BILL ANALYSIS Ó
SB 69
Page 1
Date of Hearing: June 25, 2014
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
K.H. "Katcho" Achadjian, Chair
SB 69 (Roth) - As Amended: June 16, 2014
SENATE VOTE : 30-6
SUBJECT : Local government finance: property tax revenue
allocation: vehicle license fee adjustments.
SUMMARY : Provides a city incorporating after January 1, 2004,
and on or before January 1, 2012, with property tax in lieu of
vehicle license fees (VLF). Specifically, this bill :
1)Establishes a vehicle license adjustment amount for a city
incorporating after January 1, 2004, and on or before January
1, 2012, as follows:
a) A formula to calculate the base year VLF adjustment
amount for fiscal year (FY)
2014-15 which uses the population of the incorporating city,
times the sum of the most recent VLF adjustment amount for
all cities in the county, divided by the sum of the
population of all the cities in the county; and,
b) A formula to calculate the VLF adjustment amount for
each FY thereafter that includes the percentage change from
the immediately preceding FY to the current FY in gross
taxable assessed valuation.
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
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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
annexations to cities where there was pre-existing
development. Prior to the 2004-05 budget agreement, a newly
incorporated city received additional VLF revenues based on
three times the number of registered voters in the city at the
time of incorporation. For most cities, this increased
allocation continued for the first seven years. Following the
2004-05 budget agreement, no cities received this VLF revenue
bump upon incorporation. Cities that had not incorporated by
FY 2004-05 receive no property tax in lieu of VLF and
therefore do not have a VLF adjustment amount.
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
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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. 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
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. For example, for the
City of Jurupa Valley which incorporated within days
of the passage of SB 89, anticipated VLF revenues represented
47% of its General Fund budget. The Jurupa Valley City
Council recently determined that the city will likely face
disincorporation in FY 2016-17.
3)Purpose of this bill . This bill establishes a base year VLF
adjustment amount for FY 2014-15 for cities that incorporated
after January 1, 2004, and on or before January 1, 2012, to
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replicate funds that existed for new cities prior to 2004. In
each subsequent FY, the VLF adjustment amount for these cities
would be the jurisdiction's annual change in the assessed
valuation which is the same formula used to calculate the VLF
adjustment amount for other cities. This bill will only
impact four cities, Jurupa Valley, Eastvale, Menifee, and
Wildomar, which all incorporated during the timeframe
contained in the bill. This bill does not provide a VLF
adjustment amount for cities incorporating after January 1,
2012. This bill is author-sponsored.
4)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
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 would have
established VLF adjustment amounts for annexations, and also
included a formula for cities that incorporated after 2004 to
receive a VLF adjustment amount similar to the formulas
established in this bill.
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 had
not 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
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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.
AB 1521 (Fox), pending in the Senate Governance and Finance
Committee, would modify 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.
5)Technical consideration . This bill establishes a formula for
FY 2014-15, or the first year of incorporation of the city,
whichever is later. This bill only applies to a city
incorporating after January 1, 2004, and on or before January
1, 2012, so the first year of incorporation of the city will
never be later than FY 2014-15. The author may wish to
consider deleting that unnecessary reference.
6)Arguments in support . Supporters argue that this bill allows
the four affected cities to participate in the funding
solution that was provided to all cities and counties at the
time
of the VLF property tax swap.
7)Arguments in opposition . None on file.
8)Chaptering conflict . Because provisions of this bill conflict
with provisions in AB 1521 (Fox), the author may wish to amend
the bill to avoid any chaptering out issues that could occur
because of the conflict.
REGISTERED SUPPORT / OPPOSITION :
Support
Association of California Cities - Orange County
California Contract Cities Association
California State Association of Counties
Cities of Eastvale, Indian Wells, Jurupa Valley, Lake Elsinore,
La Mirada, La Quinta, Menifee,
Murrieta, Norco, Palm Desert, Temecula, and Wildomar
Greater Riverside Chambers of Commerce
League of California Cities
League of California Cities, Riverside Division
Orange County Local Agency Formation Commission
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Riverside Local Agency Formation Commission
San Bernardino County Local Agency Formation Commission
Southwest California Legislative Council
Western Riverside Council of Governments
Opposition
None on file
Analysis Prepared by : Misa Yokoi-Shelton / L. GOV. / (916)
319-3958