Efforts to Roll Back Car Tax Likely to Stall, Experts Say

A new California governor probably could not rescind a recent tripling of the car tax within hours of taking office, experts say, contrary to repeated claims by two leading candidates in the recall election.

There is a range of obstacles, including the question of whether state law permits lowering the tax and how to replace billions of dollars in lost revenue, according to government officials and outside experts.

For months, recall candidates Arnold Schwarzenegger and state Sen. Tom McClintock (R-Thousand Oaks) have promised to do away with the wildly unpopular tax hike on Day 1. At a campaign stop Friday in Orange County, Schwarzenegger’s team drew cheers by aiming a wrecking ball at a white Oldsmobile spray-painted with the slogan “Davis Car Tax.”

McClintock, whose staff has affixed “Stop the Car Tax” posters to telephone poles throughout the state, reiterated his stand Friday.

“The governor acted illegally,” he said. “So I can reverse that illegal action and simply rescind the tax with a letter from the Department of Finance to the DMV directing that they reduce the car tax.”

But an official with the Department of Finance, which authorized the increase in June, said the agency would not agree to a rollback until the state repaid $11 billion it borrowed earlier this year and found an additional $10 billion to restore the general fund to 2002-03 levels.

“This is not something the governor or the director of finance can decide as a policy matter; it’s all function of revenue,” said Floyd Shimomura, chief counsel for the Department of Finance, whose director is appointed by the governor.

The Howard Jarvis Taxpayers Assn. has joined four-dozen GOP legislators, including McClintock, in challenging the fee increase in court, contending that it was illegally enacted without the approval of two-thirds of the Legislature, which is required for tax increases. The group, like McClintock, says that what was done by executive order can be undone the same way. But Jon Coupal, president of the taxpayers association, acknowledged that rescinding the hike could require court action.

An official of a law enforcement group who helped draft the state law that governs the car tax contended the governor does not have the authority to rescind the increase.

“In our view, it takes legislation to reduce the car tax, not an executive order,” said Nick Warner, legislative director for the California State Sheriffs’ Assn., a professional organization that includes the sheriffs in all 58 counties. City and county governments rely on revenues from vehicle license fees to fund public-safety services.

Warner helped draft a law signed by Davis’ predecessor, Gov. Pete Wilson, in 1998 that lowered the vehicle license fee by two-thirds and included a “trigger” that required the tax to return to 2% of a vehicle’s value when the state had insufficient general funds.

Citing that law, Davis’ finance chief, Steve Peace, announced in June that the state would restore the car tax to 1998 levels as part of an effort to plug a $38-billion shortfall in the state’s budget. As a result, the average annual vehicle license fee for a passenger car increased last week from about $70 to about $210, which leaves Californians paying among the highest vehicle license fees in the nation. The increase has helped propel the effort to recall Davis.

Lt. Gov. Cruz Bustamante has said he would not entirely reverse the hike but rather would rescind the increase for the first $20,000 of a vehicle’s value. Davis has also said that he would like to undo the tax hike, but concedes that it would be difficult to find revenue to replace the $4.2 billion that would be lost.

“The governor is being very honest and straightforward about this,” said Hilary McLean, a spokeswoman for Davis. “Other candidates are saying they will wave a magic wand and make it go away, but they haven’t come up with any legal way they will be able to accomplish this.”

Schwarzenegger could not be reached for comment.

Lowering the car tax would require several steps, analysts said. First, the governor would need to determine that the state had sufficient funds to make up the $4.2 billion, said Mark Ibele, a researcher in the state’s nonpartisan legislative analyst’s office.

What constitutes sufficient funds is the subject of much debate in Sacramento.

There’s even disagreement within Davis’ administration about how the law works. Though it was Peace, the finance director, who hiked the tax in June, controller Steve Westly asserted earlier in a letter to Assembly Speaker Herb Wesson (D-Culver City) that it was unclear how the tax increase could be triggered. Westly said legislation was needed to clarify who could boost the tax, and what constitutes sufficient funds.

To make matters more confusing, the nonpartisan legislative counsel’s office issued an opinion a week before Peace’s ruling, stating that Westly has the ultimate authority to decide when the tax should be changed. McClintock cites that opinion when saying that he could repeal the tax if elected governor.

Even those who oppose the higher tax agree that it cannot be repealed until replacement funds are found or offsetting budget cuts are made.

Davis and some legislators have proposed rolling back the car tax and raising taxes on the wealthy and on tobacco to make up the difference. But even that swap is not so simple.

“Because the state is the one that administers the tax, it’s not clear if they can make this swap without a super-majority of the Legislature,” said Kim Rueben, a public finance economist at the Public Policy Institute of California. A two-thirds vote of the Legislature is required to raise taxes.

A new governor on his first day could sign a document declaring the tax hike repealed, but such an action would be likely to draw court challenges and have only symbolic value, at least at first, experts said.

The state is being sued “because people think we shouldn’t have raised the vehicle license fee rates up again,” said Shimomura, of the state Finance Department. “But if we try to push them back down again there will be another lawsuit by people who want to keep rates where they are now.”

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Times staff writer Daryl Kelley contributed to this report.