A U-Turn on Car Tax Rebates

Gov. Gray Davis and the Legislature spun a U-turn Thursday and scrapped a costly program that requires motorists to first pay their car tax and then get a rebate in the mail.

Starting July 1, the state Department of Motor Vehicles will send owners of approximately 26 million vehicles registration renewal bills already reduced by the amount of the vehicle license fee rebates.

On a unanimous roll call, the Senate voted final approval and sent to Davis an “urgency” bill, SB 52, that repealed the rebate program, which the governor had previously fought for and defended.

In addition to abolishing the rebates, the legislation reduces by 67.5% the amount motorists must pay for the upcoming year, the level that lawmakers and former Gov. Pete Wilson envisioned in 1998 when they began cutting the fee. It had been about 2% of a vehicle’s market value.

Davis immediately signed the repeal bill, saying only that the new law will “expedite relief to taxpayers and greatly reduce administrative costs.”

The governor’s muted observation contrasted with his effusive support of the rebates last year, when he said Californians “don’t appreciate the fact that they’re getting a rebate unless they see it in their hands.”

At the time, Davis and the Legislature had the choice of simply cutting the car tax, which voters might not notice, or sending checks in the mail, which Davis felt would have a greater impact.

The rebates, which began Jan. 1, were scheduled to continue through 2002, when Davis intends to run for reelection. In 2003, the license fee was to have fallen permanently, with no more rebates.

“The whole rebate scheme was good only through the next gubernatorial election cycle,” said Sen. Tom McClintock (R-Thousand Oaks), who supported reductions in the license fee but opposed the rebates.

Until July 1, the DMV will continue to bill motorists for the full amount of their license fee, which includes a 35% reduction from last year.

“Then we return to you an additional 32.5% rebate, making a total reduction of 67.5%,” said DMV spokesman Bill Branch. Starting with license renewals on July 1, the DMV bills will include the full tax cut.

A Senate analysis of the repeal bill noted that the current “awkward system . . . effectively requires taxpayers to overpay their vehicle license fee and then await a rebate check from the state--a system that is, at best, difficult to explain.”

But as the California economy tightened, the state’s budget surplus shrank and taxpayers shelled out approximately $50 million a day to buy electricity, the costs of the rebate program threatened to become a political embarrassment to Davis.

Projected administrative and postage costs of the rebate program alone were estimated at $22 million this year and another $22 million or so next year.

Last year, state Sen. Joe Dunn (D-Santa Ana) and McClintock sought to eliminate the rebates and give drivers their full tax cuts when they register their vehicles. Under pressure from Davis, the bill failed.

“It was killed behind the scenes at the insistence of the governor,” McClintock said Thursday. “He didn’t want it on his desk.”

This year, Dunn launched a similar bill, but his name was struck from it as the lead author in the Assembly and the name of Sen. Wes Chesbro (D-Arcata) was substituted.

In a speech Thursday, Sen. Ross Johnson (R-Irvine) suggested that Davis’ performance on the issue in an “earlier time and a more just society” would have resulted in his “public flogging by representatives of taxpayers.”

The repeal bill was passed 78 to 0 by the Assembly on Monday, and sent to Davis by the Senate on a 34-0 vote Thursday.

If the rebates were to be abolished, the bill had to pass this week in order to take effect July 1, said Branch, the DMV spokesman. This is because motorists must be advised 60 days in advance that their registration renewals are due.

“We have to reprogram all the computers. We have to print new bills and mail them by May 1 for the July 1 expiration,” he said. “It will be a little tight, but we will still make it.”

Branch said that since the Jan. 1 start of rebates, checks totaling $454 million have been sent to 7.4 million vehicle owners at an extra administrative cost of $9.4 million.