HomeMy WebLinkAbout07 - Vehicle License Fees and the State Budget DeficitCITY OF NEWPORT BEACH
CITY COUNCIL STAFF REPORT
Agenda Item No. 7
January 28, 2003
TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: City Managers Office, Homer L. Bludau, City Manager, 949 - 644 -3000
hbludau @city.newport - beach.ca.us
SUBJECT: Vehicle License Fees and the State Budget Deficit
RECOMMENDATION:
Adopt Resolution No. 2003 -_ urging the California Legislature to reject the
Governor's proposed shift of local Vehicle License Fees (VLF) revenues and to honor
the 1998 commitment to restore the VLF.
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Prior to 1935, cities and counties collected property taxes on motor vehicles, as a
means of funding basic governmental services. In 1935, the State Legislature enacted
the Vehicle License Fee Act, which replaced local property tax on vehicles with a 1.75%
charge based on the vehicle's value; in 1948 that percentage was changed to 2 %. In
1986, California voters, by 81.8 %, passed Proposition 47, which pledged the proceeds
of the VLF to fund local government services. In 1998, the State Legislature reduced
the tax rate charged to vehicle owners, but in doing so, promised to "backfill" the
revenue lost to local government, if the State could no longer afford to fund the VLF
backfill, the VLF would be restored fully to fund local government.
DISCUSSION:
On January 10th, in his annual budget message, Governor Gray Davis recommended
the shift of over $4 billion in VLF backfill funds away from local government to fund other
priorities. In FY2001 -02, Newport Beach received $4,380,069 from the State for VLF.
Under the Governor's proposal, the State would cut VLF payments for the rest of this
year and all of next year. Under his proposal, Newport Beach would receive $2,458,040
during this current budget year (a loss of $1,922,029) and would receive $1,366,667 (a
lost of $3,013,402) for FY2003 -04.
The proposed resolution requests of State officials that if they no longer backfill VLF 100
percent that the 2% VLF tax be reinstated, as was promised in 1998. This would
Vehicle License Fees and the State Budget Deficit
January 28, 2003
Page 2
amount to a tax increase to the people of California in order to fulfill the 1998 promise
made by the State Legislature.
Submitted by:
I'Tomer L. Bluda , City Manager
Attachments: Resolution No. 2003-
RESOLUTION NO. 2003 -_
A RESOLUTION OF THE CITY COUNCIL OF NEWPORT
BEACH CALIFORNIA URGING THE CALIFORNIA
LEGISLATURE TO REJECT THE GOVERNOR'S
PROPOSED SHIFT OF LOCAL VEHICLE LICENSE FEE
REVENUES AND TO HONOR THE 1998 COMMITMENT
TO RESTORE THE VLF
WHEREAS, prior to 1935, cities and counties collected property taxes on
motor vehicles to fund essential local public health and safety services; and
WHEREAS, in 1935, the Legislature first enacted the Vehicle License Fee
(VLF) Act, replacing the property tax on vehicles with a 1.75 percent fee charged
against the value of the motor vehicle; and
WHEREAS, in 1948, the rate of the VLF was increased to 2 percent of the
value of the vehicle; and
WHEREAS, in 1986, the voters voted overwhelmingly to constitutionally
dedicate the proceeds of the VLF to fund city and county services; and
WHEREAS, in 1998, a period of strong economic growth, the Legislature
approved the use of a portion of the rapidly growing state General fund to
reduce the VLF payments of vehicle owners. This amount, known as the
"offset ", grew in future years to a 67.5 percent offset against the amount owed.
The amount paid to local governments in lieu of the reduced VLF payment is
known as the "VLF backfill "; and
WHEREAS, the 1998 legislation and subsequent enactments contain clear
provisions that when insufficient funds are available to be transferred from the
General Fund to fully fund the offsets and backfill amount that the VLF offset
shall be reduced and VLF payments increased; and
WHEREAS, VLF and backfill revenues constitute 15 to 25 percent of typical
city and county general purpose revenues. On average, more than 60 percent of
city general fund spending and more than half of county general funds go to
front line law enforcement, fire, emergency medical services, and health care
programs.
WHEREAS, revenues derived from the VLF and backfill are of critical
importance in funding vital local public health and safety services; and
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WHEREAS, any failure by the Legislature to maintain the VLF backflll or
restore the VLF will cause widespread disruption in local government services
essential to the well -being of California citizens and their cities and counties; and
WHEREAS, Governor Davis' proposal to divert $4 billion in local VLF
backflll payments over the next 17 months fails to honor the 1998 commitment
and is a direct assault on local services that will be felt by every California
resident; and
WHEREAS, shifting $4.2 billion in locally controlled revenues for local
services is neither equitable nor fair. No state program or department has been
asked to shoulder such a disproportionate share of the budget pain. These cuts
come on top of the nearly $5 billion each year that is transferred from local
services to fund state obligations.
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF
NEWPORT BEACH, CALIFORNIA, that if the State General Fund can no longer
afford the expense of part or all of the VLF "backflll" that the Legislature and
Governor of California are hereby respectfully urged to implement the provisions
of current law providing for the reduction of the VLF offset in bad economic
times and to restore the VLF in an amount necessary to reduce the VLF backflll;
and
RESOLVED FURTHER, that the City of Newport Beach hereby expresses its
profound appreciation to the legislators who support such VLF restoration
legislation.
APPROVED on this 28th day of January 2003.
ATTEST:
Mayor Steven Bromberg
LaVonne Harkless, City Clerk
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