BILL ANALYSIS                                                                                                                                                                                                    






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          |SENATE RULES COMMITTEE            |                         SB 25|
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                                   THIRD READING 


          Bill No:  SB 25
          Author:   Roth (D), et al.
          Introduced:12/1/14  
          Vote:     21  

           SENATE GOVERNANCE & FIN. COMMITTEE:  7-0, 4/8/15
           AYES:  Hertzberg, Nguyen, Bates, Beall, Hernandez, Lara, Pavley

           SENATE APPROPRIATIONS COMMITTEE:  7-0, 5/28/15
           AYES:  Lara, Bates, Beall, Hill, Leyva, Mendoza, Nielsen

           SUBJECT:   Local government finance:  property tax revenue  
                     allocation:  vehicle license fee adjustments


          SOURCE:    Author


          DIGEST:  This bill changes the formulas for calculating annual  
          vehicle license fee adjustment amounts for four cities that  
          incorporated after 2004.


          ANALYSIS:   


          Existing law:


          1)Imposes the vehicle license fee (VLF) in lieu of personal  
            property tax on California motor vehicles, at a rate based on  
            the taxable value of the vehicle. 









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          2)Funds public safety realignment programs with VLF revenues  
            that, before the passage of SB 89 (Committee on Budget and  
            Fiscal Review, Chapter 35, Statutes of 2011), would have been  
            allocated to four cities that incorporated after January 1,  
            2004.


          This bill:


          1)Establishes a vehicle license adjustment amount for a city  
            incorporating after January 1, 2004, and on or before January  
            1, 2012, as follows:


             a)   A formula to calculate the base year VLF adjustment  
               amount for fiscal year (FY) 2015-16 which uses the  
               population of the incorporating city, times the sum of the  
               most recent VLF adjustment amount for all cities in the  
               county, divided by the sum of the population of all the  
               cities in the county; and


             b)   A formula to calculate the VLF adjustment amount for the  
               2016-2017 FY, and each FY thereafter, that includes the  
               percentage change from the immediately preceding FY to the  
               current FY in gross taxable assessed valuation.


          Background


          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.








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          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.  


          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, Chapter 556,  
          Statutes of 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 SB 89, 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  







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          incorporated with the expectation that they would receive VLF  
          revenues under the formulas enacted by the 2006 Laird bill.


          Comments


          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.  This bill helps to  
          rebalance the four cities' finances by restoring some  
          VLF-related funding.


          Related/Prior Legislation


          SB 69 (Roth, 2014), which contained provisions that were nearly  
          identical to this bill's VLFAA formula for cities that  
          incorporated after 2004, was vetoed by Governor Brown.


          SB 56 (Roth, 2013) and AB 677 (Fox, 2013) both contained VLF  
          adjustments amounts similar to the provisions in this bill for  
          city incorporations, but included adjustments for annexations as  
          well. SB 56 was held on the Senate Appropriations Committee's  
          Suspense File. AB 677 was referred to, but never heard by, the  
          Assembly Local Government Committee.


          SB 1566 (Negrete McLeod, 2012) and AB 1098 (Carter, 2012) 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, but was subsequently  







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          vetoed by the Governor.


          FISCAL EFFECT:   Appropriation:    No          Fiscal  
          Com.:YesLocal:   Yes

          According to the Senate Appropriations Committee this bill would  
          result in an annual General Fund impact of about $16.7 million  
          in 2015-16, which would grow each year thereafter by the  
          property tax growth rate.


          SUPPORT:   (Verified5/29/15)


          California Association of Local Agency Formation Commissions
          California Police Chiefs Association
          California Professional Firefighters
          California State Association of Counties
          City of Jurupa Valley
          City of Menifee 
          City of Riverside
          Contra Costa County Local Agency Formation Commission
          County of Riverside
          League of California Cities
          Riverside Sheriff's Association
          San Diego County Local Agency Formation Commission
          San Mateo County Local Agency Formation Commission
          Southwest California Legislative Council
          Urban Counties Caucus


          OPPOSITION:   (Verified5/29/15)


          None received


          Prepared by:Brian Weinberger / GOV. & F. / (916) 651-4119
          5/30/15 16:50:01


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