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Report regarding the Property Tax in-lieu of Vehicle License Fees shortfall (Rich Lee, Assistant City Manager)
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RECOMMENDATION
Recommendation
It is recommended that the City Council receive an update regarding the Property Tax in-lieu of Vehicle License Fees shortfall.
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BACKGROUND
PROPOSITION 98 | EDUCATIONAL REVENUE AUGMENTATION FUND (ERAF)
In 1988, California voters approved Proposition 98 (Prop 98), which was a constitutional amendment that establishes an annual minimum funding level for K-14 education each fiscal year. Prop 98 supports K-12 schools (including transitional kindergarten), community colleges, county offices of education, the state preschool program, and state agencies that provide direct K-14 instructional programs.
In present day terminology, public school districts that generate enough property tax to meet the Prop 98 requirement (and thus no state subsidy is required) are considered a basic aid school district. Conversely, public school districts that do not generate sufficient property tax to meet the Prop 98 requirement are considered non-basic aid school districts.
ERAF began in 1992 due to the state facing budgetary pressures and not being able to meet its requirements to fund public education pursuant to Prop 98. ERAF permanently shifted cities and counties' share of the 1% property tax levy away to meet this requirement.
PROPERTY TAX IN-LIEU OF VEHICLE LICENSE FEES
In 1935, as a uniform statewide tax, the vehicle license fee is a tax on the ownership of a registered vehicle in place of taxing vehicles as personal property. By law, all revenues from the vehicle license fee fund city and county services, but the state legislature controls the tax rate and the allocation among local governments.
In 2004, to balance its budget, the State of California permanently reduced the vehicle license fee tax rate and eliminated state general fund backfill to cities and counties. As a part of the Budget Deal of 2004, to a...
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