BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 817|
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THIRD READING
Bill No: SB 817
Author: Roth (D)
Amended: 2/22/16
Vote: 21
SENATE GOVERNANCE & FIN. COMMITTEE: 7-0, 3/30/16
AYES: Hertzberg, Nguyen, Beall, Hernandez, Lara, Moorlach,
Pavley
SENATE APPROPRIATIONS COMMITTEE: 7-0, 5/27/16
AYES: Lara, Bates, Beall, Hill, McGuire, Mendoza, Nielsen
SUBJECT: Local government finance: property tax revenue
allocations: 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.
SB 817
Page 2
2)Funds public safety realignment programs with VLF revenues
that, before the passage of SB 89 (Senate Budget and Fiscal
Review Committee, Chapter 35, Statutes of 2011), would have
been allocated to four cities that incorporated after January
1, 2004.
This bill establishes a vehicle license adjustment amount for a
city incorporating after January 1, 2004, and on or before
January 1, 2012, as follows:
1)A formula to calculate the base year VLF adjustment amount for
fiscal year (FY) 2016-17 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
2)A formula to calculate the VLF adjustment amount for the
2017-2018 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.
SB 817
Page 3
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 (Senate Budget and
Fiscal Review Committee, Chapter 35, Statutes of 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 State 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.
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Page 4
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.
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 25 (Roth, 2015) and SB 69 (Roth, 2014), both of which
contained provisions that were nearly identical to this bill's
VLFAA formula for cities that incorporated after 2004, were
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.
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Page 5
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 vetoed by the Governor.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: Yes
According to the Senate Appropriations Committee:
" One-time, permanent shift of approximately $18 million in property tax
revenues in 2016-17 from the Riverside County 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.
SUPPORT: (Verified5/27/16)
Alameda County LAFCO
California Association of Local Agency Formation Commissions
SB 817
Page 6
California Police Chiefs Association
California State Association of Counties
City of Eastvale
City of Jurupa Valley
City of Menifee
City of Riverside
City of Wildomar
Contra Costa County LAFCO
County of Riverside
League of California Cities
Riverside LAFCO
Riverside Sheriffs Association
San Mateo County LAFCO
Solano County LAFCO
Southwest California Legislative Council
Urban Counties of California
Yolo County LAFCO
OPPOSITION: (Verified5/27/16)
None received
Prepared by:Brian Weinberger / GOV. & F. / (916) 651-4119
5/28/16 16:45:52
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