BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |SB 817 |Hearing |3/30/16 |
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|Author: |Roth |Tax Levy: |No |
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|Version: |2/22/16 |Fiscal: |Yes |
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|Consultant|Weinberger |
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Local government finance: property tax revenue allocations:
vehicle license fee adjustments
Changes the formulas for calculating annual vehicle license fee
adjustment amounts for four cities that incorporated after 2004.
Background
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
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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, 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 2016-17 fiscal year, Senate Bill 817 requires
that the Vehicle License Fee Adjustment Amount (VLFAA) for any
city that incorporated after January 1, 2004, and on or before
SB 817 (Roth) 2/22/16 Page 3
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January 1, 2012 must be calculated according to the following
formula:
For the 2016-17 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 817 helps to
rebalance the four cities' finances by restoring some
VLF-related funding.
2. A deal's a deal . SB 817 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
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to VLF funding for city incorporations were not sufficiently
serious to prevent an agreement in 2004.
3. Zero-sum game . Allocating property tax revenues is a
zero-sum game; every reallocation creates winners and losers. SB
817 makes a winner out of four cities that annexed after 2004
and before 2012. The higher VLF adjustment amounts they receive
under SB 817'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. One-time fiscal relief . As a part of the State Budget
approved last year, the Legislature passed SB 107 (Senate Budget
and Fiscal Review Committee, 2015), which provided nearly $24
million in fiscal relief to the four recently incorporated
cities that lost funding under SB 89's reallocation of VLF
revenues. The fiscal relief authorized by SB 107 has been used
to forgive more than $1 million in debts owed by the cities of
Wildomar and Menifee and more than $21 million in debts owed by
the City of Jurupa Valley for services the County of Riverside
provided to those cities after they incorporated. The City of
Eastvale, which received no fiscal relief from SB 107, has filed
a lawsuit challenging the allocation of fiscal relief to only
three of the four recently incorporated cities. Regardless of
the outcome of that litigation, the one-time fiscal relief
provided by SB 107 does not address the ongoing fiscal shortfall
created by the annual loss of VLF revenues that the newest
cities counted on at the time they decided to incorporate.
5. Veto . SB 817 is effectively identical to SB 25 (Roth, 2015),
which the Senate Governance & Finance Committee approved on a
7-0 vote. Governor Brown vetoed SB 25, stating:
"This bill allows four cities that incorporated
after January 1, 2004 and before January 1, 2012 to receive
additional property tax revenue through a redistribution of
Vehicle License Fee revenue.
My signature of SB 107 provides approximately $24
million dollars in fiscal relief to these four cities. This
bill results in additional long term costs to the general
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fund that the state's budget cannot afford."
6. Related legislation . SB 817'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. 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. AB 1098 (Carter, 2012), which was
amended on the Assembly Floor to contain SB 1566's provisions,
was vetoed by Governor Brown.
Support and
Opposition (3/24/16)
Support : Alameda County LAFCO; California Association of Local
Agency Formation Commissions; California Police Chiefs
Association; California State Association of Counties; Cities of
Eastvale, Jurupa Valley, Wildomar, and Riverside; Contra Costa
County LAFCO; County of Riverside; League of California Cities;
Riverside Sheriffs Association; Solano County LAFCO; Southwest
California Legislative Council; Urban Counties of California;
Yolo County LAFCO.
Opposition : Unknown.
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