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Council Mtg July 14, 1998
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Santa MOnica, California
To
Mayor and City Council
From
City Staff
Subject
OppOSition to State Legislation Introduced to Either Reduce or Eliminate
the Vehicle License Fee (VLF)
INTRODUCTION
This report provides a status of legislative efforts to reduce or eliminate State VehIcle
License Fees (VLF) and requests Council confirmation of the City'S OppOSition to the State
take-back of stable local government revenues
BACKGROUND
Earlier this year Assembly Member Tom McClintock (R-Slml Valley) Introduced legislation
to eliminate the Vehicle LIcense Fees (VLF) which prOVide local governments $4 billion per
year of unrestncted revenue to support city and county services For Santa MOnica, the
VLF amounts to approximately $4 million for the current fiscal year
As legislative supportforthls kind of proposal grew, Governor Wilson unveiled his own VLF
proposal In Mayas a budget reVISion The Governor would reduce current VLF fees by
75% Currently, there are four different bills that would accomplish total or partial repeal
ofVLF revenues However, the pnmary negotiation related to VLF IS being handled by the
legislative leadership and the Governor In the context of State Budget deliberations
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JUL t" 1998
Although assurances have been made by the Governor and various legislators that cities
and counties will be "made whole" In the event that VLF IS phased-out, the history of state
take-backs of local revenues without repayment indicates this "promise" IS unreliable at
best The state has not repaid any of the $2 6 billion per year In property taxes taken from
local governments since FY 1992-93
The repeal of VLF IS linked to the state surplus, about $4 4 billion, resultmg mostly from
unexpected higher revenue collection In FY 1997-98 and higher revenue projections for
FY 1998-99 prlmanly from state Income taxes and sales tax The State Legislative Analyst
has reported that the State General Fund will face a $419 million defiCit In fiscal year 1999-
00 IfVLF IS reduced and a commitment to reimburse local government's VLF loss IS kept
ThiS defiCit could surpass $3 billion wlthm four years
Current proposals lack a guaranteed replacement of lost local VLF revenue Legislative
proposals to replace or sustain lost local government revenues are Insufficient to assure
local governments that they can rely on a stable revenue replacement In future years and
that the replacement funds would not be taken dunng a future state economic down turn
Further. there are no guarantees that a legislative back-fill Will continue beyond the first
year In which VLF IS reduced Proposals to replace thiS revenue source With the state
portIon of sales tax IS subject to the VICIssitudes of the annual State budget process
A constltutlonal guarantee IS the only meaningful replacement to reimburse local
government for ItS losses due to VLF cuts, and must also protect the current apportionment
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of property taxes, local sales taxes and all general and special taxes of local government
Any guaranteed replacement would need to be placed In the constitution by a vote of the
people In November
Staff and our State lobbYist have been working with Senator Hayden and Assembly
Member Kuehl and the League of California Cities to register OpposItion and provIde
information on losses triggered by the efforts to reduce/repeal VLF
FISCAL IMPACT
Current amounts for VLF are $3,940,000 for FY 98/99 Projected revenues for FY 99/00
are approximately $4 1 million
RECOMMENDATION
It IS recommended that the City Council confirm Opposition to VLF repeal absent a
guaranteed constitutional replacement for all revenues lost and that protection of other
taxes be provided
Prepared by
Mike DenniS, Fmance Director
Kathryn Vernez, Senior Management Analyst
"
.J