BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |AB 448 |Hearing |6/17/15 |
| | |Date: | |
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|Author: |Brown |Tax Levy: |No |
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|Version: |2/23/15 |Fiscal: |Yes |
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|Consultant|Weinberger |
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VEHICLE LICENSE FEE ADJUSTMENT AMOUNTS FOR CITY ANNEXATIONS
(URGENCY)
Changes the formulas for calculating annual vehicle license fee
adjustment amounts to account for territory annexed to cities
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" (SB 1096, Senate Budget Committee,
Chapter 211, Statutes of 2004), which replaced the State General
Fund backfill 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. When the Legislature cut the VLF rate, the amount of VLF
revenue available to a city as the result of annexing an
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inhabited area also was 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.
In response, advocates for cities asked the Legislature to
reallocate a portion of existing cities' remaining VLF funds, to
cities that annex inhabited areas to help make city annexations
financially feasible. In response, the Legislature passed AB
1602 (Laird, Chapter 556, Statutes of 2006), which changed the
allocation of Vehicle License Fee (VLF) funds to replace the VLF
revenues for 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
loss of general Fund dollars. 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.
Advocates for cities argue that SB 89's elimination of VLF
allocations creates fiscal hardships for cities that annexed
inhabited areas, with the expectation that they would receive
revenues under the formulas enacted by the 2006 Laird bill and
makes future annexations of inhabited areas financially
infeasible. They want the Legislature to change the formula
that county auditors use to calculate VLF adjustment amounts, to
provide additional allocations that account for inhabited areas
annexed by cities after 2004.
Proposed Law
In the 2015-16 fiscal year, Assembly Bill 448 requires county
auditors to calculate vehicle license fee adjustment amounts
(VLFAA) for cities, counties, and cities and counties using a
specified formula that reflects the percentage change from the
AB 448 (Brown) 2/23/15 Page 3
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2004-05 fiscal year to the 2015-16 fiscal year in assessed
property values within the city, county, or city and county.
For the 2016-17 fiscal year, and for each fiscal year
thereafter, AB 448 requires county auditors to calculate the
VLFAA for a city, county, or city and county by adjusting the
prior year's VLFAA amount to reflect the year-to-year change in
assessed property values within the jurisdiction of the city,
county, or city and county.
The bill makes non-substantive conforming changes to state law
relating to the calculation of Orange County's vehicle license
fee adjustment amount.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . By abruptly reducing the allocation of
VLF funds for inhabited city annexations, SB 89 pulled the rug
out from under cities that had annexed, or were planning to
annex, inhabited areas. AB 448 helps to rebalance those cities'
finances balance by restoring some funding related to
annexations. In recent years, Legislators have enacted statutes
that promote the annexation of incorporated "island" communities
to realize the land use planning, infrastructure, and service
delivery improvements that can result. AB 448 advances this
important statewide policy goal, benefitting communities
throughout California.
2. A deal's a deal . AB 448 is only the most recent of a series
of bills that have reopened provisions of law that were settled
as a part of the complex and intense negotiations that produced
Proposition 1A (2004), which limited the Legislature's power to
shift local revenues. While city officials understandably found
SB 89's reallocations of VLF revenues to be an unexpected and
unwelcome change from the allocations established by AB 1602
(Laird, 2006), SB 89 effectively returned VLF funding for city
annexations to the amounts that were provided for in the
original 2004 VLF-property tax swap deal. If the problems
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relating to VLF funding for city annexations were not
sufficiently serious to prevent an agreement in 2004, it is
unclear why the issue should continue to be revisited.
3. Zero-sum game . Allocating property tax revenues is a
zero-sum game; every reallocation creates winners and losers.
AB 448 makes a winner out of cities that annexed inhabited
territory after 2004, and those that will annex inhabited
territory in the future. The higher VLF adjustment amounts they
receive under AB 448's formula will reduce the amounts of
property tax revenues they contribute to ERAF. In some years,
the fiscal loser will be the State General Fund, which must
backfill the property tax revenues that schools won't get from
ERAF. The annual loss to the State General Fund will grow in
the future as property tax revenues grow and as cities annex
additional territory.
4. Related legislation . AB 448 is nearly identical to AB
1521(Fox, 2014), which the Committee approved last year on a 7-0
vote. Ultimately, Governor Brown vetoed AB 1521. His veto
message expressed his belief that, despite an improving economy
and progress in aligning state finances, it would not "be
prudent to authorize legislation that would result in long term
costs to the general fund that [AB 1521] would occasion."
Earlier this year, the Senate Governance & Finance Committee
voted 7-0 to approve SB 25 (Roth, 2015), which would change the
formulas for calculating annual vehicle license fee adjustment
amounts for four cities that incorporated after 2004. Because
AB 448 and SB 25 amend the same code sections in different ways,
if both bills are signed into law the changes made by the bill
that is chaptered first will get wiped out by the changes made
by the bill that is chaptered last. To prevent one bill from
"chaptering-out" the other, the Committee may wish to consider
adopting technical "double-jointing" amendments that allow both
bill's provisions to become law regardless of the order in which
they are chaptered.
4. Mandate . The California Constitution requires the state to
reimburse local governments for the costs of new or expanded
state mandated local programs. Because AB 448 imposes
additional duties on local tax officials who are responsible for
allocating ad valorem property tax revenues Legislative Counsel
says that it imposes a new state mandate. AB 448 requires the
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state to reimburse local agencies if the Commission on State
Mandates determines that the bill imposes a reimbursable
mandate.
5. Urgency . Regular statutes take effect on January 1
following their enactment; bills passed in 2015 take effect on
January 1, 2016. The California Constitution allows bills with
urgency clauses to take effect immediately if they're needed for
the public peace, health, and safety. AB 448 contains an
urgency clause declaring that it is necessary for its provisions
to go into effect immediately to provide timely fiscal relief to
preserve the public peace, health, and safety in cities that
annexed inhabited areas that lost revenue as a result of SB 89's
enactment in 2011.
Assembly Actions
Assembly Local Government Committee: 9-0
Assembly Appropriations Committee: 17-0
Assembly Floor: 79-0
Support and
Opposition (6/11/15)
Support : California Association of Local Agency Formation
Commissions; California Police Chiefs Association; Cities of
Fontana, Indian Wells, Jurupa Valley, and Wildomar; Contra Costa
Local Agency Formation Commission; Imperial County Local Agency
Formation Commission; San Mateo Local Agency Formation
Commission.
Opposition : Unknown.
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