BILL ANALYSIS Ó
SB 25
Page 1
SENATE THIRD READING
SB
25 (Roth)
As Amended August 28, 2015
Majority vote
SENATE VOTE: 40-0
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|Committee |Votes|Ayes |Noes |
| | | | |
| | | | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Local |9-0 |Maienschein, | |
|Government | |Gonzalez, Alejo, | |
| | |Chiu, Cooley, Linder, | |
| | |Low, Mullin, Waldron | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Appropriations |17-0 |Gomez, Bigelow, | |
| | |Bloom, Bonta, | |
| | |Calderon, Chang, | |
| | |Nazarian, Eggman, | |
| | |Gallagher, Eduardo | |
| | |Garcia, Holden, | |
| | |Jones, Quirk, Rendon, | |
| | |Wagner, Weber, Wood | |
| | | | |
| | | | |
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SB 25
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SUMMARY: Provides a city incorporating after January 1, 2004,
and on or before January 1, 2012, with property tax in lieu of
vehicle license fees (VLF). Specifically, 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 FY
2016-17, and each FY thereafter, that includes the
percentage change from the immediately preceding FY to the
current FY in gross taxable assessed valuation (property
tax revenues).
2)Contains chaptering out language to avoid conflicts with AB
448 (Brown) of the current legislative session.
3)Provides that, if the Commission on State Mandates determines
that this bill contains costs mandated by the state,
reimbursement to local agencies and school districts for those
costs shall be made, pursuant to current law governing state
mandated local costs.
FISCAL EFFECT: According to the Assembly Appropriations
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Committee:
1)On-going costs of approximately $17 million (General Fund) 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 (1988)
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 (General Fund). It is unlikely
that the county would file a claim for reimbursement for these
minor one-time costs.
COMMENTS:
1)VLF. VLF is a tax on the ownership of a registered vehicle in
place of taxing vehicles as personal property. Prior to 1935,
vehicles in California were subject to property tax, but the
Legislature decided to create a state wide system of vehicle
taxation. The taxable value of a vehicle is established by
the purchase price of the vehicle, depreciated annually
according to a statutory schedule. Prior to recent budget
actions, the state collected and allocated the VLF revenues,
minus administrative costs, to cities and counties. The VLF
tax rate is currently 0.65% of the value of a vehicle, but
historically (from 1948-2004) it was 2%. In 1998, the
Legislature cut the VLF rate from 2% to 0.65 % of a vehicle's
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value. The state General Fund backfilled the lost revenues to
cities and counties with revenues equivalent to the full 2%
VLF tax rate.
2)VLF-Property Tax Swap (2004-05 Budget) and Subsequent
Legislation. Prior to the 2004 budget agreement, the total
VLF revenue, including the backfill from the state General
Fund, was allocated in proportion to population. As part of
the 2004-05 budget agreement, the Legislature enacted the
"VLF-property tax swap," which replaced the backfill from the
state General Fund with property tax revenues (dollar for
dollar) that otherwise would have gone to schools through
ERAF. This replacement funding is known as the "VLF
adjustment amount". The state General Fund then backfilled
schools for the lost ERAF money. After the dollar for dollar
swap in Fiscal Year 04-05, property tax in lieu of VLF
payments (VLF adjustment amount) to cities and counties is
allocated in proportion to each jurisdiction's annual change
in gross assessed valuation (property tax revenues).
The 2004-05 budget agreement did not provide compensating
property-tax-in-lieu-of-VLF for future new cities or for
annexations to cities where there was pre-existing
development. Prior to the 2004-05 budget agreement, a newly
incorporated city received additional VLF revenues based on
three times the number of registered voters in the city at the
time of incorporation. For most cities, this increased
allocation continued for the first seven years. Following the
2004-05 budget agreement, no cities received this VLF revenue
bump upon incorporation. Cities that had not incorporated by
FY 2004-05 receive no property tax in lieu of VLF, and
therefore, do not have a VLF adjustment amount.
The temporary remedy to address the lack of
property-tax-in-lieu-of-VLF for annexations and incorporations
after the budget agreement on August 5, 2004, came in the form
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of AB 1602 (Laird), Chapter 556, Statutes of 2006. AB 1602
specified that a city that annexes, or an unincorporated area
that incorporates after August 5, 2004, but prior to July 1,
2009, will receive special allocations from a portion of the
remaining VLF revenues. The funding formula contained in AB
1602 incorporated an artificially inflated population factor
during the first five years for start-up costs, which roughly
replicated the broad fiscal incentive for city incorporations
that existed before the VLF-property tax swap in 2004.
Similarly, for annexations that had pre-existing residential
development, AB 1602 increased the per capita VLF allocation,
based on each person residing in an annexed area at the time
of annexation in addition to the allocation of VLF revenues,
to levels comparable to pre-2004 allocations. AB 1602 expired
on July 1, 2009, and gave communities five years to complete
annexations or incorporations that were initiated under the
assumption that VLF funding would be available. SB 301
(Romero), Chapter 375, Statutes 2008, eliminated the deadline
that communities had to incorporate and eliminated the sunset
date for city annexations to receive additional VLF.
SB 89 (Budget and Fiscal Review Committee), Chapter 35,
Statutes of 2011, redirected VLF revenues away from newly
incorporated cities, annexations, and diverted funds to the
Local Law Enforcement Account to help fund public safety
realignment. SB 89 also allocated $25 million to the
Department of Motor Vehicles (DMV) in FY 2011-12 for
administrative costs and increased the basic vehicle
registration fee from $31 to $43.
According to the Senate Appropriations Committee, SB 89 had
the effect of eliminating over $15 million in the Motor
Vehicle License Fee (MVLFA) revenues in 2011-12 from four
newly incorporated cities (Menifee [October 1, 2008], Eastvale
[October 1, 2010], Wildomar [July 1, 2008], and Jurupa Valley
[July 1, 2011]), as well as over $4 million from cities that
have annexed inhabited areas. By abruptly cutting the
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allocation of VLF funds to newly incorporated cities and for
inhabited city annexations, the realignment shift in 2011
disproportionally endangered the fiscal viability of
communities that rely on VLF revenues. For example, the City
of Jurupa Valley, which incorporated within days of the
passage of SB 89, anticipated VLF revenues representing 47% of
its General Fund budget.
3)Bill Summary. This bill establishes a base year VLF
adjustment amount for FY 2015-16 for cities that incorporated
after January 1, 2004, and on or before January 1, 2012, to
replicate funds that existed for new cities prior to 2004. In
each subsequent FY, the VLF adjustment amount for these cities
would be the jurisdiction's annual change in the assessed
valuation which is the same formula used to calculate the VLF
adjustment amount for other cities. This bill will only
impact four cities: Jurupa Valley, Eastvale, Menifee, and
Wildomar, which all incorporated during the timeframe
contained in the bill. This bill does not provide a VLF
adjustment amount for cities incorporating after January 1,
2012. This bill is author-sponsored.
4)Author's Statement. According to the author, "In 2011, one of
the steps the Legislature took to close the state's massive
budget gap was to pass Senate Bill 89 which eliminated Vehicle
License Fee (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.
"The situation for the City of Jurupa Valley is especially
urgent, as VLF funding was eliminated only days before the
city incorporated. The residents had voted for cityhood based
on state VLF money being available for the new city. Jurupa
Valley now faces disincorporation, potentially forcing
Riverside County to provide essential services to residents
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which the County has not budgeted for."
5)Previous Legislative Attempts to Address the Impacts of SB 89.
SB 1566 (Negrete McLeod) of 2012, and AB 1098 (Carter) of
2012, sought to remedy the loss of ongoing revenues to new
cities and annexations after the 2004 VLF property tax swap, a
fix that was achieved by AB 1602. SB 89 did not remove the
formulas to calculate the VLF revenue to incorporated or
annexed cities in statute. SB 1566 and AB 1098 would have
restored the funding allocations in AB 1602. SB 1566 died on
the Senate Appropriations Committee's suspense file. The
Governor vetoed AB 1098, stating that its reallocation of VLF
revenues "undermine the 2011 Realignment formulas 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. Given the current fiscal uncertainties, this is not
acceptable."
SB 56 (Roth) of 2013 was returned to the Secretary of Senate
without further action, pursuant to Joint Rule 56. AB 677
(Fox) of 2013 was filed with the Chief Clerk without further
action, pursuant to Joint Rule 56. SB 56 would have
established VLF adjustment amounts for annexations, and also
included a formula for cities that incorporated after 2004 to
receive a VLF adjustment amount similar to the formulas
established in this bill.
AB 1521 (Fox) of 2014, which was vetoed by the Governor, would
have modified the amount of VLF allocated to counties and
cities to include changes in the assessed valuation within
annexed areas, and is nearly identical to AB 448, currently
pending in the Senate.
SB 69 (Roth) of 2014, which was vetoed by the Governor, would
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have provided a city incorporating after January 1, 2004, and
on or before January 1, 2012, with property tax in lieu of
VLF, and is nearly identical to the provisions in this bill.
6)Policy Consideration. The Governor's veto message for SB 69
(Roth) of 2014, states, "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."
7)Arguments in Support. Supporters argue that this bill
reinstates a critical funding component to cities incorporated
between January 1, 2004, and January 1, 2012, and ensures
their continued viability.
8)Arguments in Opposition. None on file.
Analysis Prepared by:
Misa Lennox / L. GOV. / (916) 319-3958 FN:
0001632
SB 25
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