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Bill to Help Restore Lost VLF to Newly Incorporated Cities Annexations Attracts League Support

April 5, 2013
Newly incorporated California cities and cities that had recently annexed inhabited areas lost a key source of vehicle license fee (VLF) revenues in 2011 when the Legislature passed SB 89. 

Then the passage of Proposition 30 in 2012 directed VLF exclusively to fund realignment. SB 56 by Sen. Richard Roth (D-Riverside) would give newly incorporated cities and cities with recently annexed inhabited areas the same property taxes in lieu of VLF as other cities currently receive. 

Before 2004, cities received VLF revenues directly from the state, but when the valuation fee was reduced from 2 percent to .65 percent, the state backfilled the lost revenues from the General Fund. The passage of Prop. 1A in 2004 created the VLF swap, but cities incorporated after were not eligible for the new property tax in lieu of the VLF formula. Legislation was enacted in 2006 to create a new formula for cities that had incorporated or annexed inhabited areas after 2004.
The League supports SB 56 because it is appropriately focused on assisting those agencies that were wrongly harmed through the enactment of SB 89. This bill will restore funds that existed for new cities and annexations prior to 2004.
In summary SB 56:

  •  Would provide newly incorporated cities and annexations with property tax in lieu of VLF like other cities. 
  • Would create a formula in statute (for a new city incorporating after 2004) to establish a base year property tax in lieu of VLF. In subsequent years the amount will be adjusted according to the same rules applied to other cities.
  • For a city annexing an inhabited area, the added assessed valuation in the annexed area will be included in the annual calculation of a city’s growth in property tax in lieu of VLF. 

Next Step
SB 56 is scheduled to be heard on April 17 in the Senate Governance and Finance Committee.
The League’s support letter is available at www.cacities.org/billsearch by typing “SB 56” into the search box.

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