TO: Honorable Members of the Board of Supervisors

FROM: Office of the Legislative Analyst

SUBJECT: Employee Suggestion No. 68: Local Vehicle License Fee

An employee recommended that the City place a "Vehicle Sticker Tax" on each registered vehicle in the City as a means of generating "at least $20,000,000 annually."

For San Francisco to enact a higher local Vehicle License Fee (VLF), two things must happen. First, the State must pass legislation exempting San Francisco from current State law which pre-empts local governments from changing the VLF stated in the California Revenue and Taxation Code. On May 25, the Board passed a resolution urging the Legislature to do just this. Second, 2/3 of the Board of Supervisors must vote to put an increased VLF on the ballot and a simple majority of San Francisco voters must pass the measure at a subsequent election.

If the State authorizes San Francisco to put the local VLF to the voters and they approve an increase, the new fee would become effective the following January 1. The California Department of Motor Vehicles estimates it would take an additional 90 days to implement the new fee structure. The Controller has estimated that a local VLF of 1.35 percent (in addition to the current statewide VLF of 0.65 percent) would generate an additional $16 million in FY 2004-05 and $64 million in FY 2005-06.

The California Revenue and Taxation Code sets the amount of the Vehicle License Fee (VLF) statewide and pre-empts local governments from changing the rate level. While the State guarantees VLF funds to cities and counties, their level may be altered – as happened from 1998 through 2003.

In his first Executive Order (S-1-03), Governor Schwarzenegger reduced the VLF from 2.00 to 0.65 percent of the value of a vehicle. This reduced the average VLF bill from $225 to $73 per year and caused the State to use approximately $56 million in General Funds to backfill otherwise dedicated funds to San Francisco. As a result, much-needed State funds to cities and counties have destabilized, threatening the provision of essential services such as public safety, public health, social services, public works, and cultural activities.

Last fall Supervisor Ma convened a Revenue Advisory Panel comprised of over 70 interested stakeholders representing business, non-profits, labor and City staff to consider ways to generate additional revenue to the City. After seven months and evaluation of over 30 revenue ideas, Panel participants agreed that the most favorable option was to institute a local Vehicle License Fee that would restore levels back to the historic 2.00 percent of the value of a vehicle.

Assemblyman Mark Leno has proposed a change to this State law, which would allow the Board of Supervisors to place a measure on the San Francisco ballot to increase the local VLF up to 1.35 percent of the value of a vehicle. This would raise it back to the 2.00 percent level it was statewide from 1948 to 1998. However, this legislation has not yet been formally introduced, pending official support for it from the Board and Mayor. On May 26, 2004 the Mayor approved a Board of Supervisors resolution urging the California State Legislature to pass legislation allowing local governments to obtain voter approval to restore the Vehicle License Fee.

If approved by the Legislature and passed by a majority of San Francisco voters, the Controller has estimated that raising the VLF back to 2.00 percent of the value of the vehicle would generate an additional $16 million in FY 2004-05 and $64 million in FY 2005-06.

Attachment: Controller’s Office Revenue Manual Section – MVL – VLF