BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
SB 25 (Roth) - Local government finance: property tax revenue
allocation: vehicle license fee adjustments
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|Version: December 1, 2014 |Policy Vote: GOV. & F. 7 - 0 |
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|Urgency: No |Mandate: Yes |
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|Hearing Date: April 20, 2015 |Consultant: Mark McKenzie |
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This bill meets the criteria for referral to the Suspense File.
Bill
Summary: SB 25 would revise the formulas for calculating annual
"vehicle license fee (VLF) adjustment amounts" for cities that
incorporated from January 1, 2004 through January 1, 2012. The
bill would result in a one-time shift of property tax revenues
from the Educational Revenue Augmentation Fund (ERAF) in
Riverside County to four specified cities, which would be built
into property tax allocation formulas in future years.
Fiscal
Impact:
One-time, permanent shift of approximately $16.7 million in
property tax revenues in 2015-16 from the Riverside County
SB 25 (Roth) Page 1 of
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ERAF to four recently-incorporated cities. 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
General Fund backfill payments would increase each year
thereafter at the property tax growth rate.
Unknown, likely minor state reimbursable costs to Riverside
County officials to adjust property tax allocation formulas
for the four recently-incorporated cities (General Fund). It
is unlikely that counties would file a claim for reimbursement
for these minor 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 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.
Prior to 2004, the state had historically provided additional
VLF revenue to newly incorporated cities. 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
SB 25 (Roth) Page 2 of
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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 $15 million in enhanced
VLF revenues in 2011-12 from four newly incorporated cities
(Menifee, Eastvale, Wildomar, and Jurupa Valley). These cities
had based their decisions to incorporate, at least in part, on
the expectation of receiving enhanced VLF revenues to remain
fiscally viable.
Proposed Law:
SB 25 would modify the formulas for allocating annual "VLF
adjustment amounts" for any city that incorporated after January
1, 2004, and on or before January 1, 2012. Specifically, this
bill would require the VLF adjustment amount to be calculated
according to the following formulas:
For the 2015-16 fiscal year, the county auditor would
calculate the base VLF adjustment amount by multiplying
each city's population by the per capita amount of
countywide VLF adjustment amount for all cities in the
county.
For the 2016-17 fiscal year, and each year thereafter,
county auditors would calculate the VLF adjustment amount
for these cities by adjusting the prior year's amount by a
growth factor to reflect year-to-year changes in assessed
property values within each jurisdiction.
Related
Legislation: There have been numerous bills in recent years to
address the loss of VLF revenues in newly incorporated cities
and cities that have annexed inhabited areas, following the
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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.
Most recently, AB 1521 (Fox), which was vetoed by the Governor
last year, would have provided an enhanced VLF adjustment amount
from county ERAF revenues to cities that annexed inhabited
territory. Finally, SB 69 (Roth), which was also vetoed by the
Governor in 2014 but never heard in this Committee, is nearly
identical SB 25, and would have provided recently-incorporated
cities with enhanced VLF adjustment amounts from county ERAF
revenues. The veto message for SB 69 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.
Staff
Comments: SB 25 would make changes to property tax allocations
to benefit cities that have incorporated since 2004 at the
expense of the General Fund. This would result in a one-time
adjustment by shifting approximately $16.7 million from the
Riverside County ERAF to the cities of Jurupa Valley, Eastvale,
Menifee, and Wildomar, 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 about
$16.7 million in 2015-16, which would grow each year thereafter
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by the property tax growth rate.
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