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HomeMy WebLinkAbout1998-06-22 City Council (21)City of Palo Alto City Manager’s Report TO: FROM: HONORABLE CITY COUNCIL CITY MANAGER DEPARTMENT: CITY MANAGER DATE:JUNE 22, 1998 CMR:285:98 SUBJECT:RESOLUTION TO OPPOSE REPEAL OF VEHICLE LICENSE FEE RECOMMENDATION Staff recommends that the City Council adopt and authorize the Mayor to execute the attached resolution stating the City’s opposition to a repeal of the Vehicle License Fee (VLF). BACKGROUND There are several proposals at the State level to repeal or reduce the Vehicle License Fee (VLF). These proposals have been put forth in the Govemor’s budget and in the legislature (AB 1776, SB 1723, SB 2001, and ACA 45). The VLF is a license fee on motor vehicles equal to two percent of a vehicle’s estimated value, which is determined by the vehicle’s purchase price adjusted over time for depreciation. Consequently, payments, and therefore the savings from a VLF repeal, are higher for newer, more expensive vehicles. According to the Legislative Analyst’s Office, the average car owner would realize a savings of approximately $170 annually from a complete repeal of the VLF or a $128 savings from a 75 percent reduction, as the Governor proposes. The State constitution stipulates that over 90 percent of VLF funds are expressly designated for cities and counties to support lo.cal services. As such, local governments’ share of VLF funds are not subject to annual appropriation during the State budget process. In addition, the VLF is a reliable source of revenue for cities and counties in that it does not tend to be adversely affected during times of recession. Although proposals to repeal the VLF express the intention to backfill funds taken from local governments with other State General Fund money, there is considerable concern that replacement funding for local services will not be constitutionally protected in the future and will therefore be subject to competition with other State needs during the budget process. This concern is based on the precedent set by previous State actions. Since 1992-93, Palo Alto has lost approximately $6 million (or about $1.2 million per year) in local property tax revenue through the State’s Education Revenue Augmentation Fund (ERAF) transfer. This loss of funds has been one factor in the deferral of critical capital improvements to Palo CMR:285:98 Page 1 of 3 Alto’s streets, parks, and public buildings. Examples of such deferred projects include roofing, flooring, electrical repairs, heating, ventilation, air conditioning, and mechanical system work at various City facilities as well as park irrigation system repairs. DISCUSSION The VLF provides an important funding source to Palo Alto and other cities for police, fire, library, recreation, and other valuable local services. Preservation of these funds is especially critical since local governments have limited ability to raise revenues as a result of Proposition 13 and Proposition 218. The proposals to repeal the VLF come at a time when the demand for City services is increasing. Without VLF funds, existing services would likely need to be scaled back. In addition, there will be less flexibility in the City’s budget to respond to community requests for expanded or enhanced services, including the implementation of the City’s infrastructure improvement plan and the neighborhoOd improvements envisioned in the new Comprehensive Plan. Other proposed City projects might also be affected, including neighborhood traffic safety improvements, downtown restrooms, community center repairs, downtown shuttle service, and library enhancements: Several non-partisan groups, including the Legislative Analyst’s Office, California Budget Project, and League of California Cities, oppose the repeal of the VLF. These and other groups have analyzed the motivation behind the repeal and the impact itwill have on local government financing. Some analysts contend that the impetus for proposing the repeal is the hope of political gains in upcoming elections. Car owners have not expressed a widespread demand for a repeal of the VLF. While citizens would likely appreciate a reduction in fees if it were offered to them, they may not be aware of the impact such a move would have on the services they care about in their own communities. If Palo Alto and other cities are to continue to provide the level of services that the community wants, the legislature cannot make tax cuts and balance the State budget by cutting local revenues. Analysts predict that the current State surplus will not be recurring since it is based on one-time capital gains tax revenue from the sale of accumulated assets and an increase in personal income tax revenue driven by recent economic expansion. It would be fiscally irresponsible for the State to allocate a temporary State surplus by making a permanent cut in an ongoing local funding source. Analysts have suggested that if the State wishes to reduce taxes, it would be more appropriate to target revenues that impact the State itself, rather than local governments. Examples of statewide revenues include the personal and business income taxes. RESOURCE IMPACT A VLF repeal would reduce the Palo Alto’s revenue by an estimated $2.3 million annually. This loss is larger than the ERAF shift and accounts for nearly three percent ofPalo Alto’s total General Fund budget. To provide a sense of the magnitude of such a cut, this amount CMR:285:98-Page 2 of 3 represents the full time equivalent of roughly 30-35 City staff. At this point, no programs or positions have been identified for reduction in the event of the loss of VLF funding. While the City would make budget decisions carefully to minimize service reductions to Palo Altans, difficult choices would need to be made. The following examples illustrate the magnitude of a $2.3 million loss in funding: Elimination of the City’s entire Arts and Culture budget, including funding for Palo Alto’s Children’s Theatre; Reduction of the City’s park maintenance or library budgets by almost two- thirds; Elimination of the City’s Police Investigations Division or community policing programs; Elimination of City funding for street tree maintenance. Reduction of the City’s administrative departments by 17 percent (legal, computer, finance and purchasing services) POLICY IMPLICATIONS Taking a position to preserve funding for important local services is consistent with existing City policy. ENVIRONMENTAL REVIEW This is not a project under the California Environmental Quality Act. Environmental review is not required. ATTACHMENT Resolution to Oppose Repeal of Vehicle License Fee PREPARED BY:Jim Steele, Manager, Investments and Debts Audrey Seymour, Senior Executive Assistant EMILY HARRISON Assistant City Manager CC:State Senator Byron Sher State Assemblyman Ted Lempert League of Califomia Cities Santa Clara County Cities Association CMR:285:98 Page 3 of 3 RESOLUTION NO. RESOLUTION OF THE COUNCIL OF THE CITY OF PALO ALTO DECLARING ITS OPPOSITION TO THE REPEAL OF THE VEHICLE LICENSE FEE WHEREAS, there are -several State proposals to repeal the Vehicle License Fee; WHEREAS, the Vehicle License Fee is intended to support services provided to the community by cities and counties; WHEREAS, a repeal of the Vehicle License Fee would result in a loss of revenue to the City of Palo Alto of approximately $2.3 million per year, while providing the average car owner with a savings of only $170 per year; WHEREAS, the loss of this funding would reduce~ the City of Palo Alto’s ability to respond to community requests for expanded or enhanced services and would make it more difficult for the City to provide the level of police, fire, library, recreation and other valuable services currently provided to the community; WHEREAS, a repeal of the Vehicle License Fee follows a loss of approximately $6 million since 1992-93 in Palo Alto property tax revenue through the State’s Education Revenue Augmentation Fund (ERAF)transfer; WHEREAS, local governments have limited ability to raise revenues as a result of Propositions 13 and 218; WHEREAS, the current State budget surplus is largely due to temporary increases in revenue; WHEREAS, it is neither fiscally prudent nor in the best interest of the community for the State to allocate a temporary State surplus by making a permanent cut in an ongoing local funding source; NOW, THEREFORE, the Council of the City of Palo Alto does hereby RESOLVE to oppose the repeal of the Vehicle License Fee. INTRODUCED AND PASSED: AYES: NOES: ABSTENTIONS: ATTEST:APPROVED: City Clerk Mayor APPROVED AS TO FORM: City Manager Senior Asst. City Attorney