BILL ANALYSIS Ó
AB 448
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Date of Hearing: April 15, 2015
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
Brian Maienschein, Chair
AB 448
(Brown) - As Introduced February 23, 2015
SUBJECT: Local government finance: property tax revenue
allocations: vehicle license fee adjustments.
SUMMARY: Modifies the formulas for calculating annual vehicle
license fee adjustment amounts to include the assessed property
valuation within inhabited territory annexed to cities.
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 property valuation within
annexed areas since 2004.
2)Provides that the VLF adjustment amount formula in existing
law, which excludes the assessed property valuation in an area
upon annexation, for the fiscal year (FY) 2006-07 and
thereafter, applies until FY 2014-15.
3)Establishes a formula to calculate the VLF adjustment amount
for FY 2015-16, that includes the percentage change from FY
2004-05 to FY 2015-16, in the assessed property valuation
within the jurisdiction, which includes the assessed property
valuation of annexed territory.
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4)Establishes a formula to calculate the VLF adjustment amount
for FY 2016-17 and each FY thereafter that includes the
percentage change from the immediately preceding FY to the
current FY in assessed property valuation.
5)Provides 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.
6)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 statewide 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
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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
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
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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 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)Bill Summary. Under this bill, the current formula that
excludes the assessed property value within an annexed area
would only apply from FY 2006-07 to FY 2014-15. This bill
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changes the way that the growth in the VLF adjustment amount
(property tax in lieu of VLF) is calculated starting in FY
2015-16 to include the growth of assessed property values,
including in an annexed area, from FY 2004-05 to FY 2015-16.
The changes this bill would make to the VLF adjustment amount
would benefit cities that have annexed inhabited territory
since 2004 because it would include the assessed property
values in those territories in the formula used to allocate
property tax to that city. Beginning in FY 2016-17, the VLF
adjustment amount would be calculated by adjusting the prior
year's amount by a growth factor to reflect the jurisdiction's
annual change in the assessed property values.
This bill is sponsored by the City of Fontana.
4)Author's Statement. According to the author, "The City of
Fontana has lost $800,000 dollars as a result of SB 89.
Fontana annexed unincorporated areas in San Bernardino County
after 2004 and as a result does not have the funds to provide
public safety services to the area. This bill will restore
funding to cities that were negatively affected by SB 89 and
help them sustainably plan for the future."
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
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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 (Roth) of 2014, 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. SB 25 (Roth), currently pending in the Senate
Appropriations Committee, is substantially similar to SB 69.
AB 1521 (Fox) of 2014, which was vetoed by the Governor, would
have modified the amount of VLF allocated to counties and
cities to include changes in the assessed valuation within
annexed areas, and is nearly identical to the provisions in
this bill.
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6)Policy Consideration. The veto message for AB 1521 (Fox) of
2014, states, "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".
The Committee may wish to ask the author what circumstances,
if any, have changed.
7)Arguments in Support. Supporters argue that this bill would
restore funding stability to cities that annex inhabited
territory, and reestablish a foundation that support
sustainable and compact growth policies.
8)Arguments in Opposition. None on file.
9)Urgency Clause. This bill contains an urgency clause and
requires a two-thirds vote of each house.
REGISTERED SUPPORT / OPPOSITION:
Support
City of Fontana [SPONSOR]
California Association of Local Agency Formation Commissions
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Cities of Jurupa Valley and Wildomar
Contra Costa Local Agency Formation Commission
San Mateo Local Agency Formation Commission
Opposition
None on file
Analysis Prepared by:Misa Lennox / L. GOV. / (916) 319-3958