BILL ANALYSIS
AB 799
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Date of Hearing: May 11, 2005
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Judy Chu, Chair
AB 799 (Leno) - As Introduced: February 18, 2005
Policy Committee: Local
GovernmentVote:5-2
Revenue and Taxation 4-3
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill authorizes the Board of Supervisors of the City and
County of San Francisco to impose a vehicle license fee (VLF) on
vehicles operated by residents of San Francisco. Specifically,
this bill:
1)Authorizes the Board of Supervisors of San Francisco, by a 2/3
vote, to approve an ordinance to levy an additional VLF on
vehicles owned by residents for general revenue purposes.
2)Requires that the ordinance proposing the additional VLF be
submitted to the electorate and approved by a majority of
those voting.
3)Specifies that the additional VLF shall be equal to the
difference between 2% of the market value of the vehicle and
the rate levied by the state under current law. (i.e., the
additional rate would be 1.35%, the difference between the 2%
rate and the 0.65%. rate levied by the state under R&T 10701
et seq.)
4)Requires San Francisco to contract with the Department of
Motor Vehicles (DMV) to collect and administer the fee.
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5)Requires the Franchise Tax Board (FTB) to notify the State
Controller of any state revenue losses resulting from
taxpayers deducting the local VLF fees authorized by this bill
for purposes of the Personal Income Tax Law and the
Corporation Tax Law.
6)Reduces San Francisco's property tax allocation pursuant to
the VLF swap (R&T 97.70) to cover these reported losses as
well as FTB's administrative costs.
FISCAL EFFECT
1)The additional VLF authorized by this measure would raise
approximately $60 million for San Francisco.
2)The Department of Motor Vehicles (DMV) would incur one-time
costs in the range of $250,000 to reprogram software and
implement accounting procedures for the disbursement of
additional registration fees, and ongoing costs in the range
of $100,000. DMV would be authorized to deduct its costs from
the amounts collected annually.
3)FTB estimates General Fund revenue losses of approximately $4
million annually, beginning in the year following the year of
implementation, resulting from higher taxpayer deductions of
VLF payments under the Personal Income Tax and Corporation Tax
laws. The state General Fund revenue loss would be reimbursed
by San Francisco (see discussion of amendments below.)
4)FTB would incur minor, absorbable administrative costs.
COMMENTS
1)Rationale . This bill is intended to provide San Francisco
with authorizing language to impose a local-option VLF. The
fee would be imposed at a rate equal to the difference between
the historical 2% state tax rate and the current rate actually
paid to the state by vehicle owners (0.65%) - in other words,
a tax rate of 1.35% on the depreciated value of San Francisco
residents' vehicles. The resulting total fee imposed on San
Francisco residents would be 2%. The ordinance providing for
this increase would have to be approved by a 2/3 vote of the
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Board before it can be placed on the ballot for voter approval
by the electorate of San Francisco. Since the revenue from the
fee would be used for general revenue purposes, rather than a
specified purpose, the ordinance requires approval by a
majority of those voting. The fee would be administered by DMV
under contract with San Francisco, and DMV's costs would be
recovered from revenue generated by the fee.
Since the Internal Revenue Service considers the VLF to be a
property tax, the VLF is deductible for both federal and state
income tax purposes. For those who itemize deductions, up to
40% of the additional VLF would effectively be borne by the
state and federal governments in the form of reduced income
tax payments. The same would be true of a local VLF such as
that proposed by this bill.
2)Proposed Amendments . This bill requires FTB to report the
General Fund revenue losses resulting from the higher VLF
deduction for the prior year to the State Controller and city
and county auditor, beginning in the third year following the
year of implementation. The bill would reimburse the state
for these losses from the additional property revenue
allocated to the city and county to replace the city and
county's VLF backfill as part of the 2004 State Budget
agreement [SB 1096 (Committee on Budget and Fiscal Review),
Chapter 211 of 2004].
This method of reimbursement could be subject to the legal
challenge that it violates a provision of Proposition 1A,
approved by the voters on November 2, 2004 (Article XIII,
Section 25.5 (1) (A) of the California Constitution) which
prohibits the Legislature from enacting a statute that reduces
the total amount of ad valorem property tax revenues allocated
among local agencies in a county (except under the limited
circumstances of a suspension). Legislative Counsel believes
that this reimbursement method would not violate Prop 1A,
because it does not require reduction in local property tax
allocations; it merely authorizes an optional local program
that entails such a reduction to reimburse the state revenue
loss. Clearly, this bill is not the type of ERAF shift of
revenues to the state (through Prop 98) that Prop 1A was
intended to prohibit.
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Nonetheless, the additional VLF authorized by this bill, if
ultimately enacted in San Francisco, undoubtedly would be
controversial, and it does not make sense for the statute to
invite litigation. From a policy perspective, this method of
reimbursement - requiring the city and county auditor to
adjust property tax allocations annually - would be extremely
cumbersome, and there is an easier way.
The author will offer amendments to allow DMV to recoup the
amount of state General Fund revenue loss estimated by FTB, as
well as any FTB administrative costs, prior to remitting the
funds to San Francisco, in the same manner the bill authorizes
DMV to recoup its own administrative costs. Additionally, the
amendments will require the San Francisco Board of Supervisors
to execute a contract with DMV to pay for its initial setup
and computer programming cost, so that these initial costs,
which will be higher than DMV's ongoing administrative costs,
will not have to be reimbursed in arrears.
3)Prior Legislation . AB 1187 (Leno), which failed passage in
the Senate Appropriations Committee in 2004, was substantially
similar to this bill. AB 1187 was not heard in the Assembly in
this form.
AB 925 (Burton), Chapter 966, Statutes of 1993, authorized San
Francisco to levy a surcharge on the 2% VLF, for purposes of
public transit financing, so long as transit fares are not
increased. The fee would have required a 2/3 popular vote and
the surcharge was estimated to yield over $300 million for San
Francisco at the time of the legislation was enacted. However,
the surcharge was never enacted by San Francisco, the
authority to do so has been voided by a recent transit fare
increase.
4)Related Legislation . AB 1208 (Yee), also being heard before
this committee today, authorizes the City and County of San
Francisco Board of Supervisors, by ordinance or resolution, to
impose a fee in an amount to be established by the Board to be
paid at the time of registration or renewal of every vehicle
registered in the city and county. Fund raised by this fee
could be expended only on local streets and roads.
Analysis Prepared by : Stephen Shea / APPR. / (916) 319-2081