HomeMy WebLinkAbout1998-05-26 - AGENDA REPORTS - VEHICLE LICENSE FEE (2)CITY OF SANTA CLARITA
AGENDA REPORT
NEW BUSINESS City Manager
Item to be presented by:
DATE: May 26, 1998
SUBJECT: STATE LEGISLATION: VEHICLE LICENSE FEE REPEAL
DEPARTMENT: City Manager
RECOMMENDED ACTION
The City Council Legislative Committee recommends that the City Council oppose
Vehicle License Fee (VLF) repeal legislation unless it contains:
1. Full backfill provisions mitigating all losses to the City.
2. Growth factor. equal to or better than VLF formulas under existing law.
3. Constitutional guarantee for revenues to be directed to local governments:
4. Commitment to backfill property tax losses sustained by local. governments
due to legislative property tax shifts of 1992/93 and 1993/94.
Legislative Committee further recommends the City Council advocate that the state direct
a portion of the anticipated state budget surplus toward construction of new school
facilities, particularly in the Santa Clarita Valley.
Statements of position, through lobbying, shall be directed to members of Santa Clarita's
state legislative delegation, Governor Wilson, the League of California Cities, California
Contract Cities Association and Independent Cities Association.
BACKGROUND
Five bills are presently pending in the Legislature to repeal the Vehicle License Fee
(VLF). They are AB 1776 (McClintock), ACA 45 (McClintock), SB 1723 (Haynes), SB
1998 (Hunt) and SB 2001 (Hunt). The VLF is the personal property tax portion of the
annual vehicle registration renewal, averaging $185 annually per person per vehicle
owned. Under current law, 93% of VLF revenues are allocated directly to cities and
counties. Proposition 47 (1986) constitutionally protects VLF as local government
revenue source. Statewide, VLF allocation represents approximately 10% of cities' tax
APPROVER Agenda Item:-/�
revenues and 25% of counties' tax revenues, and is typically the third most important
local government revenue source behind property tax and sales tax.
The concept of eliminating the Vehicle License Fee is the convergence of two key
political interests. First, support for eliminating the VLF has been highly successful for
candidates for state office in other states, most notably Virginia whose Governor came
into office on the platform of eliminating that state's VLF. Second, Governor Wilson
recently announced the state anticipates a $4.4 billion surplus for the coming fiscal year.
The VLF issue is shaping up as the flash point in the state budget negotiations which are
presently in progress. Many Republican members of the Legislature, particularly
Assembly Republicans, and the Governor strongly believe a tax cut is in order based
upon the political popularity of eliminating the VLF and the state's current positive
financial condition. Legislative Democrats see an opportunity for one-time expenditures
for projects which have sat on the back burner during lean economic times. They also
cite a previous state tax refund in the late 1980s, which was followed by tax increases,
including VLF increases, and taking of money from local governments to help balance
the state's budget in the early 1990s.
Governor Wilson is advocating reducing the VLF by 75% over five years. His proposal
calls for a 50% reduction beginning January 1, 1999 with the remaining 25% phased in
over the remaining four years. He is also proposing a "statutory backfill" of funds lost to
local governments. Assembly Republicans are proposing a 100% VLF reduction phased
in equally over the five-year period. They are also supporting a "constitutional backfill"
from the newly created Local Government Independence Fund. The backfill also
reportedly contains a growth factor for future apportionments.
The League of California Cities and California State Association of Counties are leading
a broad-based coalition in the fight against the Vehicle License Fee repeal. The League
cites several critical issues: First, this proposal is an assault on a constitutionally
protected local government revenue source, making a hit on local governments in both
lean times and now when the state has a surplus. Second, by using sales tax revenue as
the backfill source, local government revenues are subjected to the long-term volatility of
the state's economy on a single revenue source. Third, anything less than a constitutional
guarantee as afforded under current law is really no guarantee at all, since the state has an
active history of raiding local government piggy banks. Finally, when the state shifted
local government property tax revenue in an effort to balance the state's budget during
the early 1990's, a presumption existed that local governments would be made whole
during future robust economic times. The League believes that in the wake of a $4.4
billion state surplus, local government has a right to be at the negotiating table when
decisions are made on priorities to allocate surplus funds and secure repayment of
previously taken funds.
FISCAL IMPACT
In 1997/98, Santa Clarita anticipates receiving a VLF allocation of $5.8 million. That
figure is anticipated to grow to $6.2 million in FY 1998/99 and increase to $7.1 million
by FY 2003/04. Historically, VLF represents approximately 9% of Santa Clarita's
general fund revenues. Because Santa Clarita is a low property tax city, VLF is the
City's second most important revenue source behind sales tax.
ALTERNATIVE ACTIONS
1. Oppose any change in VLF allocations.
2. Support VLF repeal with statutory backfill requirements.
3. Other alternatives as identified by the City Council.
ATTACHMENTS
League of California Cities Analysis of Governor's VLF Proposal
Assembly Member George Runner's Summary of Assembly VLF Proposals
MPM.vIf98agd
BE/14/01d 17;06;36
May 14, 1998
TO:
RE:
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League of California pi�Csclties
BY FAX, I OF 5 PAGES
Mayors. Council Members and City Managers
Governor'! Anaeonces Proposal un C r Tea Repeal - Ouooae
Standing in a car dealership shuwroom its Sacramento, the Governor unveiled his long-awaited
Proposal to cut the Vehicle License Fee (VLF) tax. The proposal cuts VLr by 75 percent over a
five year period. The spocifres are:
1. A 50% cut beginning January 1, 1999 by reducing the tax rate from the current 2% of
the value of the car to 1%. This results in a $995 million reduction of revenues for the six
month period from January 1, 1999 to June 30, 1999. In the second year (first full year of
implementation), the revenue reduction is a continuous $2 billion per year thereafter.
2. A second tax cut from 1% to 0.5% of the value of the oar would take effect January 1,
2002, Once fully phased in, the cost of the cut would be $3.56 billion per year.
The Governor is proposing
of Iced government losses from the State
general fund- As a statutery general fund backfill, this backfill fs not constitutionally
protected as a local government revenue source. This backfill "guarantee" is no guarantee at
all. The best this proposal offers is a backfill that has to be reconfirmed each year in the stats
budget process. This does nothing to ease the minds of local officials.
groposal. The following issues should be pointed out to Legislators:
1. Governor's Pr000ssl is a "Guarantee" with No Guarantee. The statutory
guarantee that local Governments will not lose any revenue because the state will backfill
cities and counties is no guarantee. The guarantee may last until the next budget
negotiations and then we are once again put at risk as soon as them is another recession,
a greater priority or another politically popular idea comes along like repealing the
remainder of the VLFI The_state_h2LDroven time and again that it can't be trusted
with local Dove
2. Lneal Governments Should Shale in State Budget Snrelus • Give ItBaelc The
state of California is feeing a $4 billion hod(_ t�,_eet <t,rntn.. The state's obscene surplus is as
least in pan due to the shift of local government property tax revenues to the state. Local
governments should be sharing In that budget surplus through a return of property tax,
Pmtrerenee 8all.Ttration Obese Hexdque,tess Sw,6em Cdlromis Dfrtce
POROMPA Box 1519 1400 K Sonet 602 Ent %mainsion Oe. Suite C
Wgttm, CA 94549 Sacramento. CA 95114 Manm9ia. LA 91016
510 283.2113 916.63a�ereo 626.305.1315
...w fax Alf,.1n5.134S
esilv9e 1�:e1:1;'.
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Page 2 of 5
-� 885 Z59 81Z5 Santa Glarita Page 882
revenues, not facing a stampeding State Legislature that is intent on cashing In on a
politically expedient tar cut. It's time to give the money hack. net take away more
moofst
The League is fully engaged in a strong coalition consisting of the law enforcement community,
the fire services, the Democratic leadership in both houses, local government labor unions, hcaltlm
organizations, business groups and representatives from the school community against the repeal
of the VLH. included in this effort is an active strategy to help shape the public debate tin the
issue through the media. On Tuesday the coalition against VLF repeal held a well•aticuded press
conference in Sacramento emphasizing that proposals to eliminate the VLF are taking money out
of local communities and sending it to Sacramento, money that goes for public safety services
and many other community-based programs. A press release from that conference is included.
The League is also cosponsoring a legislative event on May 27, 1998 in Sauatrtento. An
informational flyer on that legislative day is also included with this FAX. Please take the time
and effort to come to Sacramento and talk to Legislators about the impact of the VLF repeal on
local communities.
There is little In the Governor's proposal worthy of merit by local government standards.
Without an lronclad guarantee and recognition of it partnership with local governments in
disbursing the state's surplus, the League continues to oppose efforts to take VLF from a
constitutionally protected local mento source to a state subvened and unprotected general fund
backfill.
85/14/98 17:81:35
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5177 ?. s
Local Government Services Coalition
FOR IMMEDIATE; RELEASE
May 12, 1998 rnniact: Julie Marengo, League of California Cities
(916)658-8228
Allison Smith, California State Association of Counties
(916)727-7529
Democratic Leadership, Diverse Coalitiou Denounce VLF Rcpcnl
Warn of Public Safety Cuts, Impact on Lncal Communities
SACRAMENTO -- California's Democratic leadership joined representatives from more thou 20
statewide law enforcement, fire, local government, labor, health, education and business organizations
today to denauacc current legislative efforts to repeal the Vehicle License Fee (VLF).
VLF is tine fee that those who own registered vehicles pay each year instead of paying local
property taxes on their vehicles. It is 2% of the market value of the vehicle: The VLF is a.major revenue
source, expected to total nearly $4 billion in 1999.99. More than 90% of VLF goes to cities and counties
and benefits the communities they serve.
VLP is a stable, discretionary revenue source tar cities and counties. Most cities and counties
s pend much of their discretionary revenue on public satety setviceu For example, the averngc city spends
65% of its discretionary revenue on cops and firefighters. That mean% of the $1.2 billion cities would lose
with a VLF repeal, $780 million will come from public safety, taking cops off the streets and fireft7hters
off their trucks.
"Proposals to eliminate the VLF directly impacts fire and police," said Mike Wuma, fire chief for
the City of Corona. "If the VLF is emaciated, public safety is directly at risk."
Without VLF money, which voters dedicated to local government in 1986, these public safety and
other local services such as parks, libraries, mad maintenance, economic develupmeat and public health
would be in danger of being reduced or eliminated.
"All of us are deeply coneemed with the prospects a VLF cut will have to reductions in public
safety, and city and county programs and services:' said Assembly Speaker Antonio Villarzigosa.
"County and city governments provide impurwat services. Before we begin cutting these services, we
need to make sure we aro prudent about the budget surplus."
(more)
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Santa Clarita
Page 884
Legislators joining Villaraigosa speaking against the VLF repeal were Senator Patrick ]abmwn,
(D -Stockton), Senator Dede Alpert (D-Cmmnado) and Assembly Member Wally Knox (D -Los Angeles).
Assembly member Knox reiterated the concerns over many have over threats to public safety a
VLF nepeel poses: "We have begun to rum the comer on crime. The heart and soul of that is local
community policing programs. How we we doing that? With VLF finds. Proposals to eliminate the VLF
hu the potential to bring to a halt the progress we've made. That concerns me as a father. not as a
legislator."
Ths Locel Government Services Coalition opposes replacing the VLF with sales tax revenue --
even if it is constitutionally guaranteed. Such a move wauid make local government too tell= on one
revenue source end highly vulnerable to economic fluctuations Moreover, with VLF revenue gone, more
pressure will be placed on remaining local government funding sources and increase the likelihood of
continued state take-aways in the future when titnes aren't so rosy;
With an estimated $4 billion surplus the Legislature should be seriously designing ways to return
the Iocal property tax money it has been taking since 1992.93, instead of considering a proposal that
would further decrease the financial stability of California's local governments and the safety of the
communities they serve.
Several bills now pending in the state Legislature would repeal the vehicle license fee (VLF).
They are Assembly Rill 1776 and Assembly Constitutional Amendment (ACA) 43 (McClintock. R -Simi
Valley), Senate Hills 2001 and 199E (Hurst, R -Garden Grove) and Senate Bill 1723 (Haynes. R-Murictua).
Members of the Local Government Services Coalition are League of California Cities, California
State Association of Counties, California Mental Health Directors Association, California State Council
of Service Employees (SEIU). Peace Officers Research Association of California, California Professional
Firefighters, California Fire Chiefs Associations, Fin Districts Association of Califorala, Urban Counties
Caucnt. California radependem Public Employees. County Weifm Directors Associedon. Califumis
State Firefighters Asseefadon, American Federation of Stas*, County and Municipal Empluycm
Association of California Water Agencies, County Health Executives Association of California..
Others attending the press conference and on record opposing the VLF repeal are Californians for
Better Trmspartadem California Alliance for the Mentally III and rhe Eduatioa Coalitioa of Cal'rfomia,
whose members are the AssacledoA of School Administrators, California Association of School Business
OfiIcials, California Cormty Superintendents Educational Services Association, California Federation of
Teachers, California School Boards Association, California School Empleyees Association, California
State PTA, Califomis Tcwhen Association and the Service Employs* International Union.
STATE CAPML
P.O. BOX 942892
SACRAMENTO. CA 94249-0001
DISTRICT OFFICE
708 W. LANCASTER BW4
LANCASTER. CA 93S34
(803)j 7233388
FAX (805) 723-0307
DISTRICTOFFICE
23920 VALENCIA BLVD,
SUITE 24S
SANTA CLARTTA. CA VMS
(805) 2791518
FAX (805) 2593118
Summary
�jsEmhltr
(?Ittlifarrtitt Pgislttfurz
GEORGE RUNNER
ASSEMBLYMEMBER;7 M YSIXTH DISTRICT
REPUBLICAN WHIP
Repeal of the Car Tax
And Its Effect on Local Government
COLBArrTEEs:
LOCALGOVEANMENT
TRANSPORTATION
UTILITIES l COMMERcE
PUBLIC EMPLOYEES. RETIREMENT
AND SOCIAL SECURr(Y
JOINT COMMMEE FAIRS ALLOCATION
a CLASSIFICATION
VICE CHAIR
RURAL CAUCUS
ASSEMBLY SELECT COMMITTEE
ON AEROSPACE
Republican members of the State Assembly are proposing to eliminate Vehicle
License Fees or VLF (the annual car tax paid when registering with the DMV) as a way
of providing direct tax relief to Californians. Californiam pay an average of $185
annually inpersonal property taxes on each car that they own. The Legislative
Analyst's Office estimates that after five years, the total tax relief associated with
eliminating the car tax will be $4.6 billion that will directly benefit every California
vehicle owner.
Assembly Bill 1776 and Assembly Constitutional Amendment 45 (McClintock)
propose phasing out the car tax over five years. Because 93 percent of the VLF
revenues are allocated directly to Cities and counties, AB 1776 / ACA 45 would
provide a complete °backfill" of these VLF revenues to cities and counties keeping
them financially whole. Furthermore, ACA 45 would constitutionally protect the
VLF backfill and therefore provide local government with the highest level of financial
protection available under the law. Finally, the state funds, which would be used to
provide the local government backfill, would come from the non -Proposition 98
portion of the State Budget. Therefore the elimination of the VLF will have absolutely
no impact at all on K-14 edtie27= mzr ;i n .....l-- T]-_—__---__ en
Local Government Funding Protection
Protecting local government revenues is especially important in view of the fact
that local governments receive over 93 percent of the current VLF revenues collected
by the DMV. In fact, the VLF allocations to local governments represent 10 percent oil'
cities' tax revenues and about 25 percent of counties'tax revenues making them the
third most im artant source of revenue behind local property and sales taxer. Unden
current law; (l�ropositioa 47/1986) VLF revenue; ase constitutionally protected u
local government revenue source The Assembly Republicans recognize the uitical
importance of these revenues and their constitutronal �rouction. This is why AB 1776
replaces loaf VLF funds on a dollar-fordo11U basis wash stau sales tax revenue, and
ACA 45 provides she exact same constitutional protection for these backfill funds. The
rocecL4on against ruture state overnment raids. The backfill will be phased in on the
exact same schedule as the TLT being phased out. The replacement revenues will be
PrWed 0n Reryua P49wr
placed into a dedicated state sales and use tax account appropriately called "the Local
Government Independence Fund," in which the current VLF formula will be
maintained. Allocations from this new fund will replace lost VLF subventions to local
governments on a dollar -for -dollar basis. Future allocations from this fund to locale=
governments will increase as the economy grows There will be additional funds
available from administrative savings as the VLF is phased out. These savings could be
allocated in a manner similar to the "COPS"rogram and thereby provide funding for
more uniformed officers around the state. Wpen fully phased in, state taxpayers will
save $4.6 billion annually and local governments will continue to receive the same level
of financing, as they would have under current constitutional law:
Need For Taxpayer Relief
During the recession of the early 1990's, state motorists were asked to pay
substantially higher vehicle license fees to help close the state's budget deficit. Now
with the recession over and state revenues growing at the fastest rate in a decade,
California's 16 million vehicle owners should not have to continue to pay the third-
highest car taxes in the country. AB 1776 would provide needed tax relief to all
Californians who own and operate motor vehicles. This is good policy because
California's automobile owners are one of the most heavily taxed classes in our society.
They pay state and federal excise taxes on gasoline, sales tax on gasoline, sales taxes on
vehiclepurchases, registration fees, driven license fees and a variety of other
automobile related fees under various programs. These fees and taxes affect theirability
to save for the future and to make other necessary purchases. AB 1776/ACA 45 would
phase out the vehicle license fee over five years. In the first year each vehicle owner,
would be provided a 55,000 exemption, and is each succeeding year the exemptiory
would grow by 55,000. By year five, the car tax would be completely abolishedti
VLF History
The car tax is a personal property tax on vehicles that began as a minor tax in
1935. Originally, the tax was intended provide additional resources to build more
transportation infrastructure. Over the years, the rate has grown to.2% of the value ofi
the vehicle, and all nexus to transportation has disappeared. In fact; nearly all of then
VLF revenues go not to transportation projects but to cities and counties, with 2596:
earmarked for county social service programs: In 1986, Proposition 47 constitutionally
dedicated these revenues to local governments. The VLF is currently a 53.7 billion car
tax burden falling mainly on the avenge working family.
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