BILL ANALYSIS Ó
SB 817
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Date of Hearing: June 29, 2016
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Lorena Gonzalez, Chair
SB 817
(Roth) - As Amended February 22, 2016
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|Policy |Local Government |Vote:|8 - 0 |
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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.
FISCAL EFFECT:
1)On-going costs of approximately $18 million (GF) to backfill
property tax reductions. This bill will result in a one-time
shift of approximately $18 million from the Riverside County
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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. This
amount would increase each year thereafter by the property tax
growth rate.
2)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 eighth 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
realignment shift in 2011 disproportionally endangered the
fiscal viability of communities that rely on VLF revenues.
This bill impacts only four cities, Jurupa Valley, Eastvale,
Menifee, and Wildomar, all in Riverside County. The bill
establishes a base year VLF adjustment amount for these cities
for FY 2016-17 to replicate funds that existed for new cities
prior to 2004.
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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 GF 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 GF generally
backfills local school funding that is reduced through the
ERAF shift.
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.
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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)Budget Appropriation. Last year, the State Budget contained a
one-time appropriation to address the GF 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 GF
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 provided to
those cities by Riverside County 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.
4)Related Legislation.
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a) AB 2277 (Melendez), nearly identical to this bill, was
held on this Committee's Suspense File earlier this year.
b) AB 448 (Brown), containing a similar adjustment for
cities that annexed inhabited areas, was held on the Senate
Appropriations Committee's Suspense File.
1)Prior
Legislation.
a) SB 25 (Roth), which was vetoed by the Governor last
year, was effectively identical to this bill. The veto
message states the following:
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 fund that the
state's budget cannot afford.
b) SB 69 (Roth), which was also vetoed by the Governor in
2014 was nearly identical to this bill and SB 25, and would
have provided recently-incorporated cities with enhanced
VLF adjustment amounts from county ERAF revenues. The veto
message for SB 69 states the following:
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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.
c) Additional attempts include:
i. AB 1521 (Fox) of 2014, nearly identical to 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.
ii. 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.
iii. 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 and was vetoed by the
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Governor.
Analysis Prepared by:Jennifer Swenson / APPR. / (916)
319-2081