounts for territories annexed after
2004. While it is true that the state's economy has improved
markedly, and significant progress has been made in aligning
revenues and expenditures, I do not believe that it would be
prudent to authorize legislation that would result in long term
costs to the general fund that this bill would occasion."
Analysis Prepared by : Misa Yokoi-Shelton / L. GOV. / (916)
319-3958 FN:
0005672