Vehicle Fees Remain a Tricky Issue

Californians have paid annual fees to license their automobiles for decades. The fees were tripled this month to 2% of a vehicle’s value. As a vehicle ages, its value declines along with the amount of taxes the owner pays.

The increase, approved in the midst of California’s budget crisis, caused the average annual vehicle license fee for a passenger car to jump from about $70 to $210. Californians now pay among the highest vehicle license fees in the nation. The tax hike was a major issue in the drive to recall Gov. Gray Davis.

Incoming Republican governor Arnold Schwarzenegger has vowed to reduce the car tax. But there is debate about whether he has the authority to do so without approval of the Democratic-controlled Legislature. If the tax is reduced, officials will have to find $4.2 billion in replacement revenue or ask local governments to absorb the losses.

The state started collecting the car tax in 1935 and distributing it to cities and counties, which count on it for an average of 16% and 25% of their revenue, respectively.

City and county governments use the money to pay for everything from public safety to mental-health services. The state distributes the money according to how many people live in each city or county. Some governments rely on the revenue for 50% or more of their general fund revenue.

A 1998 law signed by former Gov. Pete Wilson governs the state’s car tax and dictates when lawmakers can change the rate. The law lowered car taxes when the state treasury was flush with cash.

With the economy booming in the late 1990s, motorists soon became accustomed to paying lower fees to license some 30.8 million cars, trucks, motorcycles and trailers.

But lawmakers envisioned a day when the state’s treasury would run dry and officials would need to restore the tax to 2% of a vehicle’s value. That day came this year when Gov. Gray Davis’ finance chief, Steve Peace, announced that he would triple the car tax to help mend a $38-billion shortfall in the state’s budget.

Four dozen Republican legislators and the Howard Jarvis Taxpayers Assn. challenged the increase in court.

They contend that the tax hike is illegal because only a two-thirds vote of the Legislature can raise taxes.