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Home My WebLink About06/16/1998, C8 - OPPOSITION TO VEHICLE LICENSE FEE PHASE-OUT council "'nwq°�4-/6_ j acEnaa Report '®N� CITY OF SAN LU I S O B I S P 0 FROM: John Dunn, City Administrative Offic Bill Statler,Director of Finance SUBJECT: OPPOSITION TO VEHICLE LICENSE FEE PHASE-OUT CAO RECOMMENDATION Adopt a resolution opposing the phase-out of vehicle license fees (VLF), but supporting the concept that if this occurs, any phase-out of VLF must be linked to: ■ A constitutionally-guaranteed back-filling of these revenues from other sources. ■ The return of property taxes taken away from cities and counties by the State through the Education Revenue Augmentation Fund(ERAF). DISCUSSION As the Council is aware, there are serious proposals under consideration by the legislature and Governor to eliminate or significantly reduce VLF revenues. Since 1935, VLF has been a dependable revenue source for cities and counties. Traditionally, it is assessed by the State on behalf of cities and counties"in-lieu"of assessing and collecting local personal property taxes on vehicles. Since 1986, this has been a constitutionally-guaranteed funding source for cities and counties. Why is this proposed phase-out of critical concern to the City? VLF revenues are an essential source of funding for key City services like police and fire protection, which account for 50% of our General Fund operations. VLF is the City's fifth most important General Fund revenue source, and generates $1.7 million annually. Placed in context, this is the equivalent of 24 police officers—almost half of our entire field force. If the State takes these revenues away from us—on top of the $1.5 million annually they already took from us in the early 1990's—they will severely jeopardize our ability to provide basic services to our community. We need greater fiscal independence, not greater reliance upon the State. While "assurances" have been made that cities and counties will be "made whole" in the event that VLF is phased- out, the history of State and local government fiscal relationships over the past 20 years (and underscored by the past 5 years) tells us that trading a stable, dependable revenue source for a State-controlled one is the exact opposite direction from where we want to go. Our fiscal future lies in greater fiscal independence from the State,not in greater reliance upon it. In short, it does not make sense for the State to take away a secure revenue source from us, and to then suggest (not guarantee) replacing it with one that will immediately be in harm's way the next time the State faces fiscal pressures. L 4 Council Agenda Report—Opposition to Vehicle License Fee Phase-Out Page 2 This a fair source for funding local vehicle-related services. VLF revenues are a fair source of funding the vehicle-related costs that local agencies incur in servicing motorists, such as traffic enforcement and street maintenance. Enforcing traffic and parking laws, designing and building safe streets, and maintaining them well after they are built, are some of the largest costs that cities and counties incur, and far exceed VLF revenues. It is fair for motorists to pay directly for some of these costs. The State should return take-aways first The discussion of phasing-out VLF largely stems from the State's radically improved financial condition. However, a large a part of the State's fiscal improvement is a direct result from the revenues taken away from cities and counties by the State under ERAF. For this reason, a strong case can be made that any surplus should go to repaying local agencies for these take-aways to cities before Sacramento contemplates a substantial giveaway. There are better places to look for tax relief. If the State believes that its improved fiscal condition warrants a tax cut, this is certainly a legitimate topic for public policy debate. However, there is no need to draw local government finances into this discussion — especially given the battering we have received from the State over the past few years. There are many other broad-based taxes that could be reduced — such as sales and income taxes —without again placing local governments at risk by needlessly involving them in the State budget process. In short, if the State wants to cut taxes,it should cut a state revenue source,not a local one. Conclusion. Executive and legislative efforts should be directed to restoring revenues taken away from us by the State under ERAF — however, if this is not going to happen, at minimum, the State should not be making things worse by causing even greater fiscal uncertainty and instability at the local level. Proposed Resolution While the City should be unequivocally opposed to cut in VLF revenues — as well as any other revenue measure that would reduce our fiscal independence and increase our reliance on the State — the reality is that support for eliminating or significantly reducing VLF is gaining. For this reason, we recommend that the Council adopt the attached resolution opposing the phase-out of vehicle license fees (VLF), but supporting the concept that if this occurs, any phase-out of VLF must be linked to a constitutionally-guaranteed replacement of the lost revenue, and the return of property taxes taken away under ERAF. SUMMARY . The proposed VLF phase-out places all cities and counties at serious risk in their ability to fund critical services, and in taking responsibility for their fiscal futures. If this happens, it needs to be clearly linked with assurances that our fiscal outlook will be enhanced, not further threatened, as a result. ATTACHMENT Resolution opposing the phase-out of vehicle license fees C�8-Z 4 .. RESOLUTION NO. (1998 Series) A RESOLUTION OF THE COUNCIL OF THE CITY OF SAN LUIS OBISPO OPPOSING THE PHASE-OUT OF VEHICLE LICENSE FEES WHEREAS, the Governor and the State Legislature are considering proposals to eliminate or significantly reduce vehicle license fees(VLF); and WHEREAS, vehicle license fees are an essential source of funding for critical city and county services like police and fire protection, and if the State takes these revenues away from local government—on top of property tax revenues already taken away from cities and counties by the State through the Educational Revenue Augmentation Fund (ERAF) — this will severely jeopardize local government's ability to provide basic services to our communities, and to financially plan for the future; and WHEREAS, vehicle license fee revenues have a long tradition as a local government funding source, and are a fair source of funding the vehicle-related costs that local agencies incur in servicing motorists, such as traffic enforcement, safe street design and street maintenance; and WHEREAS, although "assurances" have been made that cities and counties will be "made whole" in the event that VLF is phased-out, the history of State and local government fiscal relationships over the past twenty years (and underscored by the past five years) tells us that trading a stable, dependable revenue source for a State-controlled one is the exact opposite direction from where State and local governments should go. The fiscal future of cities and counties lies in greater fiscal independence from the State,not in greater reliance upon it; and WHEREAS, the discussion of phasing-out VLF stems from the State's improved financial condition, and a large a part of this improvement is a direct result from the revenues taken away from cities and counties by the State under ERAF. For this reason, any State fiscal surplus should go to repaying local agencies for these take-aways before Sacramento contemplates a substantial giveaway of local government revenues; and WHEREAS, if the State believes that its improved fiscal condition warrants a tax cut, there is no need to draw local government finances into this discussion. There are many other broad-based taxes that could be reduced—such as sales and income taxes—without again placing local governments at risk by needlessly involving them in the State budget process. If the State wants to cut taxes, it should cut a State revenue source,not a local one. WHEREAS, in conclusion, executive and legislative efforts should be directed towards restoring revenues taken away from local governments by the State under ERAF; however, if this is not going to happen, at minimum, the State should not be making things worse by causing even greater fiscal uncertainty and instability at the local level. C'8-3 Resolution No. Page 2 NOW, THEREFORE, BE IT RESOLVED that the Council of the City of San Luis Obispo: SECTION 1. Opposes eliminating or reducing VLF revenues. SECTION 2. Supports the concept that if this occurs, any elimination or reduction of VLF revenues must be linked to a constitutionally-guaranteed replacement source as well as the return of property taxes to cities and counties taken away by the State through ERAF. Upon motion of , seconded by , and on the following roll call vote: AYES: NOES: ABSENT: the foregoing resolution was passed this day of , 1998. Mayor Allen Settle ATTEST: Bonnie Gawf, City Clerk APPROVED AS TO FORM: Qpy Attorney �r�