BILL ANALYSIS                                                                                                                                                                                                    

                                                                     AB 448

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          Date of Hearing:  April 22, 2015 


                                 Jimmy Gomez, Chair

          448 (Brown) - As Introduced February 23, 2015

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          Urgency:  Yes State Mandated Local Program:  YesReimbursable:   

          SUMMARY:  This bill 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 inhabited  
          annexed areas. Specifically, this bill:  


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          1)Provides that the VLF adjustment amount formula in existing  
            law, which excludes the assessed valuation in an area upon  
            annexation, for the 2006-07 fiscal year to the 2014-15 fiscal  
            year, inclusive.  

          2)Establishes a formula to calculate the VLF adjustment amount  
            for 2015-16, that includes the percentage change from 2004-05  
            to 2015-16, in the gross taxable assessed valuation within the  
            jurisdiction, which includes the assessed valuation of annexed  

          3)Establishes a formula to calculate the VLF adjustment amount  
            for 2016-17 and each year thereafter that includes the  
            percentage change from the immediately preceding year to the  
            current year in gross taxable assessed valuation.  

          4)Provides that the VLF adjustment amount for Orange County as  
            determined for the 2013-14 fiscal year, shall be increased by  
            $53 million and specifies that for the 2014-15 fiscal year and  
            each fiscal year thereafter, the calculation of the VLF  
            adjustment amount for Orange County shall be based on the  
            prior year amount that reflects the full amount of the  
            one-time increase of $53 million.  

          FISCAL EFFECT:

          On-going cost in the range of $5 million (GF) to backfill  
          property tax reductions to schools. 


          1)Purpose. According to the author, "The City of Fontana has  
            lost $800,000 dollars as a result of SB 89 (see explanation  
            below).  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  


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            bill will restore funding to cities that were negatively  
            affected by SB 89." 

          2)Background.  Current law imposes the VLF in lieu of personal  
            property tax on California motor vehicles, at a rate based on  
            the taxable value of the vehicle.  The state collects and  
            allocates the VLF revenues, minus administrative costs, to  
            cities and counties.  In 1998, the VLF rate was reduced and  
            the state General Fund backfilled the lost revenues to cities  
            and counties. 

            As part of the 2004-05 budget agreement, the Legislature  
            enacted the VLF/property tax swap, which replaced the General  
            Fund backfill with local property tax revenues that otherwise  
            would have gone to schools through the Education Revenue  
            Augmentation Fund (ERAF).  The state General Fund then  
            backfilled schools for the lost ERAF money.  The budget  
            agreement, however, 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, making future annexations and incorporation  
            problematic because of the substantial financial losses.

            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, as specified, will receive special  
            allocations from a portion of the remaining VLF revenues.

            In 2011, SB 89 (Budget and Fiscal Review Committee), Chapter  


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            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 DMV in  
            2011-12 for administrative costs and increased the basic  
            vehicle registration fee from $31 to $43.  

            This action eliminated over $15 million in MVLFA revenues in  
            2011-12 from four newly incorporated cities (Menifee,  
            Eastvale, Wildomar, and Jurupa Valley), as well as over $4  
            million from cities (Chico, San Ramon, Santa Clarita,  
            Temecula, Fontana, San Jose, Porterville, Tulare and Visalia)  
            that have annexed inhabited areas.  

          3)Related Legislation. SB 25 (Roth), pending in the Senate  
            Appropriations Committee, would allocate VLF revenues to newly  
            incorporated cities and is substantially similar to SB 69  
            (Roth) of 2014.  
          4)Prior Legislation. 

              a)    AB 1521 (Fox) of 2014, nearly identical to this bill,  
                would have modified the amount of VLF allocated to  
                counties and cities to include changes in the assessed  
                valuation within annexed areas.  AB 1521 was vetoed by the  
                Governor. In his veto message, the Governor remarked, "?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."


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              b)    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.  The Governor's veto message  
                was similar to that of AB 1521, citing long term costs to  
                the general fund.

              c)    SB 56 (Roth) of 2013 and AB 677 (Fox) of 2013, both  
                contained VLF adjustments amounts for both annexations and  
                city incorporations, similar to the provisions AB 1521 for  
                annexations and SB 69 in 2014. SB 56 (Roth) was held on  
                the Senate Appropriations Committee's Suspense File. AB  
                677 (Fox) was referred to, but never heard by, the  
                Assembly Local Government Committee.

              d)    SB 1566 (Negrete McLeod, 2012) and AB 1098 (Carter,  
                2012) also would have reallocated VLF revenues to newly  
                incorporated cities and to cities that annexed inhabited  
                territory.  SB 1566 was held on the Senate Appropriations  
                Committee's Suspense File. AB 1098 was amended during the  
                last two days of the 2011-12 legislative session to  
                contain SB 1566's provisions. The Governor vetoed AB 1098.

          Analysis Prepared by:Jennifer Swenson / APPR. / (916)  


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