BILL ANALYSIS Ó
SB 25
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Date of Hearing: August 19, 2015
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Jimmy Gomez, Chair
SB 25
(Roth) - As Introduced December 1, 2014
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Urgency: No State Mandated Local Program: YesReimbursable:
Yes
SUMMARY:
This bill establishes a motor vehicle license fee (VLF)
adjustment amount for cities that incorporated after January 1,
2004, and on or before January 1, 2012.
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FISCAL EFFECT:
1)On-going costs of approximately $17 million (GF) to backfill
property tax reductions to schools as follows:
a) This bill will result in a one-time shift of
approximately $16.7 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 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 General Fund impact of about $16.7 million in
2015-16, which would grow each year thereafter by 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 sixth legislative attempt to address the
disproportionate impact the 2011 budget trailer bill (SB 89)
had on cities that incorporated after January 1, 2004, and on
or before January 1, 2012. These incorporations were funded,
in part, through an increased share of VLF revenue. In an
effort to fund realignment, SB 89 shifted approximately $150
million of VLF revenue to the Local Law Enforcement Services
Account. The author notes that by abruptly cutting the
allocation of VLF funds to newly incorporated cities, the
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realignment shift in 2011 disproportionally endangered the
fiscal viability of communities that rely on VLF revenues.
For example, for the City of Jurupa Valley which incorporated
within days of the passage of SB 89, the anticipated VLF
revenues represented 47% of its General Fund budget.
This bill impacts only the four cities that incorporated
during the timeframe in the bill, Jurupa Valley, Eastvale,
Menifee, and Wildomar, all in Riverside County. The bill
establishes a base year VLF adjustment amount for these cities
for FY 2015-16 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.
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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
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)Related Legislation. AB 448 (Brown), pending on the Senate
Appropriations Committee's Suspense File, contains a similar
adjustment for cities that annexed inhabited areas.
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4)Prior Legislation.
a) SB 69 (Roth) of 2014, nearly identical to this bill,
would have provided a city incorporating after January 1,
2004, and on or before January 1, 2012, with property tax
in lieu of VLF. SB 69 was vetoed by the Governor. In his
veto message the Governor remarked, "?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."
b) AB 1521 (Fox) of 2014, nearly identical to this year's
AB 448, would have modified the amount of VLF allocated to
counties and cities to include changes in the assessed
valuation within annexed areas. AB 1521 was vetoed by the
Governor. His veto message was similar to that of SB 69,
citing long term costs to the general fund.
c) SB 56 (Roth) of 2013 and AB 677 (Fox) of 2013, 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
Local Government Committee.
d) 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
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SB 1566's provisions and was vetoed by the Governor.
Analysis Prepared by:Jennifer Swenson / APPR. / (916)
319-2081