BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |SB 25 |Hearing |4/8/15 |
| | |Date: | |
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|Author: |Roth |Tax Levy: |No |
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|Version: |12/1/14 |Fiscal: |Yes |
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|Consultant|Weinberger |
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VEHICLE LICENSE FEE ADJUSTMENT AMOUNTS FOR CITY INCORPORATIONS
Changes the formulas for calculating annual vehicle license fee
adjustment amounts for four cities that incorporated after 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,"
which replaced the VLF backfill from the State General Fund 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.
The VLF-property tax swap did not reallocate extra property tax
revenues to cities that were not in existence when the State was
compensating cities for the difference between the 2% and 0.65%
VLF rates. As a result, new cities received less VLF funding
than they would have if they had incorporated before the
VLF-property tax swap.
SB 25 (Roth) 12/1/14 Page 2
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Advocates for cities asked the Legislature to reallocate a
portion of existing cities' remaining VLF funds to new cities to
help make new city incorporations financially feasible. In
response, the Legislature passed AB 1602 (Laird, 2006), which
changed the allocation of VLF funds to restore the VLF revenues
for city incorporations that were lost under the VLF-property
tax "swap." AB 1602's formula allocated $50 per capita adjusted
annually for growth.
Governor Brown's 2011 Realignment Proposal shifted the
responsibility for some state public safety programs to local
governments. The Legislature passed Senate Bill 89 (Committee
on Budget and Fiscal Review, 2011), which re-calculated the
Department of Motor Vehicle's administration fund to $25 million
and increased vehicle license registration by $12 per vehicle to
offset DMV's cut budget. SB 89 also eliminated 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.
Four new cities incorporated after the Laird bill enacted new
VLF funding allocations for new cities and before those
allocations were repealed. The City of Wildomar incorporated on
July 1, 2008. The City of Menifee incorporated on October 1,
2008. The City of Eastvale incorporated on October 1, 2010.
Most recently, the City of Jurupa Valley officially incorporated
on July 1, 2011, only two days after SB 89 repealed the VLF
allocation formulas for new cities.
Advocates for cities argue that SB 89's elimination of VLF
allocations creates fiscal hardships for cities that
incorporated with the expectation that they would receive VLF
revenues under the formulas enacted by the 2006 Laird bill.
Proposed Law
Beginning in the 2015-16 fiscal year, Senate Bill 25 requires
that the Vehicle License Fee Adjustment Amount (VLFAA) for any
city that incorporated after January 1, 2004, and on or before
January 1, 2012 must be calculated according to the following
SB 25 (Roth) 12/1/14 Page 3
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formula:
For the 2015-16 fiscal year, the city's base VLFAA is
calculated by multiplying the city's population by the per
capita amount of countywide VLFAA funding received by
cities in the county.
For each fiscal year thereafter, the prior year's VLFAA
is adjusted to reflect the year-to-year change in assessed
property values within the city.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . By abruptly eliminating VLF allocations
for recently incorporated cities, SB 89 pulled the rug out from
under four cities that chose to incorporate based, in part, on
the expectation that they would receive VLF funding under the
formulas enacted by the 2006 Laird bill. After SB 89's
enactment, each of the four cities had to make substantial cuts
to vital public services that would have been funded by VLF
allocations. In the City of Jurupa Valley, SB 89's fiscal
effect was particularly severe, resulting in a loss of 46% of
the city's first year General Fund revenues and a 26% loss of
General Fund revenues in subsequent years. SB 25 helps to
rebalance the four cities' finances by restoring some
VLF-related funding.
2. A deal's a deal . SB 25 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
incorporations to the amounts that were provided for in the
original 2004 VLF-property tax swap deal. It is unclear why the
issue should continue to be revisited if the problems relating
to VLF funding for city incorporations were not sufficiently
serious to prevent an agreement in 2004.
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3. Zero-sum game . Allocating property tax revenues is a zero-sum
game; every reallocation creates winners and losers. SB 25 makes
a winner out of four cities
that annexed after 2004 and before 2012. The higher VLF
adjustment amounts they receive under SB 25'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.
4. Related legislation . SB 25's VLFAA formula for city
incorporations is nearly identical to language in SB 56 (Roth,
2013), which the Senate Governance & Finance Committee approved
on a 7-0 vote. SB 56 died in the Senate Appropriations
Committee. Last year, SB 69 (Roth, 2014) contained provisions
that replicated SB 56's VLFAA formula for cities that
incorporate after 2004. But SB 69, which Governor Brown vetoed,
was not heard in the Governance & Finance Committee. SB 1566
(Negrete McLeod, 2012) would have reallocated VLF revenues
formerly dedicated to DMV and FTB administrative costs to
recently incorporated cities and to cities that annexed
inhabited territory. The Senate Governance & Finance Committee
approved SB 1566 on a 9-0 vote. The bill later died in the
Senate Appropriation Committee. During the last two days of the
2011-2012 legislative session, AB 1098 (Carter) was amended on
the Assembly Floor to contain SB 1566's provisions. The
Governor vetoed AB 1098, stating that it "would undermine the
2011 Realignment formulas in a manner 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."
Support and
Opposition (4/2/15)
Support : California Association of Local Agency Formation
Commissions; California Professional Firefighters; California
State Association of Counties; Cities of Jurupa Valley and
Riverside; Riverside Sheriff's Association; San Diego Local
Agency Formation Commission; Southwest California Legislative
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Council; Urban Counties Caucus.
Opposition : Unknown.
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