Goodbye, Fees; Hello, Costco

January 18, 2003

Los Angeles Times

From San Diego to Shasta, Gov. Gray Davis' proposal to eliminate the state subsidy on vehicle license fees would not only rob California's cities of money that has been constitutionally guaranteed, it would blight the California landscape in ways that would last years longer than the budget deficit itself.

Davis has proposed ending the "backfill" to cities of lost revenue from the reduction in vehicle license fees. Those fees were reduced when the state had budget surpluses, and the state made up the difference.

The money is used exclusively for municipal services such as police and fire protection. Losing it would be a major, if not devastating, blow to most cities.

Beyond the sheer loss of revenue and local services, however, Davis' proposal would have an unintended side effect that deserves careful consideration.

In its present form, the governor's budget would reduce the diversity of revenue sources that flow to cities, thus making them more reliant on sales tax revenue than ever before.

California cities typically draw on three major revenue sources: sales taxes (30% of the average general fund budget), property taxes (20% of the average general fund budget) and vehicle license fees, which make up about 16% of an average city's general fund budget. The balance comes from utility and hotel taxes, fines and other fees.

The math is simple: Cut the license-fee backfill -- which typically totals two-thirds of license-fee revenues -- and cities will be more dependent on sales and property taxes. Much more.

And because there is virtually nothing a city can do to raise its property taxes, you can bet that our local economic development specialists will redouble their efforts to land those reviled auto malls, strip malls and big-box stores that kill downtowns.

For some cities -- especially poorer, rural and agriculture-based cities -- the effect will be particularly acute because license fees account for a much larger percentage of their general funds.

For instance, in Contra Costa County, the license fees provide 18% of Lafayette's budget and 26% of Moraga's budget. In the newly incorporated city of Oakley, the fees are a whopping 41% of the general fund.

In Soledad, the license fees are 45% of the budget, and in the Central Valley town of Parlier they're 47% of the budget. The statewide "winners" appear to be Imperial County's Calipatria, where the fees make up 61% of the general fund, and Orange County's Laguna Woods, where the figure is an unthinkable 64%.

If Davis gets his way and the vehicle license fee revenue is slashed, cities such as these may have no choice but to chase the almighty sales tax dollar. The other alternative is to lock up City Hall and hand the keys back to the county.

At a time of economic slowdown, when California should be encouraging the health of high-tech companies and the development of high-income jobs, the governor has proposed a plan that instead will spawn big-box stores, discount warehouses and minimum-wage jobs.

For those who thought that land-use planning was already fiscalized, you ain't seen nothin' yet.