Schwarzenegger Opposes Ruling That Calls for Car Tax Reduction

A state court is threatening to cut California’s unpopular car tax, but in a way that has even Gov.-elect Arnold Schwarzenegger concerned.

As a campaign pledge, Schwarzenegger vowed that upon taking office he would roll back a $4-billion increase in the annual tax residents pay to register their cars and trucks.

But he and outgoing Gov. Gray Davis have agreed to fight a court decision in September that would effectively recalculate how the vehicle license fee is figured, dropping rates by about 24%.

If the decision were to stand -- and Schwarzenegger followed through on his rollback pledge -- it would cut car tax revenues much more than he intended and make it harder to compensate for the loss.

Cities and counties depend on car tax revenue to finance public safety, and Schwarzenegger has promised to maintain that support.

Schwarzenegger spokesman Rob Stutzman said the governor-elect spoke with Davis and agreed that the court ruling should be appealed to protect the state’s general fund.

The court decision comes in a 12-year-old case in which San Diego County sued the state for excluding some poor adults from its Medi-Cal program and forcing the county to care for them without compensation -- a situation the county calls an unfunded mandate. In September, the 4th District Court of Appeal ruled in the county’s favor and awarded it $3.4 million.

In so doing, the court activated a so-called “poison pill” provision that lawmakers and Republican Gov. Pete Wilson inserted in sweeping 1991 legislation that overhauled the relationship between the state and local governments. That legislation, known as “realignment,” shifted responsibility for mental health, social services and other health programs from the state to counties. To help local governments pay for their new duties, Wilson and the Legislature bumped up annual vehicle license revenue by 24% by changing the way it was calculated.

The provision was precisely intended to discourage counties from challenging Wilson’s plan. The provision states that if a court of appeal or the state Supreme Court finds that the state is obligated to reimburse counties for the costs of caring for adults who cannot pay for health care, then the vehicle tax must revert to the pre-1991 car tax schedule.

At current levels, the vehicle license fee brings the state $6.3 billion a year. Davis tripled the fees over the summer to help bridge a $38.2-billion budget gap, and the Department of Motor Vehicles began mailing notices of the higher fees to car and truck owners in October.

If Schwarzenegger repeals the tripling of the fees as he promised, motorists would save $4 billion a year. The court ruling would save taxpayers -- but cost the state -- an additional half a billion dollars.

If Schwarzenegger does not repeal the tripling of the car tax, as local governments have urged, the court ruling would still cut vehicle license fee revenues by $1.5 billion a year.

Believing the award is too low, San Diego County appealed the decision on Friday, seeking $15 million in reimbursement. On Monday, state Atty. Gen. Bill Lockyer also appealed to have the ruling overturned, calling the issue of “statewide importance” because it will have a “substantial negative impact” on funding for local health-care programs.

The state Supreme Court is expected to consider within six weeks whether to modify the appellate court decision or let it stand.

Jonathan Coupal, president of the Howard Jarvis Taxpayers Assn., said Tuesday that he had not been aware of the appellate court decision but was pleased by it.

“Obviously if that poison pill was put in there and it was triggered by a lawsuit,” he said, “then I think the DMV has no choice but to recognize that the lower [tax] schedules must be employed now.”

“Anything to lessen the impact of the car tax we would be in favor of,” Coupal said.

Extraordinarily destructive wildfires in Southern California in recent weeks have fueled the arguments of local government officials that the car tax is essential to pay for emergency services.

Schwarzenegger has not backed away from his tax-cutting pledge, but neither has he offered a plan for how he would replace the $4 billion in revenues used by local governments if the hike in the car tax were reversed.

“We got a very graphic illustration of what the VLF is used for last week,” said Davis spokeswoman Hilary McLean, referring to the emergency crews fighting the Southern California wildfires. “There are certainly pressing needs on our budget.”