The Sun
Sunnyvale's Newspaper

Sunnyvale suffers in Wilson's plan to cut car tax

By Justin Berton

From Eureka to San Diego, collective grumbles were heard from the finance departments of local governments when Gov. Pete Wilson announced plans to repeal the vehicle license fee, a major source of funding for city governments.

Sunnyvale is among the frustrated cities: It stands to lose $4.7 million annually if the tax is repealed, or approximately 6.5 percent of its general fund.

"You'll hear the cries of bloody murder all across the state if it passes," said David Vossbrink, city spokesperson.

But proponents of the tax cut, such as gubernatorial candidate Dan Lungren, suggest the lost revenues could be repaid with the state's current overflow of sales-tax revenues.

Car owners could save an average of $185 per year via the tax cut, supporters point out.

Sunnyvale uses the $4.7 million to finance such services as public safety officers, parks and street maintenance.

Currently, the state is enjoying a surplus of revenues that could justify the replacement of the license fee, said Julie Marengo of the League of California Cities.

"But this year is an anomaly," Marengo said, adding that sales-tax revenues are linked to the stability of the economy, whereas the license fee is not.

"If we were to depend on one source of income, that would be putting a lot of eggs into one basket," she said.

The tax cut is in the governor's proposed budget and will be debated by the Legislature in the coming months.

Four other bills that propose the repeal of the license fee, all sponsored by Southern California Republicans, are set for debate on June 3, when the Senate Revenue and Taxation Committee meets.

If legislators pass the tax cut with the governor's budget, the state would repeal 50 percent of what it doles out to local governments Jan. 1 in the first phase of cuts to abolish the tax.

Sunnyvale finance department management analyst Mark Prestwich said that if the city is forced to depend on sales-tax revenues instead of license fees, it would be in a vulnerable position if the economy were to go sour.

"Over time, the backfill of sales-tax revenue lessens," Prestwich said, "but the license fee is always growing."

The constitutionally protected license fee has been a source of revenue for local governments since 1935. In 1986 voters passed a measure guaranteeing that 90 percent of the license fee would go directly to cities and county governments. Cities statewide receive $1.2 billion, and counties receive $2.4 billion from the fund each year.

But what city officials fear most is a recession that forces the state government to cut off the sales-tax revenue, with no license fee to turn to.

"We have very painful memories from the last time California was in a recession," Vossbrink said, in reference to 1993, when state legislators cut funding to municipalities to balance the state budget.

At the time, Sunnyvale councilmembers were forced to halt several multimillion-dollar projects including a performing arts complex and services for civic improvements.

Of the sales-tax revenues, Vossbrink said the city would be at the mercy of state legislators each year when the budget gets debated. Waiting to see which cities would get their money, Vossbrink said, "would send chills down the spines of local governments."

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This article appeared in the Sunnyvale Sun, May 27, 1998.
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