AgdaPkt 2003-01-27 - Laserfiche WebLink

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�\ . c3 -1 REPORT To the Honorable Mayor and City Council From the City Manager January 27, 2003 Subject Support for restoration of the Vehicle License Fee (VLF) to its full level, and opposition to the Governor's proposal to remove the VLF 'backfill' funds from local governments Recommendation Approve the attached resolution urging the legislature 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.' Background Since 1935, cities and counties have received the VLF in lieu of locally collected property taxes on vehicles. In 1986 the voters by an 81.8% margin passed Proposition 47, pledging the proceeds of the VLF to funding of local government services. In Redwood City, these revenues amount to approximately $4.4 million for fiscal year 2002/2003. In 1998, with the State experiencing a budget surplus, Governor Pete Wilson signed a bill to reduce the VLF by 25 %, as a 'tax cut.' Currently, the fee has been reduced by 67.5% of its original amount. This reduction in the fee is referred to as an 'offset' because the total amount of VLF legally due from the taxpayers has not changed. Instead, the State pays or 'offsets' a portion of the amount due, with taxpayers paying the remaining balance. The 1998 law that created the VLF 'tax cut' 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. Obviously, that time has come. The Governor's proposed budget does not restore the VLF to its original level, but instead removes these 'backfill' funds from local governments. If the Governor's proposal is implemented, Redwood City's loss for fiscal year 2002/2003 is estimated at $1.5 million. For fiscal year 2003/2004, the loss is estimated at $3.3 million. In order to protect these funds, local governments must make known to the legislature and the Governor that the VLF funds are a crucial element of our budgets, and that the State must not renege on its promise to restore the VLF in bad economic times. Alternative The Council could choose not to adopt this resolution, and not go on record as opposing the Governor's proposed cut of the VLF 'backfill' funds.