BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 56 HEARING: 4/17/13
AUTHOR: Roth FISCAL: Yes
VERSION: 3/4/13 TAX LEVY: No
CONSULTANT: Lui
VLF ALLOCATIONS TO CITIES
Establishes vehicle license fee adjustment amounts for four
recently incorporated cities and for cities that annexed
inhabited areas since 2004.
Background and Existing Law
In lieu of a property tax on motor vehicles, the state
collects an annual Vehicle License Fee (VLF) and allocates
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," which
replaced the backfill from the State General Fund 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.
Before 2004, for the first seven years after incorporation,
new cities received VLF funds under a formula that
calculated their population as three times the number of
the city's registered voters. That formula deliberately
overstated a new city's population, resulting in a higher
share of VLF funds. This so-called "VLF bump" gave a new
city more money during its start-up period.
The VLF-property tax swap did not reallocate extra property
tax revenues to cities that were not in existence when the
State was compensating cities for the difference between
the 2% and 0.65% VLF rates. As a result, new cities
received less VLF funding than they would have if they had
incorporated before the VLF-property tax swap. Similarly,
SB 56 -- 3/4/13 -- Page 2
a city that annexed an inhabited area received less VLF
revenue than it would have before the VLF-property tax
swap. Because the amount of the per capita VLF allocations
went down when the Legislature cut the VLF rate, the amount
of additional VLF revenue coming to a city as the result
annexing an inhabited area was also sharply reduced. The
VLF-property tax swap did not compensate cities for this
reduction. Cities only receive additional property tax
revenues in lieu of lost VLF based on the future growth of
assessed valuation in the annexed area.
Advocates for cities asked the Legislature to reallocate a
portion of existing cities' remaining VLF funds to new
cities and to cities that annex inhabited areas to help
make new city incorporations and city annexations
financially feasible. In response, the Legislature passed
AB 1602 (Laird, 2006), which changed the allocation of
Vehicle License Fee (VLF) funds to restore the VLF revenues
for city incorporations and annexations that were lost
under the VLF-property tax "swap."
Governor Brown's 2011 Realignment Proposal shifted several
state programs and commensurate revenues to local
governments. The Legislature passed Senate Bill 89
(Committee on Budget and Fiscal Review, 2011), which
recalculated the Department of Motor Vehicle's
administration fund to $25 million and increased vehicle
license registration by $12 per vehicle to offset DMV's cut
budget. SB 89 also eliminated the $153 million in VLF
revenues allocated to cities and shifted those revenues to
fund public safety realignment. Proposition 30 (2012)
amended the Constitution to permanently dedicate a portion
of the sales tax and VLF to local governments to pay for
the programs realigned in 2011-12 and temporarily increases
the sales tax .25% (4 years) and state personal income
taxes (7 years) by creating three additional tax brackets
for higher income earners.
Advocates for cities argue that SB 89's elimination of VLF
allocations jeopardizes the financial viability of recently
incorporated cities and cities that annexed inhabited
areas. Local officials want the Legislature to reallocate
a portion of cities' remaining VLF funds to four recently
incorporated cities and to cities that annexed inhabited
areas after 2004.
SB 56 -- 3/4/13 -- Page 3
Proposed Law
SB 56 requires county auditors, starting in 2013-14, to
calculate cities' vehicle license fee adjustment amounts
(VLFAA) using a new formula that includes assessed property
value of parcels within territories annexed by cities after
2004. Additionally, SB 56 requires county auditors to
calculate VLFAAs for newly incorporate cities using the
following methodologies:
The VLFAA for the City of Jurupa Valley, which incorporated
on July 1, 2011, is calculated according to the following
formula:
For the 2013-14 fiscal year, the city's base VLFAA
is calculated by multiplying the city's population by
the per capita amount of countywide VLFAA funding
received by cities that incorporated before 2005. The
base VLFAA is then augmented by 50% to determine the
city's total VLFAA for 2013-14.
For the 2014-15 fiscal year, the prior year's VLF
amount is adjusted to reflect the year-to-year change
in assessed property values within the city. That
amount is then augmented by 40% to determine the
city's total VLFAA for 2014-15.
For the 2015-16 fiscal year, the prior year's
adjusted base VLFAA is adjusted to reflect the
year-to-year change in assessed property values within
the city. That amount is then augmented by 30% to
determine the city's total VLFAA for 2015-16.
For the 2016-17 fiscal year, the prior year's
adjusted base VLFAA is adjusted to reflect the
year-to-year change in assessed property values within
the city. That amount is then augmented by 20% to
determine the city's total VLFAA for 2016-17.
For the 2017-18 fiscal year, the prior year's
adjusted base VLFAA is adjusted to reflect the
year-to-year change in assessed property values within
the city. That amount is then augmented by 10% to
determine the city's total VLFAA for 2015-16.
For the 2018-19 fiscal year, the city's total VLFAA
is determined by adjusting the prior year's adjusted
base VLFAA to reflect the year-to-year change in
assessed property values within the city.
For the 2019-20 fiscal year, and subsequent fiscal
years, the city's total VLFAA is determined by
adjusting the prior year's VLFAA to reflect the
SB 56 -- 3/4/13 -- Page 4
year-to-year change in assessed property values within
the city.
The VLFAA for the City of Eastvale, which incorporated on
October 1, 2010, is calculated according to the following
formula:
For the 2013-14 fiscal year, the city's base VLFAA
is calculated by multiplying the city's population by
the per capita amount of countywide VLFAA funding
received by cities that incorporated before 2005. The
base VLFAA is then augmented by 40% to determine the
city's total VLFAA for 2013-14.
For the 2014-15 fiscal year, the prior year's base
VLFAA is adjusted to reflect the year-to-year change
in assessed property values within the city. That
amount is then augmented by 30% to determine the
city's total VLFAA for 2014-15.
For the 2015-16 fiscal year, the prior year's
adjusted base VLFAA is adjusted to reflect the
year-to-year change in assessed property values within
the city. That amount is then augmented by 20% to
determine the city's total VLFAA for 2015-16.
For the 2016-17 fiscal year, the prior year's
adjusted base VLFAA is adjusted to reflect the
year-to-year change in assessed property values within
the city. That amount is then augmented by 10% to
determine the city's total VLFAA for 2016-17.
For the 2017-18 fiscal year, the city's total VLFAA
is determined by adjusting the prior year's adjusted
base VLFAA to reflect the year-to-year change in
assessed property values within the city.
For the 2018-19 fiscal year, and subsequent fiscal
years, the city's total VLFAA is determined by
adjusting the prior year's VLFAA to reflect the
year-to-year change in assessed property values within
the city
The VLFAAs for the cities of Menifee, which incorporated on
October 1, 2008, and Wildomar, which incorporated on July
1, 2008, are calculated according to the following formula:
For the 2013-14 fiscal year, the city's base VLFAA
is calculated by multiplying the city's population by
the per capita amount of countywide VLFAA funding
received by cities that incorporated before 2005. The
base VLFAA is then augmented by20% to determine the
city's total VLFAA for 2013-14.
SB 56 -- 3/4/13 -- Page 5
For the 2014-15 fiscal year, the prior year's base
VLFAA is adjusted to reflect the year-to-year change
in assessed property values within the city. That
amount is then augmented by 10% to determine the
city's total VLFAA for 2014-15.
For the 2015-16 fiscal year, the city's total VLFAA
is determined by adjusting the prior year's adjusted
base VLFAA to reflect the year-to-year change in
assessed property values within the city.
For the 2016-17 fiscal year, and subsequent fiscal
years, the city's total VLFAA is determined by
adjusting the prior year's VLFAA to reflect the
year-to-year change in assessed property values within
the city
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . SB 56 restores the promised
revenues to four newly incorporated cities -- Menifee,
Eastvale, Wildomar, and Jurupa Valley -- and the cities
that annexed inhabited territories, like Fontana and Santa
Clarita, since 2004. By abruptly cutting the allocation of
VLF funds to newly incorporated cities and for inhabited
city annexations, realignment shift pulled the rug out from
under communities that rely on VLF revenues. For the City
of Jurupa Valley, SB 89 was signed into law two days before
its official incorporation. Nearly 87% of Jurupa Valley's
budget is dedicated to public safety. Without SB 56, the
City of Jurupa Valley's other option is to disincorporate
-- a costly and uncertain process that has not been
exercised since Hornitos in 1973. The City of Wildomar has
already modified its loan repayment to Riverside County,
and the City of Eastvale has one deputy and one community
service officer patrolling neighborhoods. Eastvale only
has one fire station to serve over 55,000 residents. For
fiscal year 2010-11, Eastvale received $3.2 million,
Wildomar received $1.9 million, and Menifee received $4.2
million. Jurupa Valley never received any VLF allocations.
SB 56 restores promised funding to keep newly-incorporated
SB 56 -- 3/4/13 -- Page 6
cities and cities that annexed inhabited areas from facing
severe fiscal challenge.
2. Zero-sum game . Allocating property tax revenues is a
zero-sum game; every reallocation creates winners and
losers. SB 56's allocations of VLFAA property tax revenues
will make winners out of four newly incorporated cities and
other cities that have annexed territory since 2004. The
fiscal loser will be the State General Fund, which must
backfill property tax revenues shifted away from schools by
the new VLFAA's formulas.
3. Previous legislation . Last year, this committee heard
SB 1566 (Negrete McLeod), which would have reallocated VLF
revenues formerly dedicated to DMV and FTB administrative
costs to recently incorporated cities and to cities that
annexed inhabited territory. SB 1566 passed out on a 9-0
vote. It later died in the Senate Appropriation
Committee's suspense file. During the last two days of the
2011-2012 legislative session, AB 1098 (Carter) was amended
on the Assembly Floor to contain SB 1566's provisions. 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."
Support and Opposition (4/11/13)
Support : Cities of Eastvale, Jurupa Valley, Menifee, and
Wildomar; California Police Chiefs Association; California
Professional Firefighters; California State Association of
Counties; City of Fontana; County of Riverside; Greater
Corona Valley Chamber of Commerce; League of California
Cities; Muni Services; Riverside Local Agency Formation
Commission; Southwest Riverside County Association of
REALTORS; Urban Counties Caucus.
Opposition : Unknown.