BILL ANALYSIS Ó
SB 817
Page 1
Date of Hearing: June 15, 2016
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
Susan Talamantes Eggman, Chair
SB
817 (Roth) - As Amended February 22, 2016
SENATE VOTE: 38-0
SUBJECT: Local government finance: property tax revenue
allocations: vehicle license fee adjustments.
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)
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,
SB 817
Page 2
b) A formula to calculate the VLF adjustment amount for FY
2017-18, 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)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 Senate Appropriations
Committee, there is a one-time, permanent shift of approximately
$18 million in property tax revenues in 2016-17 from the
Riverside County Educational Revenue Augmentation Fund (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.
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
SB 817
Page 3
Legislature decided to create a statewide 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 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
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-or-dollar
swap in FY 2004-05, 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
SB 817
Page 4
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
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 of 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
SB 817
Page 5
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
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 2016-17 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 would be the
city's annual change in assessed property values, 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
SB 817
Page 6
budget gap was to pass Senate Bill 89 which eliminated VLF
revenue allocated to newly incorporated cities. 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 considered disincorporation, potentially forcing
Riverside County to provide essential services to residents
which the County has not budgeted for.
"While ongoing funding is critical to stabilize new cities,
VLF revenue is no longer available as a funding source for
cities due to the passage of Proposition 30 (2012), which
requires that VLF funds be used exclusively for criminal
justice realignment. Cities play a vital role in fulfilling
many of the state's policy goals which include achieving smart
growth objectives, promoting transportation and infrastructure
investments, meeting affordable housing needs, and realizing
greenhouse gas reduction goals.
"SB 817 utilizes a county's ERAF. If the funds are fully used,
the school share of ERAF will be used to make up the
difference. This will be fully reimbursed by the state's
general fund so there is no impact on schools."
SB 817
Page 7
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 was held
on the Senate Appropriations Committee's suspense file, and AB
1098 was vetoed by the Governor.
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, vetoed by the Governor, and AB 448
(Brown) of 2015, held on the Senate Appropriations Committee's
suspense file, would have modified the amount of VLF allocated
to counties and cities to include changes in the assessed
valuation within annexed areas.
SB 817
Page 8
SB 69 (Roth) of 2014 and SB 25 (Roth) of 2015, which were
vetoed by the Governor, would have provided a city
incorporating after January 1, 2004, and on or before January
1, 2012, with property tax in lieu of VLF, and are nearly
identical to the provisions in this bill.
AB 2277 (Melendez), held on this year's Assembly
Appropriations Committee's suspense file, would have changed
the formulas for calculating the VLF adjustment amounts for
the four cities identical to the provisions contained in this
bill.
6)Conflicting Legislation. Provisions of this bill conflict
with AB 448 (Brown), pending in the Senate, and may need
amendments to address the conflict, should the bills continue
to move through the legislative process.
7)Budget Appropriation. Last year, the State Budget contained a
one-time appropriation to address the General Fund shortfalls
of the four newly incorporated cities in Riverside County;
however, the appropriation does not address ongoing funding
needs. SB 107 (Committee on Budget and Fiscal Review),
Chapter 325, Statutes of 2015, appropriated nearly $24 million
from the General Fund to the Department of Forestry and Fire
Protection in order to forgive monies owed by the newly
incorporated cities for services rendered by the County of
Riverside. The fiscal relief authorized by SB 107 has been
used to forgive more than $1 million in debt owed by the City
of Menifee, $1 million in debt owed by the City of Wildomar,
and $21 million in debt owed by the City of Jurupa Valley for
services that Riverside County provided to those cities
following their incorporation. The City of Eastvale received
no money following the passage of SB 107 and unsuccessfully
sought to challenge the County's decision in the courts to
allocate the fiscal relief to the other three newly formed
cities.
SB 817
Page 9
8)Policy Consideration. The Committee may wish to ask the
author about the status of conversations with the Governor in
light of the budget appropriation contained in SB 107 and past
veto messages for nearly identical bills that have expressed
concerns with long-term costs to the General Fund.
9)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.
10)Arguments in Opposition. None on file.
REGISTERED SUPPORT / OPPOSITION:
Support
Alameda Local Agency Formation Commission
California Association of Local Agency Formation Commissions
California Police Chiefs Association
SB 817
Page 10
California State Association of Counties
Cities of Eastvale, Jurupa Valley, Menifee, Murrieta, Riverside,
and Wildomar
Contra Costa Local Agency Formation Commission
League of California Citites
Urban Counties of California
Riverside County
Riverside County Division of the League of California Cities
Riverside Local Agency Formation Commission
Riverside Sheriffs' Association
San Mateo Local Agency Formation Commission
Solano Local Agency Formation Commission
Southwest California Legislative Council
SB 817
Page 11
Yolo Local Agency Formation Commission
Opposition
None on file
Analysis Prepared by:Misa Lennox / L. GOV. / (916)
319-3958