Fee Repeal Means Deficit for State, Little Gain for Individuals

Repealing the state vehicle license fee is an irresponsible election year tactic that Gov. Pete Wilson is serving up with a generous side dish of historical revisionism. It’s another one of those distracting “wedge issues” that his administration will be remembered for when 21st century historians try to analyze how California’s infrastructure and educational system, once the pride of the nation, were abandoned and mismanaged in the 1980s and 1990s.

Let’s set the record straight: The vehicle license fee in California was not the product of Proposition 13 or of conspiratorial liberal Democrats, as Wilson recently suggested. In fact, the car tax was enacted in 1935 during the term of Republican Gov. Frank Merriam.

Merriam was concerned that local communities did not have enough control over their budgets and signed the original vehicle license tax to assure that the state would not expropriate tax dollars needed for local services.

In 1935 the rate was 1.75% of a vehicle’s value. In 1948, Republican Gov. Earl Warren raised the tax to 2%, again providing the bulk of the revenue to cities and counties. It has remained at that level for 50 years.

In the early 1980s, the state grabbed its first bite of car tax income by transferring more than $700 million in local revenue to the state budget. The reaction of voters was swift and sure. In 1986, Proposition 47 was passed, constitutionally guaranteeing that car-tax-generated revenue be earmarked for local services.

And now comes Pete. With only six months left in his term, Wilson has hitched his star to an election-year strategy that Republicans have successfully used in other states but not without repercussions. For example, the widely reported and less regressive car tax proposal that helped elect the new Republican governor of Virginia only exempted the first $20,000 of a vehicle’s value from a licensing fee. This plan--phased in over five years--has become mired in projections of revenue loss that have almost doubled since the no-car-tax slogan defined the November gubernatorial election. Wilson’s scheme would eliminate 75% of car tax revenues on all vehicles within three years.

In all fairness, it was my respected colleague, Tom McClintock, who first proposed doing away with the vehicle license fee in California. He ideologically opposes most government spending and never met a tax, fee or levy that he didn’t want to eliminate. I don’t always agree with McClintock but he is consistent and sincere. It seems a trifle disingenuous, however, for a governor who socked us with the largest tax hike in California history, and just five years ago, to bring the budget process to a grinding halt over the car tax--an issue that wasn’t even on the radar screen a few months ago. As a final legacy to already strapped communities, Wilson apparently doesn’t mind repeating his $3.6-billion tax grab of 1993 if it means he can take his place at the Boston Tea Party for purposes of presidential campaign literature.

The governor claims that his car tax proposal would ensure that local governments have the revenue necessary to meet their public safety needs. On his way out the door, he promises “guaranteed backfill.” Or, as local elected officials in my district correctly call it, “the myth of backfill.” We need only look at the state record to share their skepticism.

In 1993, Wilson eliminated AB 8, the “guaranteed” statutory backfill that resulted from passage of Proposition 13, effectively stealing $3.6 billion from cities and counties to balance the state budget. At the same time, he eliminated the renters tax credit that allowed renters to share Proposition 13’s benefits.

And where will the backfill come from? “From the general fund,” Pete says, which of course is the only reliable source to rebuild California’s long neglected public schools. And where will the backfill come from if, as projected by the nonpartisan Legislative Analyst’s Office, the car tax cut leads to annual state budget deficits of $850 million by the turn of the century?

Given the dangers of repealing the car tax, what will we, the taxpayers, get in return? Every car owner will eventually save 2% of the current value of his car. If we own a car worth $5,000, in three years the annual savings will amount to $100. Those with expensive cars, and companies with fleets of motor vehicles, will make out the best.

What will this proposal cost us? About 10,000 police and firefighters will be taken off the streets in California. And we can forget that city park or new library books. We can ignore the potholes and flickering street lights, do without new traffic signals in front of schools, and say goodbye to our kids’ recreation programs. With Wilson’s proposal, 10% of local revenue will evaporate overnight. And, most tragically, the investment in our schools will be relegated to the “what we could have done” dustbin of good intentions.

Instead of a permanent repeal of the car tax based on a one-time windfall, we need a more reasonable and prudent approach to the budget surplus. Last year, the Legislature approved the largest personal income tax cut in California history. Before making new promises, the state should make good on old ones by restoring the renters tax credit, investing in our schools, establishing a fiscally sound state reserve and protecting the source of funding for public safety and other critical services.

Repealing the vehicle license fee may be good politics but it is bad policy. This year’s budget surplus may be a once-in-a-lifetime opportunity that we cannot allow to be sacrificed for the political ambitions of a lame duck governor.