Tripling of Car Fee Is Expected

SACRAMENTO -- The day many California drivers have dreaded is about to arrive: The Davis administration is expected to triple the state’s vehicle license fee by administrative order as early as today, generating billions of dollars to help close California’s gaping budget hole.

The average car owner can expect his or her annual so-called “car tax” bill to go up by $136. There will be a 30-day reprieve as the state adjusts its computers for the new rate; then the higher bills will begin appearing in the mailboxes of California car, truck, trailer and motorcycle owners.

With state lawmakers deadlocked over passage of a state budget and 11 days left in the fiscal year, the move comes as state coffers are running dry, save for an $11-billion short-term loan secured this week to keep the government operating for a couple of months. Officials with the Davis administration and the office of the state controller interpret the 1998 law that lowered vehicle license fees as saying that when the state reaches the kind of dire financial straits it is in now, that “triggers” the tax to automatically go back up.

Republicans and taxpayer groups called it a legally dubious claim. They released an opinion from the nonpartisan legislative counsel’s office Thursday that suggested that hiking the tax now would be illegal without a two-thirds vote of approval from the Legislature. They said they probably will file a court challenge.

“It is ludicrous to suggest some low-level Department of Finance functionary can trigger a $4-billion tax increase,” said Jon Coupal, president of the Howard Jarvis Taxpayers Assn.

Republican state Sen. Tom McClintock (R-Thousand Oaks) said he is prepared to rush to the secretary of state’s office today to launch a ballot initiative to abolish the car tax altogether within an hour after the fee increase order is issued.

But opponents of the fee acknowledged that state law would make it extremely difficult to immediately stop the increase. The state Constitution prohibits courts from stopping the collection of any tax until the case against it has been fully litigated.

“They know they can collect an illegal tax for at least a few years before the courts can stop them, and that is why they are doing this,” McClintock said of the governor and controller.

The ballot measure McClintock is advocating to abolish the tax altogether would not appear before voters until November 2004. For the measure to qualify, McClintock would need to collect 378,000 signatures of registered voters.

“I’ve already had 10,000 people sign up at my Web site as a result of a few radio interviews pledging a total of 600,000 signatures,” he said.

Davis administration officials said they have consulted with a cadre of attorneys, including the attorney general’s office and the in-house counsel of the governor and controller, who affirmed that the tax increase is legal.

“We are taking the most conservative interpretation of the statute and how it is implemented because we intend to survive the court test,” said Department of Finance Director Steve Peace.

Peace dismissed a finding by the legislative counsel that the tax rate would have to change every month based on how much money was in the state coffers. He said it would be unconstitutional for the tax rate to fluctuate that way.

When the vehicle license fee was lowered in 1998, it came with a guarantee that the state would reimburse local governments the revenue they stood to lose from the tax cut.

Peace argued that the state cannot afford to make the $4-billion reimbursement in the coming fiscal year, so the tax must go back up to keep funds flowing to local governments.

He said the state is running entirely on borrowed money as legislators struggle to reach agreement on a spending plan by the beginning of the new fiscal year, July 1. Lawmakers appear nowhere close to a deal as the state hovers dangerously close to being assigned a “junk bond” credit rating that would raise the cost of future borrowing substantially. California already has the lowest credit rating of any state.

“The state has never been in this position before,” Peace said. “We are managing this state the same way you would manage a company that is on the brink.”

The latest push by the GOP to stop the fee hike is a double-edged sword for the party.

If a court stops the hike, it would remove a major revenue source and a government shutdown would become more probable.

Assembly Budget Committee Vice Chairman John Campbell (R-Irvine) made no apologies.

“We don’t believe it will be us that shuts down the state government,” he said. “If [Democrats’] insistence upon having tax and spending increases in this budget drives the state to the point of some shutdown or whatever, that will be a decision they choose to make.”

Los Angeles Police Chief William J. Bratton, who was in the Capitol when Campbell briefed reporters, said that not pulling the car-tax trigger “is a recipe for chaos” that could stop the flow of sorely needed money.

“It’s hard for me to figure out what is going on in this building here,” Bratton said. “The reality of the world out there is that this stuff has the potential to cause real harm.”

Bratton was in Sacramento with Los Angeles Mayor James K. Hahn and other California mayors to urge lawmakers not to seize revenue from cities in closing a $38-billion shortfall.

Though the mayors had initially called for no state cuts, Hahn said, they have since agreed to accept a modest, one-year reduction.

“We’re saying we can work with you to make a contribution this year, which is different than the position we started out in, which was, ‘Leave us completely alone. Don’t touch us at all,’ ” Hahn said.

Senate Republican Leader Jim Brulte gave the mayors some good news.

“I would be very surprised if a multiyear hit passes the Legislature,” Brulte said.

As cities sought to keep tax revenues coming their way, business and taxpayer groups announced several ballot proposals they are pushing to make it more difficult for lawmakers to raise taxes.

The measures would remove a section of the law that allows Democrats to raise fees with a simple majority vote. Another provision would increase the number of votes needed to raise taxes to two-thirds plus one in each legislative house.

The campaign was launched in response to a union drive to put a measure on the ballot that would lower the threshold for raising taxes from a two-thirds majority to 55% of the Legislature.

If the union measure is successful, Democrats would be able to enact a tax hike without any Republican votes.

Times staff writer Peter Nicholas contributed to this report.

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(BEGIN TEXT OF INFOBOX)

Q&A;: The vehicle license fee

As early as today, Gov. Gray Davis will issue an administrative order to increase the state’s so-called car tax, raising $4 billion annually to help repair the state’s $38-billion budget shortfall.

Q: Who must pay?

A: Automobile, motorcycle, trailer and truck owners who register their vehicles in California. The fee will be added to the Department of Motor Vehicles’ annual registration bill, which also includes items such as registration, air quality and commercial vehicle weight fees.

Q: When will the bill arrive?

A: An owner receives the DMV bill in the month in which the vehicle was purchased.

Q: How much?

A: It depends. The increase will add $136 to the fee that average vehicle owners already pay. Some owners will pay more, some will pay less. Before the increase, the fee amounted to 0.65% of a vehicle’s estimated value, which is calculated on the basis of the purchase price. As the value declines each year, so does the fee.

Q: Hasn’t the fee been cut in recent years?

A: Yes. The fee originally was 2% on the vehicle’s value. But in 1998, Gov. Pete Wilson and the Legislature agreed to a series of reductions, with the provision

that the fee would return to the original level if state revenues ever ran dry.

Q: Where does the money go?

A: Historically, the revenue has gone to cities and counties. But when the fee was reduced in 1998, the state began reimbursing local governments for the lost revenue. Now, raising the fees allows the state to keep the reimbursement money and apply it to California’s flagging general fund.

Source: California Legislative Analyst’s Office

Los Angeles Times