Loss of Vehicle Fees Could Drive Some Cities to Brink

For California’s newest and poorest cities, the debate over whether to help balance the state budget by shifting vehicle license revenue away from local governments holds dire consequences, with officials contemplating deep cuts and even bankruptcy.

The cities -- which range from upscale suburbs such as Laguna Woods and Canyon Lake to poor Central Valley farming towns such as Parlier and Orange Cove -- rely much more heavily than most cities on vehicle license fees to fund municipal services.

Gov. Gray Davis has proposed reducing the amount of vehicle license revenue that cities receive by two-thirds. The average California city relies on the fees for 16% of its budget; about two dozen cities count on the fee for from 35% to 64% of their budgets.

Leaders of some cities say the Davis plan would slash their operating budgets by half, forcing deep cuts in services -- and perhaps forcing some into bankruptcy.

In response to these grim predictions and others, Democratic legislators this week called on Davis to raise the vehicle registration fees in order to avoid forcing cities and counties to make deep cuts. But Davis said he is reluctant to raise the fees, and Republicans are also opposed to the move.

As the Legislature debates, officials in towns such as Orange Cove worry about slipping through the cracks.

A citrus farming town that is ranked as one of the state’s poorest, it stands to lose $498,834 over the next 18 months, roughly 40% of its operating budget. There is no economic base that can make up the difference, officials said.

The Fresno County town of 8,000 depends almost solely on agriculture and the whims of the weather, with rain and freezing temperatures swelling the ranks of unemployed farm workers. The city can’t even consider raising water or trash rates to boost revenue because many cash-strapped residents are already months behind in their payments, Mayor Victor Lopez said. “If they do this, we’re over with,” Lopez said. “We’re not going to survive, bottom line.”

Slashing Programs

Laguna Woods, one of three newly incorporated cities in suburban south Orange County, may have to slash all recreational and social programs -- or possibly unincorporate if things get too bad.

In total, local governments would lose $4.2 billion in vehicle license fees over the next 18 months, according to Davis’ budget proposal.

“Some cities are not going to be able to provide basic services,” said Michael Coleman, a budget consultant for the League of California Cities.

Poor cities are being hit hard because they lack a strong tax base. They have little industry or tourism and few, if any, shopping centers. As a result, their biggest source of funding is the vehicle license fees.

The fees are based on population, not the number of vehicles in a given city. Rural towns with prisons, such as Calipatria, Wasco and Avenal, face a worse crunch because the state allows them to count the prison population when calculating the amount of fees they receive.

Calipatria, an agricultural town that has little more than a grocery and hardware store, has a population of about 7,500 -- though 4,000 are inmates at the state prison. The city may lose $447,509 over the next 18 months, about half of its operating budget. The loss is equal to what it spends on the Police Department, with its chief and four officers, and part of the Fire Department. The city’s reserve is only $20,000, so all contingencies are being considered, including bankruptcy.

“We’re to the bare bones,” said Calipatria Finance Director Katherine Lopez, who alongwith the city manager, an office assistant and a part-time city clerk make up the city staff. “I don’t know how much is left to cut.”

New cities face similar challenges. To help new cities get on their feet, state law permits them to initially triple the number of registered voters they count when determining the amount of vehicle license revenue due them. This leaves them highly dependent on the fees. These cities have a harder time falling back on other revenue because, under state law, they must share a greater amount of property and sales taxes with counties than older communities.

No city in California relies more heavily on vehicle license money than Laguna Woods, where the average resident age is 78. The city, located mostly inside the gated senior citizen community of Leisure World in south Orange County, was incorporated in 1999.

Of the city’s $3.9-million operating budget, 65% comes from license fees passed down from the state. The city also gets some money from sales taxes and a small slice of property taxes.

The state’s proposed $2.6-million cut in Laguna Woods’ vehicle license revenue in the next 18 months would mean cutting two or three of the city’s eight staffers, Laguna Woods City Manager Leslie A. Keane said. The city might be forced to cut in half patrols, contracted through the Orange County Sheriff’s Department, from 16 hours a day to eight hours a day. During the rest of the time, officers would be on call to handle emergencies.

The city’s already-meager social services and recreation programs also could disappear after June, including subsidized tickets to the Laguna Playhouse and discounted beach and park passes.

When the state budget crisis first hit last summer, Laguna Woods even considered the idea of unincorporating -- essentially handing the reins of government back to the county.

But that idea proved highly unpopular among city officials and residents, who battled county government for a decade over the Board of Supervisors’ plans to build an airport at the nearby El Toro marine base. City leaders said they will try everything short of that.

“There’s only so much fat you can chop,” Mayor Bert Hack said. “It’s a scary time.”

Although the cutbacks would be severe, they aren’t entirely unexpected. City officials were alerted more than a year ago that vehicle license fees were on the chopping block. And five years ago, when the Legislature reduced vehicle license fees, the state promised that cities would not see a drop in funding and agreed to offset the loss in revenue.

Putting Up a Fight

Cities have already started lobbying to change the budget. Lopez of Orange Cove is putting together a list of reasons that cities with populations of less than 10,000 should be exempt from the fee cut. And new cities in Orange County -- Aliso Viejo, Laguna Woods and Rancho Santa Margarita -- along with recently incorporated Oakley in eastern Contra Costa County are also banding together to lobby.

Democratic leaders proposed halting Davis’ cuts by increasing the vehicle license fees. The move would generate about $4.2 billion in revenue and cost the driver of a $22,000 car, for example, up to $300 the first year of ownership. They contend they can raise the vehicle license fees through a majority vote of the Assembly and Senate because it’s not a tax increase, which would require a two-thirds vote.

“This is only the opening bell,” Oakley City Manager Mike Oliver said. “We’re not taking any precipitous actions. We’ve talked to council about sticking to our guns.”

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Times staff writer Evan Halper contributed to this report.