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TO: HONORABLE MAYOR AND COUNCILMEMBERS
FROM: MAYOR DOUGLAS STERN
DATE: FEBRUARY 4, 2003
SUBJECT: RESOLUTION SUPPORTING RESTORATION OF VLF
On January 15, 2003 Speaker Herb Wesson announced that he plans to move swiftly to introduce legislation to allow for restoration of the VLF funding for cities and counties. He said, "Weíre prepared to clarify the law to operate as intended Ė and restore the VLF to its normal level."
The Speaker has specifically asked that cities and counties take action to support this effort. The League of California Cities board of directors, has asked that all cities use whatever internal processes they have in place to authorize the immediate transmittal of a letter to your legislators urging them to keep the promise legislators made to local government in 1998, and vote to restore the VLF. In addition they recommend that cities act immediately to adopt a resolution urging the legislature to reject the Governorís budget proposal to eliminate the VLF backfill, and instead to vote to honor the 1998 commitment to restore the VLF.
On January 10, 2003, Governor Gray Davis announced his draft budget for the State of California. Included in that draft was a proposed reduction of the Vehicle License Fee backfill, which has provided the City with the same level of funding from that revenue source, notwithstanding the fact the State reduced that tax in increments commencing in 1998.
In 1986, the voters voted overwhelmingly to constitutionally dedicate the proceeds of the VLF to fund city and county services. Hence, the reduction in the VLF would have resulted in a reduction of a revenue source dedicated to the cities and counties had the Legislature not included the VLF backfill.
As part of the VLF reduction enacted in 1998, the State of California committed that should economic circumstances no longer allow the VLF backfill, the State would reinstate the full Vehicle License Fee. At the present time, the VLF has been cut by 67.5% compared to the pre-1998 levels.
The General Fund budget of the City of Rancho Palos Verdes for fiscal year 2002-03 is $13,340,250 of which $2,400,000, or approximately 18% is derived from the Vehicle License Fee. The VLF is the Cityís second largest source of the general fund budget. The largest revenue source is the property tax, which generates $3,479,660 or 26% of the general fund budget. The third largest source for the general fund is the Utility User Tax that generates $2,062,950, or 15% of the general fund budget.
Governor Davisí proposal would lead to the diversion of $4 billion in local VLF backfill payments over the next 17 months, and the diversion of $2.27 million of VLF for Rancho Palos Verdes over that same period.
Speaker Wesson has followed through with his plans and at the time this staff report was written it was anticipated that the legislature would be considering a bill restoring VLF during the week of January 27th. The Mayor has already sent letters to our Senators (Karnette and Vincent) and Assemblymember (Lowenthal) as well as to Wesson, Firebaugh, Alarcon, Nakano and Soto requesting that VLF be restored.
Attached are a Resolution and a sample letter in support of VLF for the Councilís consideration. The letter should be sent not only to our elected legislators, but also to all members of the Legislature, with copies to the Speaker of the Assembly and the President of the Senate so that we demonstrate to these elected officials our significant support for the restoration and continued protection of the Vehicle License Fee as a revenue source for our cities and counties, and the concern of our city with the proposal of Governor Davis.
Respectfully submitted for the Mayor,
A RESOLUTION URGING THE CALIFORNIA LEGISLATURE TO REJECT THE GOVERNORíS PROPOSED SHIFT OF LOCAL VLF 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 general fund budget of the city of Rancho Palos Verdes for fiscal year 2002-03 is $13,340,250, of which $2,400,000, or approximately 18% is derived from the Vehicle License Fee, which revenue source is the Cityís second largest source of general budget funds; 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
WHEREAS, any failure by the Legislature to maintain the VLF backfill 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 Davisí proposal to divert $4 billion in local VLF backfill 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 OF RANCHO PALOS VERDES, CALIFORNIA, that if the state General Fund can no longer afford the expense of part or all of the VLF "backfill" that the Legislature and Governor of California are hereby respectfully urged to act in a non-partisan manner 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 backfill; and
RESOLVED FURTHER, that the City of Rancho Palos Verdes hereby expresses its profound appreciation to the legislators who support such VLF restoration legislation.
APPROVED on this ________________ day of ____________________, 2003.
February 4, 2003
Honorable Alan Lowenthal
Assemblyman, 54th District
Sacramento, CA 95814
We are writing to urge you to keep a promise---one the legislature made to the people of California and its cities and counties five years ago. It was made in 1998 when the VLF reduction was enacted during better economic times. The promise was simple: if the state could no longer afford to fund the VLF reduction, the VLF would be restored so vital city and county public health and safety services would not be threatened.
Since 1935 cities and counties have received the VLF in lieu of locally collected property taxes on vehicles. VLF revenues constitute an average of 15-25% of city and county general purpose revenues. For Rancho Palos Verdes the VLF revenue represents approximately $2.4 million of our $13.3 million general fund for fiscal year 2002-03. On average, more than 60 percent of city general fund spending and more than half of county general funds go to police, fire, emergency medical and health care programs. Our city is no different. Our payment to the Los Angeles County Sheriff to provide basic public safety is approximately one-quarter of our general fund alone. The VLF, therefore, is a critical component of funding these vital services.
In 1986 the voters by an 81.8% margin passed Proposition 47, pledging the proceeds of the VLF to funding local government services. The 1998 law that created the VLF tax holiday did not change this policy; it simply committed the state general fund to financing an offset against the VLF payment obligation of a vehicle owner. The same law provides for the restoration of the VLF if insufficient funds are available in the state general fund to afford the VLF "offset. By all indications, that time has come.
In the near future, you will have the chance to keep the promise made by the 1998 legislature and found in state law. We strongly urge you to reject the Governor's proposed raid of more than $4 billion in Vehicle License Fee (VLF) backfill payments to cities and counties and to support legislation to restore the VLF if the state general fund can no longer afford the VLF tax holiday.
We recognize that during these difficult times, sacrifices are necessary. But raiding more than $4 billion in VLF backfill funds would disproportionately shift the state's fiscal problems onto our local governments and would jeopardize essential locally delivered public health and safety programs and services. Clearly, a state grab of VLF funds will leave many localities with no option but to take police officers and firefighters off the street or reduce public health and safety programs, services and equipment. In our city, it would mean the loss of approximately $1.6 million annually, or about 12% of our General Fund budget. The resulting shortfall in revenues could mean reduction in public safety services and in roadway maintenance programs, our two largest budget items. Whatever programs were reduced would mean the loss of jobs.
In the five years of state budget surpluses, local governments did not receive a proportionate benefit or any significant funding increases. Instead, local governments and our local services continued providing more than $4 billion each year to fund state obligations. Raiding an additional $4 billion in VLF backfill payments over the next 18 months is neither equitable nor fair. No state program or department has been asked to shoulder such a disproportionate share of the budget pain.
In light of the state's current economic climate, I urge you to support legislation to restore the VLF. It's the right thing to do, and it keeps the promise made in 1998.
Douglas W. Stern