BILL ANALYSIS
AB 1457
Page 1
(Without Reference to File)
CONCURRENCE IN SENATE AMENDMENTS
AB 1457 (Budget Committee)
As Amended May 3, 2004
2/3 vote. Urgency
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|ASSEMBLY: | |(April 24, |SENATE: |32-1 |(May 3, 2004) |
| | |2004) | | | |
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(vote not relevant)
Original Committee Reference: U. & C.
SUMMARY : Suspends a "Poison Pill" provision through July 15, 2004,
to authorize continued allocations of vehicle license fee (VLF)
revenue and General Fund (GF) "backfill" transfers to the Local
Revenue Fund (LRF), which finances local (primarily county) health
and mental health programs under the 1991 State-Local Realignment.
Revises, temporarily, the allocation of backfill transfers between
the LRF and the Motor Vehicle License Fee Account (MVLF Account) in
the State Transportation Fund in order to hold Realignment funding
harmless for the 2003-04 VLF backfill funding "gap."
The Senate amendments delete the Assembly version of this bill, and
instead:
1)Suspend the Medically Indigent Adult (MIA) Poison Pill provision
through July 15, 2004. The Poison Pill suspension enables the
State Controller to continue to allocate VLF revenues and transfer
GF backfill payments to the LRF through the end of fiscal year
2003-04 (which extends to July 15 for Realignment).
2)Directs the State Controller (Controller) to revise transfers of
VLF and GF backfill as necessary to fully fund allocations to the
LRF for 2003-04 as follows:
a) Increase GF backfill transfers to the LRF and reduce
transfers to the MVLF Account to allocate the entire gap
shortfall to the MVLF Account and hold the LRF harmless for the
2003-04 funding gap; and,
b) End the special 2003-04 allocation of 28.07% VLF revenue to
the LRF as of February 29, 2004, and, instead, adjust VLF
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revenue allocations between the LRF and the MVLF Account so that
each fund receives its regular statutory share of VLF revenues
for 2003-04 (24.33% to the LRF and 75.67% to the MVLF Account).
EXISTING LAW :
1)Imposes the VLF on vehicle owners. The VLF is a tax levied on
vehicle value or price at the time of purchase and annually
thereafter.
2)Dedicates, constitutionally, VLF revenue (net of administration
costs and refunds) to cities and counties.
3)Requires, generally, that the LRF receive 24.33% of VLF and
backfill revenues, but increases the LRF share to 28.07% for
2003-04.
4)Specifies a base VLF rate of 2% of vehicle value, but also requires
an offset (reduction) of 67.5% of that amount (for an effective tax
rate of 0.65%).
5)Requires, generally, the state to make GF backfill payments to the
MVLF Account and the LRF to replace the revenue loss from the VLF
offset.
6)Includes a Poison Pill provision that eliminates the slower vehicle
depreciation schedule that was imposed to increase VLF revenues to
fund Realignment and the authority to transfer VLF and backfill
amounts to the LRF. This Poison Pill is activated upon a final
court decision that counties' obligation to provide medical
services to medically indigent adults (MIAs) is a reimbursable
state mandate.
7)Defines the VLF backfill funding gap to be the amount of VLF
offsets that were not transferred from the GF to the MVLF Account
and to the LRF for registrations and renewals due prior to October
1, 2003.
8)Requires the Controller to make a GF transfer to restore VLF gap
funding to local governments on August 15, 2006.
AS PASSED BY THE ASSEMBLY , this bill appropriated telephone bill
surcharge revenues to the California Public Utilities Commission
(PUC) for payments to small independent telephone corporations
serving rural and small metropolitan areas.
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FISCAL EFFECT : Authorizes transfers totaling approximately $700
million of VLF and GF backfill amounts to the LRF in 2003-04 to meet
normal Realignment statutory funding commitments. Of this amount,
about $400 million is for the VLF gap period prior to October 1 and
about $200 million is for the period from March 1 (when the MIA
Poison Pill was activated) through the end of 2003-04.
COMMENTS :
1)Realignment and VLF. The Governor's Budget proposes to repeal the
VLF MIA Poison Pill. This proposal is consistent with the Budget's
assumption of full funding of State-Local Realignment in 2004-05.
The 1991 Realignment of various state health and social services
programs and funding responsibilities to counties was funded by a
combination of sales tax and VLF revenues. The sales tax funding
was from a dedicated half-cent increase in the state sales tax.
The VLF revenues were provided through slowing the depreciation
schedule that determines the value of vehicles on which the VLF is
assessed. The VLF depreciation change now produces annual revenue
of $1.5 billion for Realignment (out of a total of about $5.8
billion). As a result of the reduction in the VLF rate, actual VLF
revenues now account for about $500 million of VLF Realignment
funding. GF backfill provides the remaining $1 billion.
2)The Poison Pill. At the time that Realignment was established,
counties were asserting that the shift of the MIA program to them
(from the Medi-Cal Program) in 1982 constituted a state-mandated
local program for which they were entitled to reimbursement. The
potential state exposure, should those claims prove successful, was
thought to be large. Realignment, along with other actions, was
intended, in part, to help support county funding for health and
mental health programs. As a protective measure, the Legislature
included a provision in the Realignment legislation that repeals
the VLF depreciation schedule and the authority to allocate VLF
(now including backfill) revenues to Realignment (via the LRF) in
the event that the courts determined that the 1982 MIA shift was a
reimbursable mandate.
a) Poison Pill Activated. As it turned out, only one county,
San Diego, successfully asserted an MIA mandate claim, and that
only for one year and $3.4 million. However, San Diego County's
claim has triggered the Poison Pill provision (the state's final
appeal to the California Supreme Court was refused in December
2003). The Department of Motor Vehicles has issued emergency
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regulations temporarily extending the Realignment depreciation
schedule. However, there is no longer statutory authority for
the Controller to allocate VLF revenue or backfill to
Realignment. Instead, all VLF revenue and backfill will be
transferred to the MVLF Account and allocated to cities and
counties primarily on a per-capita basis.
b) Suicide Pact. The MIA Poison Pill will make the state just
as sick as the counties. In the absence of VLF Realignment
funding, counties will have unfunded mandates for the programs
that Realignment requires them to carry out. They will then
claim reimbursement from the state GF for their unfunded
mandates. Some counties may refuse, or simply be unable, to
carry out all of their Realignment programs without this
funding. A final determination of an unfunded mandate for
Realignment itself will activate another poison pill provision
that repeals the sales tax for Realignment. Eventually, after
considerable disruption, the state would have to restore
Realignment funding or take back the programs and costs that it
transferred to counties in 1991.
3)The VLF Gap and Realignment. The 2003-04 Budget eliminated the VLF
backfill for 2003-04. At the time the Budget was enacted, the VLF
"trigger" had been pulled and it was anticipated that the VLF rate
would be restored to the full 2% starting October 1, 2003. From
July 1 to October 1, however, local governments would only receive
VLF revenue at the reduced tax rate without any GF backfill. This
backfill gap resulted in a GF budget savings (and a loss to local
governments to be repaid in 2006). Budget legislation increased
the percentage allocation of VLF revenues to the LRF in 2003-04 in
order to make up for the gap loss to the LRF and hold Realignment
harmless.
4)VLF Reduction Leaves LRF with a Gap Problem. Governor
Schwarzenegger acted to eliminate the VLF trigger rate increase and
to restore GF backfill payments (for registrations due after
October 1). As a result, actual VLF revenues (excluding backfill)
are only about a third of the amount contemplated in the 2003-04
Budget, and the increased percentage allocation to the LRF is
inadequate to make up for the gap loss to the LRF.
5)Only A Temporary Fix. This addresses the immediate situation in
2003-04. However, additional legislation will be necessary to
provide Realignment funding from the VLF and backfill in 2004-05,
as proposed by the Governor's Budget.
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6)Suspension of Article XI Poison Pill Unnecessary. This bill also
suspends an additional Realignment Poison Pill provision that is
triggered if the courts decide that the Constitutional dedication
of VLF revenues to local governments precludes the state from
requiring local governments to use a portion of VLF revenues for
Realignment. This Poison Pill has not been activated and continues
to serve its intended purpose.
Analysis Prepared by : Dan Rabovsky / BUDGET / (916) 319-2099FN:
0005104