BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 448 (Brown) - Local government finance: property tax revenue
allocations: vehicle license fee adjustments.
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|Version: February 23, 2015 |Policy Vote: GOV. & F. 7 - 0 |
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|Urgency: Yes |Mandate: Yes |
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|Hearing Date: June 29, 2015 |Consultant: Mark McKenzie |
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This bill meets the criteria for referral to the Suspense File.
Bill
Summary: AB 448, an urgency measure, would revise the formulas for
allocating annual "vehicle license fee (VLF) adjustment amounts"
to account for city annexations of inhabited territory since
2004. The bill would result in a one-time permanent shift of
property tax revenues to those cities from the school share,
which would be built into property tax allocation formulas going
forward.
Fiscal
Impact:
One-time, permanent shift of approximately $5 million in
property tax revenues in 2015-16 from the Educational Revenue
AB 448 (Brown) Page 1 of
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Augmentation Fund (ERAF) in certain counties to cities that
have annexed inhabited areas since 2004. The General Fund
would generally backfill the reductions from ERAF to replace
funding that would otherwise go to schools pursuant to
Proposition 98 minimum funding guarantees. The initial $5
million General Fund backfill payments would increase each
year thereafter at the property tax growth rate.
To the extent that revisions to the formulas for allocating
VLF adjustment amounts removes a disincentive for other cities
to annex inhabited territory, the General Fund impacts could
increase in the future.
Unknown state reimbursable costs to county officials to adjust
property tax allocation formulas to account for city
annexations going back to 2004 (General Fund). It is unlikely
that counties would file a claim for reimbursement for these
one-time costs.
Background: Existing state law imposes the VLF, which is in lieu of a
personal property tax on California motor vehicles, at a rate
based on the taxable value of the vehicle. The Department of
Motor Vehicles (DMV) collects the VLF annually from vehicle
owners at the time of registration, and allocates the revenues
to cities and counties after deducting administrative costs.
The VLF rate is currently 0.65 percent of the value of a
vehicle, but the historical rate beginning in 1948 was 2
percent. Beginning in 1998, the state reduced the VLF rate and
offset the loss of local revenues with General Fund payments.
As part of the 2004 budget agreement, the Legislature enacted a
"VLF-property tax swap," which permanently reduced the VLF rate
to 0.65 percent, repealed the direct offset payments from the
General Fund, and instead replaced lost local revenues with
property taxes that would otherwise have gone to schools through
the ERAF in each county. The replacement funding was known as
the "VLF adjustment amount." The state General Fund generally
backfills local school funding that is reduced through the ERAF
shift.
The state has also historically provided additional VLF revenue
to newly incorporated cities and cities that annex inhabited
territory, but when the Legislature cut the VLF rate, the amount
AB 448 (Brown) Page 2 of
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of VLF revenue available to cities annexing an inhabited area
was also reduced. Following the passage of AB 1602 (Laird),
Chap 556/2006, until July 1, 2011, this additional revenue came
from reallocating a portion of existing cities' VLF funds to new
cities and cities that annexed inhabited areas in order to make
new incorporations and annexations financially feasible.
As part of the realignment proposal in the 2011-12 Budget, SB 89
(Committee on Budget and Fiscal Review) Chap 35/2011 deemed
DMV's VLF collection costs as $25 million for 2011-12, increased
the vehicle registration fee by $12, and shifted VLF revenues
from cities to fund local law enforcement grants through the
newly established Local Law Enforcement Services Account. SB 89
also eliminated the formulas established by AB 1602 (Laird) that
provided enhanced VLF revenues to newly incorporated cities and
cities that annex inhabited territory. Proposition 30, approved
by the voters in 2012, amended the Constitution to permanently
dedicate a portion of the sales tax and VLF to local governments
to pay for the programs realigned as part of the 2011-12 Budget.
SB 89 had the effect of eliminating over $4 million in enhanced
VLF revenues in 2011-12 from cities that annexed inhabited
areas. These cities had based their decisions to annex an
inhabited area, at least in part, on the expectation of
receiving enhanced VLF revenues.
Proposed Law:
AB 448 would modify the formulas for allocating annual
"vehicle license fee (VLF) adjustment amounts" to account for
city annexations of inhabited territory since 2004.
Specifically, this bill would make the following adjustments:
For the 2015-16 fiscal year, county auditors would
calculate the VLF adjustment amount for cities and counties
using a specified formula that accounts for the percentage
change in assessed property values within each jurisdiction
from the 2004-05 fiscal year through the 2015-16 fiscal
year.
For the 2016-17 fiscal year, and each year thereafter,
county auditors would calculate the VLF adjustment amount
for cities and counties by adjusting the prior year's
amount by a growth factor to reflect year-to-year changes
AB 448 (Brown) Page 3 of
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in assessed property values within each jurisdiction.
The bill also makes non-substantive conforming changes to state
law relating to the calculation of Orange County's VLF
adjustment amount.
Related
Legislation: Numerous bills in recent years have been
introduced to address the loss of VLF revenues in newly
incorporated cities and cities that have annexed inhabited
areas, following the passage of SB 89 in 2011. SB 1566 (Negrete
McLeod), which was held on this Committee's Suspense File in
2012, would have reallocated VLF revenues to
recently-incorporated cities and those that annexed inhabited
territory. The contents of SB 1566 were amended into AB 1098
(Carter) on the Assembly Floor in the last two days of the
2011-12 legislative session, but that bill was vetoed by the
Governor. In 2013, both SB 56 (Roth) and AB 677 (Fox) contained
provisions revising VLF adjustment amounts for both
newly-incorporated cities and those that had annexed inhabited
territory. SB 56 was approved by the Governance and Finance
Committee, but never heard in this Committee. AB 677 was never
heard in a committee.
SB 69 (Roth), which was vetoed by the Governor last year but
never heard in this Committee, would have provided
recently-incorporated cities with enhanced VLF adjustment
amounts from county ERAF revenues. AB 1521 (Fox), which was
also vetoed by the Governor last year, is nearly identical to AB
448 and would have provided an enhanced VLF adjustment amount
from county ERAF revenues to cities that annexed inhabited
territory. The veto message for AB 1521 states the following:
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.
Most recently, SB 25 (Roth), which is currently pending in the
Assembly Local Government Committee, would provide
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recently-incorporated cities with enhanced VLF adjustment
amounts from county ERAF revenues.
Staff
Comments: AB 448 would make changes to property tax allocations
to benefit cities that annexed inhabited territory since 2004 at
the expense of the General Fund. This would result in a
one-time adjustment by shifting approximately $5 million
statewide from certain county ERAF accounts to those cities, and
permanently "re-base" the VLF adjustment amount going forward.
Any reductions to ERAF allocations are typically backfilled by
the state General Fund pursuant to Proposition 98 minimum
funding guarantees. As such, the bill would result in an annual
General Fund impact of $5 million, which would grow each year by
the property tax growth rate. The General Fund impact would
increase to the extent the bill removes disincentives for cities
to annex inhabited territory in the future.
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