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    CA Roughly Triples Annual Vehicle License Fee: Read Governor's Dept. of Finance Memo Citing Reasons...And Blaming Legislature

    (June 20, 2003) -- Citing a memorandum detailing CA's financial situation in sometimes astonishing terms -- and blaming much of the problem on inaction by the CA Legislature -- the office of CA Governor Gray Davis' Dept. of Finance has sent a letter to the DMV that will effectively result CA drivers paying roughly three times what they now pay to register their cars each year. has obtained a copy of the memorandum and its transmittal letter from the CA Dept. of Finance. We quote an extended portion below...and have posted the these materials on a link below.

    The Vehicle License Fee (VLF) or "car tax" has been variously estimated to mean an increase of between $115-$158 per car for the so-called "average driver"...but the actual increase for those with new or expensive cars could be considerably higher.

    For a new car costing $25,000, the registration could jump from about $160 per year to nearly $500 per year in the first year.

    In 1998, the CA legislature lowered drivers' VLF cost by using CA's then-surplus to reduce the out of pocket cost to drivers. CA's former surplus has since been depleted and is now a near $40 billion deficit (state spending exceeding state revenue)...Gov. Davis' Dept. of Finance says continued reduction of the VLF is no longer possible. With that finding effectively "pulling the trigger," the VLF will now rise.

    Calling the VLF increase "illegal theft," Republican state Senator Tom McClintock vowed to reverse it via a petition initiated ballot measure. Governor Davis is currently fighting a recall effort which many observers now believe will get enough signatures to qualify for the ballot. ( recently spotted signature gatherers at the ELB Target store...with many shoppers noticeably eager to sign.)

    The Howard Jarvis Taxpayers Association has previously blasted attempts to raise the VLF without a 2/3 in both the Assembly and Senate to raise taxes. The Jarvis group has called the VLF "a very regressive tax falling disproportionately on working class California families." A court challenge, which the group is expected to file, is would take years to be heard...during which Sacramento would continue collecting the tax.

    In March, LB-Carson Assemblywoman Jenny Oropeza, chair of the Assembly Budget Committee, said the sooner Gov. Gray Davis "pulls the trigger" on reinstating vehicle license fees the better off it will be for cities, counties and public safety. "Every day we delay costs $10 million in lost revenues," Oropeza said.

    As first reported in May, a VLF tripling was foreshadowed in the Governor's "revised" budget...which assumed a tripling of car registration fees. It cited what it called "the presumed operation of existing law with respect to local government's vehicle license fees ($4.2 billion)." Faced with what it admitted had become nearly a $40 billion gap between state spending and state revenue, CA Governor Gray Davis released a revised proposed spending plan for FY 2003-04 that not only included roughly tripling the car tax...but also urged imposing a "temporary" one-half cent sales tax hike and increase income tax "targeted to realigned local government programs."

    In a written release, the Governor's office said his spending plan "protects education, public safety, health care and environmental programs while building consensus with the Legislature on a multi-year financing plan to bridge a $38.2 billion revenue shortfall."

    The "shortfall" results from state spending (authorized by the CA Assembly and CA Senate) that exceeds expected state revenue.

    "Difficult times force us to examine our priorities and make difficult choices," Gov. Davis said in the release, adding "Our choices reflect our values." The Governor said, "The legislature must address the structural reforms necessary to make sure these fiscal problems do not come back to haunt the state in future years."

    Although the Governor proposes the budget and his Dept. of Finance "pulled the trigger" that initiated the VLF hike, the CA Assembly and CA Senate ultimately have the last word on spending. State legislators, not the Governor, decide state spending subject to the Governor's possible veto.

    Among the reasons cited in a Dept. of Finance memorandum for having to trigger the car tax hike:

  • "The failure of the Legislature to fully adopt or fully replace the Governor's solution proposals.
  • The deterioration in revenues since 2003-04 Governor's budget
  • Additional expenditures due to caseload increases since 2003-04 Governor's Budget.

    Revenue Anticipation Warrants

    On April 30, we received a letter dated April 29 from the State Controller requesting the Governor's approval to issue $11 billion of RAW's in mid June...The State will run our of cash, including exhausting all internal borrowable resources, by mid to late June. Even with the issuance of $11 billion of RAWs, without a timely budget, the State will once again run our of cash by late summer...

    Governor's Solution Proposals Not Fully Approved or Replaced

    Of the $5.5 billion 2002-03 mid-year solutions proposed by the Governor in January, only $3.3 billion have been passed by the Legislature...Of the $34.5 billion of 2003-04 solutions proposed at May Revision, the Legislature has passed $3.6 billion to-date...Since the release of the Governor's [proposed] Budget, $690 million of solutions proposed by the Administration have been eroded. While we were optimistic that the Legislature would adopt alternative measures of equal magnitude to the Administration's proposals that were rejected, the Legislature has failed to take such action thus far."

    Increased Expenditures Since Governor's Budget

    The May Revision reflected $10.3 billion of additional expenditures (primarily due to scaling back of realignment proposals and caseload increase in the health and human services areas) over the 2002-03 and 2003-04 fiscal years combined."

  • has posted the full memorandum and its accompanying transmittal letter in pdf form To view these materials, click CA Dept. of Finance letter and memoranda re VLF.

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