Opinion ID: 821527
Heading Depth: 1
Heading Rank: 2

Heading: the 2004 budgetary measures

Text: In light of escalating property values in the early 2000‟s, property tax revenues appeared to be less volatile than other sources of tax revenue such as sales taxes and vehicle license fees. Accordingly, in 2004, the Legislature passed Senate Bill No. 1096 (2003-2004 Reg. Sess.) which contained two different budgetary measures that again tapped local property taxes to substitute for other revenue sources.8
In 2004, the voters approved Proposition 57, the California Economic Recovery Bond Act, which allowed the state to sell up to $15 billion in bonds to close the state budget deficit. (Gov. Code, § 99050.) In order to create a dedicated revenue source to guarantee repayment of these bonds without raising taxes, the Legislature had passed already section 97.68, a temporary revenue measure that shifts revenue in a three-stage process known as the “Triple Flip.” (Stats. 2003, 5th Ex. Sess. 2003-2004, ch. 2, § 4.1.) In the first “flip,” 0.25 percent 8 As part of the same legislative enactment, Senate Bill No. 1096 (2003-2004 Reg. Sess.) also provided for another one-time-only shift of additional property tax revenues into the county ERAF‟s for the 2004-2005 and 2005-2006 budget years. (Stats. 2004, ch. 211, p. 2280.) 8 of local sales and use tax revenues are diverted to the state for bond repayment. (§§ 97.68, subd. (b)(2), 7203.1, 7204.) In the second “flip,” the lost local sales and use tax revenues are replaced by property tax revenue that would have been placed in the county ERAF but are instead set aside in a Sales and Use Tax Compensation Fund established in each county‟s treasury. (§ 97.68, subds. (a), (c)(1)-(6).) In the final “flip,” any shortfall to schools caused by the reduction of funds to the county ERAF is compensated out of the state‟s general fund. This socalled “Triple Flip” is slated to end once the Recovery Act bonds are repaid. (§§ 97.68, subd. (b)(l), 7203.1; Gov. Code, § 99006, subd. (b).)
Also in 2004, the Legislature reduced the annual vehicle license fee (VLF) from 2 percent of a vehicle‟s market value to 0.65 percent of market value. (Stats. 2004, ch. 211, §§ 30-31, pp. 2332-2333; see also Guillen v. Schwarzenegger (2007) 147 Cal.App.4th 929, 937.) Because the VLF had been a significant source of local revenue, the Legislature passed section 97.70, also known as the “VLF Swap,” which diverted property tax revenue to fully compensate each city and county for the VLF revenue that they otherwise would have received. This diverted property tax revenue, which otherwise would have been allocated to each county‟s ERAF, is placed in a Vehicle License Fee Property Tax Compensation Fund established in each county‟s treasury, and the county then distributes the fund to each city in lieu of the lost VLF revenue. (§ 97.70, subds. (a), (b).) C. Revenue and Taxation Code Section 97.75 — The Administrative Fee-for-service Statute Regarding the Triple Flip and the VLF Swap As part of the same legislation that created the VLF Swap and made technical corrections to the Triple Flip statute, the Legislature also enacted section 9 97.75. (Stats. 2004, ch. 211, §§ 20.5, 21, 26, pp. 2307-2318, 2326-2327.) The Court of Appeal in the present case relied heavily on the meaning of section 97.75 in determining whether County‟s calculation of the disputed property tax administration fee is lawful. Section 97.75 reads: “Notwithstanding any other provision of law, for the 2004-05 and 2005-06 fiscal years, a county shall not impose a fee, charge, or other levy on a city, nor reduce a city‟s allocation of ad valorem property tax revenue, in reimbursement for the services performed by the county under Sections 97.68 [the Triple Flip] and 97.70 [the VLF Swap]. For the 2006-07 fiscal year and each fiscal year thereafter, a county may impose a fee, charge, or other levy on a city for these services, but the fee, charge, or other levy shall not exceed the actual cost of providing these services.” In response to this legislation, the California State Association of County Auditors prepared informal guidelines to implement the Triple Flip, VLF Swap, and section 97.75. Those guidelines, which do not have the force of law, contain a model schedule to implement the changes brought by the above described budgetary measures. The model schedule did not change the calculation of the property tax administration fee for fiscal years 2004-2005 and 2005-2006, but beginning with fiscal year 2006-2007, the model schedule imposed a higher property tax administration fee on each city and relevant local entity. Without explanation, the fiscal year 2006-2007 model schedule included in the cities‟ base those funds that would have been placed in the county ERAF, but were not deposited as a result of the Triple Flip and VLF Swap, in calculating each local entity‟s administrative cost apportionment factor. This method would result in a higher property tax administration fee for each city and local entity. Beginning in fiscal year 2006-2007, County followed the informal guidelines and no longer treated the property tax revenues diverted by the Triple 10 Flip and VLF Swap as ERAF funds exempt from the property tax administration fee. Instead, County added these diverted revenues to Cities‟ base for purposes of apportioning property tax administration costs. Thus, County withheld from Cities an additional $4.8 million, as property tax administration fees for fiscal year 20062007 and an additional $5.3 million as property tax administration fees for fiscal year 2007-2008. County‟s actual annual cost, however, in administering the Triple Flip and VLF Swap with regard to all 47 cities was approximately $35,000. Unless ordered by a court to do otherwise, County has stated its intention to continue to withhold the disputed property tax administration fee in the same manner in each subsequent fiscal year. We refer to County‟s method of calculating the fee as to those property tax revenues diverted by the Triple Flip and VLF Swap as the “disputed administration fee.”