Bringing Car Tax Down Is Easy; Keeping It Down May Be Hard

With a snap of his fingers, Gov.-elect Arnold Schwarzenegger can roll back state vehicle license fees the instant he takes office.

But if challenged in court, he would have to prove that California can afford it -- and that may not be so simple.

State officials have at times vacillated over whether Schwarzenegger would have the power to void the car tax increase. This week they were more firm.

“If the governor wishes to rescind” the increase, said state Controller Steve Westly, “his new director of finance will have that authority.”

But city and county governments, which receive the money from the car tax, could challenge his decision in court, Democratic legislative leaders have warned, and would be likely to do so.

The legal arguments center on a provision in the law that lowered the car tax rate in 1998.

As part of the deal to reduce the tax, the Legislature pledged that local governments would continue to receive an amount equivalent to their existing car tax receipts. That money would come from the state’s other revenues. To make sure the state would have the money to meet that pledge, the law provided that the car tax rate could go up again if the state had “insufficient monies” to make the payments.

Last spring, when Gov. Gray Davis ordered the tax rate restored to the levels that existed before the 1998 law went into effect, he and his aides pointed to that provision, arguing that the law had been triggered because that state government was running entirely on borrowed cash.

Republican legislators filed a lawsuit challenging that interpretation. They said that as long as there is money in the state treasury, whether from taxes or from borrowing, California has money available.

That lawsuit is pending in Superior Court, but it could become moot if Schwarzenegger reduces the tax.

State Finance Director Steve Peace warned Thursday, as did other top state finance officials, that the effect of lowering the tax would be that $4 billion annually would stop flowing to local governments. That money pays for police and fire protection and other critical local services.

Schwarzenegger could propose other ways to keep that $4 billion flowing, but that would require either budget cuts or tax increases, all of which would have to be approved by a two-thirds vote of the Legislature, in which Democrats hold the majority.

Senate President Pro Tem John L. Burton (D-San Francisco) said there was no chance that the Legislature would approve cutting other programs so the car tax rate could come back down. He also warned that local government groups, such as the League of California Cities, would quickly challenge the tax cut in court.