BILL ANALYSIS Ó
AB 2277
Page 1
Date of Hearing: April 20, 2016
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Lorena Gonzalez, Chair
AB
2277 (Melendez) - As Introduced February 18, 2016
-----------------------------------------------------------------
|Policy |Local Government |Vote:|8 - 0 |
|Committee: | | | |
| | | | |
| | | | |
|-------------+-------------------------------+-----+-------------|
| | | | |
| | | | |
| | | | |
-----------------------------------------------------------------
Urgency: No State Mandated Local Program: YesReimbursable:
Yes
SUMMARY: This bill revises the formulas for calculating annual
"vehicle license fee (VLF) adjustment amounts" for cities that
incorporated from January 1, 2004 through January 1, 2012.
FISCAL EFFECT:
1)On-going costs of approximately $18 million (GF) to backfill
property tax reductions to schools as follows:
AB 2277
Page 2
a) This bill will result in a one-time permanent shift of
approximately $18 million from the Riverside County
Educational Revenue Augmentation Fund (ERAF) to the cities
of Jurupa Valley, Eastvale, Menifee, and Wildomar, and
permanently "re-base" the VLF adjustment amount going
forward. The General Fund (GF) would generally backfill
the reductions from ERAF to replace funding that would
otherwise go to schools pursuant to Proposition 98 minimum
funding guarantees. As such, the bill would result in an
annual GF impact of about $18 million in 2016-17, which
would increase each year thereafter at the property tax
growth rate.
1)Unknown, likely minor state reimbursable costs to Riverside
County to adjust property tax allocation formulas for the four
recently-incorporated cities (GF). It is unlikely that the
county would file a claim for reimbursement for these minor
one-time costs.
COMMENTS:
1)Purpose. This is the seventh legislative attempt to address
the disproportionate impact the 2011 budget trailer bill (SB
89) had on cities that incorporated from January 1, 2004 to
January 1, 2012. The author notes, "In 2011, one of the steps
the Legislature took to close the state's massive budget gap
was to pass SB 89 which eliminated VLF revenue allocated to
newly incorporated cities and annexed areas. As a result,
four newly incorporated cities in Riverside County - Eastvale,
Jurupa Valley, Menifee and Wildomar - lost critical funding.
These cities are now facing the possibility of
disincorporation, potentially forcing Riverside County to
provide essential services to residents which the County has
not budgeted for."
AB 2277
Page 3
This bill impacts only the four cities in Riverside County
that incorporated during this timeframe. The bill establishes
a base year VLF adjustment amount for these cities for FY
2016-17 to replicate funds that existed for new cities prior
to 2004.
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 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.
Prior to 2004, the state had historically provided additional
VLF revenue to newly incorporated cities. The budget
agreement, however, did not provide compensating
property-tax-in-lieu-of-VLF for future new cities or for
annexations. A temporary remedy came with the passage of AB
1602 (Laird) Chapter 556, Statutes of 2006, which, until July
1, 2011, provided additional revenue from reallocating a
portion of existing cities' VLF funds to new cities and cities
that annexed inhabited areas in order to make new
AB 2277
Page 4
incorporations and annexations financially feasible.
As part of the realignment proposal in the 2011-12 Budget, SB
89 (Budget and Fiscal Review Committee), Chapter 35, Statutes
of 2011, among other provisions, 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. This action
eliminated over $15 million in VLF revenues in 2011-12 for
four newly incorporated cities (Menifee, Eastvale, Wildomar,
and Jurupa Valley), as well as over $4 million from cities
that had annexed inhabited areas (Chico, San Ramon, Santa
Clarita, Temecula, Fontana, San Jose, Porterville, Tulare and
Visalia).
3)Budget Appropriation. SB 107 (Committee on Budget and Fiscal
Review), Chapter 325, Statutes of 2015, provided $23.75
million in one-time fiscal relief to recently incorporated
cities impacted by the loss of VLF revenues following the
passage of SB 89 in 2011. This General Fund appropriation was
used to pay debts incurred by Wildomar (over $1 million),
Menifee (over $1 million), and Jurupa Valley (over $21
million) for services rendered through contracts with
Riverside County. The City of Eastvale did not receive any
fiscal relief from SB 107, and has filed a lawsuit challenging
the allocation of fiscal relief to only three of the four
recently-incorporated cities. The outcome of litigation is
pending at this time.
4)Related Legislation. SB 817 (Roth), pending on the Senate
Appropriations Committee's Suspense File, is nearly identical
AB 2277
Page 5
to this bill.
5)Prior Legislation.
a) SB 25 (Roth), which was vetoed by the Governor last
year, was effectively identical to this bill. The veto
message states:
"This bill allows four cities that incorporated after
January 1, 2004, and before January 1, 2012 to receive
additional property tax revenue through a redistribution
of Vehicle License Fee revenue. My signature of SB 107
provides approximately $24 million dollars in fiscal
relief to these four cities. This bill results in
additional long term costs to the general fund that the
state's budget cannot afford."
b) AB 448 (Brown), also of 2015, contained a similar
adjustment for cities that annexed inhabited areas. It was
held on the Senate Appropriations Committee's Suspense
File.
c) In 2014, SB 69 (Roth) and AB 1521 (Fox), nearly
identical to last year's SB 25 and AB 448 respectively,
were both vetoed by the Governor. His veto message noted
long term costs to the general fund.
d) In 2013, SB 56 (Roth) and AB 677 (Fox) both contained
VLF adjustments amounts for both annexations and city
incorporations, similar to the provisions of 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
AB 2277
Page 6
Local Government Committee.
e) In 2012, SB 1566 (Negrete McLeod) and AB 1098 (Carter)
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 and was vetoed by the Governor.
Analysis Prepared by:Jennifer Swenson / APPR. / (916)
319-2081