California Counties Breathe a Sigh of Relief as VLF Trigger is Pulled; Move Ensures the Continuation of Many Critical Local Services.

Business Editors/Political Writers

SACRAMENTO, Calif.--(BUSINESS WIRE)--June 20, 2003

Counties expressed wholehearted support for the state's action to pull the Vehicle License Fee (VLF) "trigger" today, which will ensure $4.2 billion in continuing revenues to local governments.

"We are pleased that the trigger was pulled, allowing counties to continue providing critical local services," said Tim Smith, President of the California State Association of Counties (CSAC) and a Sonoma County Supervisor. "Our number one concern was making sure that counties could continue providing essential local services, and today's announcement makes that possible."

State Department of Finance Director Steve Peace's memo describes the state's dire financial situation and upholds current law requiring the state to administratively reinstate vehicle registration fees to their original level if the state has "insufficient moneys" to continue payments to local governments. A legal opinion released in March by attorneys for the State Department of Finance and the State Controller reaffirmed the legitimacy of the VLF trigger statute.

The 1998 law (Section 10754), which was bipartisan in nature and received a nearly unanimous vote in the Legislature, was intended to be an automatic mechanism so that local governments would have a reliable source of income despite potential fiscal troubles at the state level. The automatic nature of the "trigger" was an important aspect of the 1998 law, enacted to avoid a partisan battle and ensure that local government would always be kept whole.

"A promise was made in 1998 to local government and the People of California; the State today has honored that promise," said Steve Szalay, Executive Director of CSAC. "Local governments can now rely on VLF revenues to fund critical local services such as public safety, health care, foster care and road maintenance."

VLF revenues constitute 15 to 25 percent of typical city and county general purpose revenues. On average, more than 60 percent of city general fund spending and more than half of county general funds go to front line law enforcement, fire, emergency medical services, and health care programs. For some counties, VLF revenues have become the number one source of discretionary revenues, surpassing the property tax (in large part due to the property tax shifts of the early 1990's).

Any interruption of VLF payments to local governments would have caused widespread disruption in local government services essential to California citizens and their cities and counties, Szalay said.

"The state took the correct action, sparing the suffering of many people who depend on local services funded with VLF revenues," said Szalay. "Now we plan on taking a proactive approach to working with the state toward an equitable and timely state budget solution."

Smith went on to add that the unnecessary controversy over the VLF trigger statute highlights the need for immediate structural reform of the state-local fiscal relationship.

"We can't keep wondering how we'll stay afloat and bearing the brunt of the state's fiscal uncertainties," said Tim Smith. "Now is the time for us to make the goal of a stable fiscal situation in California through structural reform a reality."