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November, 2003

Vehicle License Fees Are Lifeline To Local Governments;
Schwartznegger May Make Them Shrink
By Karen Nakamura

Most Californians cried foul when Gov. Gray Davis raised the Vehicle License Fees (VLF) by three-fold. As the issue that broke the voter's back, it reflected more than Californians' annoyance with Davis, it signaled a rebellion against overall price gouging by corporate America towards the middle and lower classes. The VLF tax rebellion is only one manifestation that the occupied has had enough of the occupier. The truth is, however, the solution may be worse than the original problem, especially for California cities and counties.

Lost in the outrage is what the fees actually do. They're best understood as a core element of counties and cities' funds. What Davis actually did was restore the price of fees back to their 1999 level. When Governor-elect Swartznegger moves forward with his election pledge, and he's already working on it, by returning these fees back to their 2002 level or ending them altogether, the domino effect is going to directly effect you and me.

"These funds go directly to first line responders, policemen, firemen, and local governments. Cities and counties aren't going to like that, I can assure you." Diane Finestein stated to CNN's Wolf Blitzer on the October 19th Sunday circuit.

Vehicle license fees have historically gone directly to cities and counties and fund approximately one third of their costs. They were instituted to replace county/city losses suffered when 1/2 of local property taxes were shuffled up to the state. In the 1990s, during then Gov. Pete Wilson's administration, creative financing caused the VLF to be scooped up by the state. To compensate for the loss in VLF revenue, the state "back-filled" these fees in the exact amount local governments would have received directly. The difference was the state now had control over how these funds were spent. This is where many of the irritating demands from the state began. State politics obligated cities and counties to spend certain percentages of the fees the way the state wanted them spent not the way cities and counties wanted.

It isn't difficult to understand why the counties of Marin, El Dorado and San Francisco might have different needs and priorities. Local governments fought the taking of the yoke tooth and nail to no avail. However, as the amount of the fees wasn't touched, a reluctant acceptance ensued. From the way it looks currently, Swartzenegger's rescinding of the VLF will also mean the cessation of the "back-filling" of fees to cities and counties. Because the money won't be there, cities and counties will have to find up to 1/3 of their funding somewhere else.

San Rafael's Mayor Al Boro has fought with this issue since taking office. The CP spoke with him in late October to understand the nut of what's going on.

"San Rafael has taken a $2,000,000 hit over the last couple of years, and that's effecting us in areas like public safety. We've already had to close the library down one day a week. We all understand it's very important to provide competent police and fire services. If the cutting of VLF fees goes through, we're still going to respond. The problem lies in the level of response. That response time is going to end up being extended. Plus we're looking at closing fire stations and consolidating services. We had $1.7 million taken out of this year's budget. Plus there's another $1.7 million cut coming for next year despite everything we've tried to do. Escalating workman's compensation payments, health insurance and pension plan costs are what's behind the deficit."

Mayor Boro continued, glad to be able to explain the real impact of VLF shuffling. "Bill Lockyer, the state's Attorney General has informed Gov. elect Swartznegger that he has the legal right to rescind the VLF fees but such an action would also open a very strong constitutional case for the League of California Cities and Counties to sue. The state has to have the permission of the cities and counties. Gov. elect Swartznegger faces the painful consequences of his campaign promises. These consequences need to be dealt with. Swartznegger needs to address them because they are real, very real."

San Rafael City Manager Rod Gould enlightened us further. "City and counties have lost $4.2 billion in state revenue. The state has cut $800 million in the last two and one-half months. What's important is to understand how cities and counties get their funds. We're allowed three legal ways; sales tax, property taxes and vehicle license fees. The state already takes half of our property taxes. Due to the economy, sales taxes are down. Now we're being threatened with the loss of our VLF fees. We need to face this reality."

 

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