BILL ANALYSIS Ó
SB 817
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SENATE THIRD READING
SB
817 (Roth)
As Amended February 22, 2016
Majority vote
SENATE VOTE: 38-0
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|Committee |Votes|Ayes |Noes |
| | | | |
| | | | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Local |8-0 |Eggman, Waldron, | |
|Government | |Alejo, Bonilla, Chiu, | |
| | |Cooley, | |
| | | | |
| | | | |
| | |Beth Gaines, Linder | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Appropriations |20-0 |Gonzalez, Bigelow, | |
| | |Bloom, Bonilla, | |
| | |Bonta, Calderon, | |
| | |Chang, Daly, Eggman, | |
| | |Gallagher, Eduardo | |
| | |Garcia, Holden, | |
| | |Jones, Obernolte, | |
| | |Quirk, Santiago, | |
| | |Wagner, Weber, Wood, | |
SB 817
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| | |McCarty | |
| | | | |
| | | | |
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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) 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,
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 Assembly Appropriations
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Committee,
1)On-going costs of approximately $18 million (General Fund
(GF)) to backfill property tax reductions. This bill will
result in a one-time shift of approximately $18 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 GF 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)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 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 GF backfilled the lost revenues to cities
and counties with revenues equivalent to the full 2% VLF tax
rate.
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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 GF, 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 GF 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 GF then
backfilled schools for the lost ERAF money. After the
dollar-for-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
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.
SB 89 (Budget and Fiscal Review Committee), Chapter 35,
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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
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 GF 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.
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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 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 GF
so there is no impact on schools."
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
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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 69 (Roth) of 2014 and SB 25 (Roth) of 2015, 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) of 2016, 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.
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6)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 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.
7)Policy Consideration. The Legislature 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 GF.
8)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.
9)Arguments in Opposition. None on file.
Analysis Prepared by:
SB 817
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Misa Lennox / L. GOV. / (916) 319-3958 FN:
0003986