BILL ANALYSIS Ó
AB 448
Page 1
ASSEMBLY THIRD READING
AB
448 (Brown)
As Introduced February 23, 2015
2/3 vote. Urgency
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|Committee |Votes |Ayes |Noes |
| | | | |
| | | | |
|----------------+------+---------------------+---------------------|
|Local |9-0 |Maienschein, | |
|Government | |Gonzalez, Alejo, | |
| | |Chiu, Cooley, | |
| | |Gordon, Holden, | |
| | |Linder, Waldron | |
| | | | |
|----------------+------+---------------------+---------------------|
|Appropriations |17-0 |Gomez, Bigelow, | |
| | |Bonta, Calderon, | |
| | |Chang, Daly, Eggman, | |
| | |Gallagher, | |
| | | | |
| | | | |
| | |Eduardo Garcia, | |
| | |Gordon, Holden, | |
| | |Jones, Quirk, | |
| | |Rendon, Wagner, | |
| | |Weber, Wood | |
| | | | |
| | | | |
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AB 448
Page 2
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.
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.
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FISCAL EFFECT: According to the Assembly Appropriations Committee
on-going costs in the range of $5 million (General Fund (GF)) to
backfill property tax reductions to schools.
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 GF 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 GF 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 GF with property tax
revenues (dollar for dollar) that otherwise would have gone to
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schools through ERAF. This replacement funding is known as the
"VLF adjustment amount". The state GF 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
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
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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
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
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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 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
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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.
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 Legislature may wish to ask the author what circumstances,
if any, have changed.
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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.
Analysis Prepared by:
Misa Lennox / L. GOV. / (916) 319-3958 FN:
0000563