Driving Taxes

by Carolyn Chase


ou'd like your taxes cut, right? Any old tax or fee will do, right? But when your mind wanders to your taxes, I bet the one targeted for cutting by state Republicans wouldn't be on most folks' list: the Vehicle License Fee. Chances are, you don't know what it is or what it provides for.

The June 15 deadline for passing a state budget has come and gone, and the governor and the state Legislature have failed to come to agreement. Rather than the usual squabbling over the few pennies the state has to spend after its statutory obligations, this year the sticking point is a $4 billion surplus that resulted from a booming economy. Should we work down the backlog of public infrastructure needs? Deal with the unbudgeted impacts of growth? Find a way to give everyone a break? Simply give it back to all taxpayers? Nope. Governor Wilson has proposed a tax cut for cars.

The VLF is currently 2% of a vehicle's market value, based on the purchase price and adjusted for depreciation over time. Wilson has proposed a 50% cut in the VLF rate to take effect January 1, 1999, followed on January 1, 2002 by an additional cut to bring the rate to 25% of its current value.

This type of tax is known as progressive because it is linked with peoples' ability to pay. If you don't have a car, you don't pay this tax. If you have a cheap clunker, you don't pay much. If you have a luxury vehicle, you pay the most.

The vehicle license fee is one of the state's major revenue sources, expected to bring in nearly $4 billion in 1998-9. Under a 1984 amendment to the state constitution, VLF revenues are dedicated to local government. The VLF provides approximately 10 percent of cities' tax revenues and 25 percent of counties' tax revenues. About three-fourths of the $3.9 billion annual proceeds go to cities and counties for their unrestricted use. The remaining fourth goes to counties to support mental health, social services, and health programs that were transferred to local government as part of the 1991 shift known as realignment.

The City of San Diego shows almost $51 million in expected VLF revenues for 1999. 1998 showed $48.2 million, which makes up 8.8% of the General Fund. By comparison, the highly touted "Transient Occupancy Tax" or TOT funds make up 8% of General Fund revenues. The General Fund pays for police, fire, "life safety services," parks, libraries, waste management and all financial, technical, engineering and administrative services provided by the City.

Advocates of a repeal offer to protect local governments by compensating them for their loss of revenue. The Governor's proposal says that state General Fund revenues would be used to pay local governments for lost VLF revenues. The cost to the state would increase from $1.0 billion in 1998-99 (half-year effect) to about $2 billion the next two years, rising to $3.6 billion when the cut is fully implemented in 2002-03.

But only part of the current budget surplus is expected to be ongoing. Moreover, the Governor's estimate of this year's surplus depends on savings that may not materialize or be ongoing. (These include eliminating the renters' tax credit and using a carryover of federal welfare money to help fund this year's CalWORKs welfare program.) Proposals to replace the loss to local governments with other funds could be reversed by the legislature and governor in the event of future shortfalls.

It is folly to use the existence of a surplus to take reliable funds from local government coffers. Adequacy of revenue should be ensured by retention of existing sources of revenue with bases as broad as possible consistent with fairness.

Whether the repeal impacts local governments or the state's general fund, however, it would reduce the contribution that vehicle owners make to covering the public costs imposed by their vehicles.

The benefits of cars are undisputed, but the public and environmental costs of vehicle use include air pollution, energy consumption, global climate change, sprawl, and loss of habitat and open space. Yet vehicle owners pay only a fraction of the total cost of vehicle use. Direct and indirect subsidies provided to motor vehicles take the forms of road construction and maintenance; free and subsidized parking; police, fire and ambulance services; health services for illnesses caused by air pollution; and property taxes lost from land cleared for highways.

Vehicle license fees are a small price to pay for imposing such heavy costs on society. In a rational world, vehicle license fees would go to offset vehicle impacts. Needless to say, we are not there yet. But we certainly should not be speeding in the opposite direction.

We should use the budget surplus fairly. If fiscal prodence was a goal we should just return the money to the taxpayers, instead of doling it out to one economic sector. Or we could begin to catch up on neglected maintenance and infrastructure needs. We could invest in programs that promote economic security for low- and middle-income families, and environmental security for all.

Instead, we have the same old political formula: tax cuts for the rich. This tax break would go to upper-income car owners with new, expensive vehicles. People driving new or expensive cars may want a tax cut, but they surely don't need one. Tax relief should be spread fairly or target real problems and not be provided to those who need it the least: anyone able to operate an expensive car in the state of California.