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Office of the Chancellor / Public Affairs
Friday, June 20, 2003

Sacramento Bee 6-20-03

Legal donnybrook to follow car-tax hike
By John Hill


Democrats and Republicans agreed Thursday on one aspect of an attempt to triple the state's car tax: It will end up in court.

But that was the extent of the common ground, as the two parties duked it out over whether the coming vehicle license fee increase is legal.

"Increasing this tax may be convenient," Assemblyman John Campbell, R-Irvine, said at a press conference. "Pulling this trigger may be an easy way to increase the tax without a vote of the Legislature, but it's not legal."

Director of Finance Steve Peace responded in another press conference minutes later that the administration of Gov. Gray Davis is confident that its legal interpretation will prevail.

"At the end of the day, this is going to be litigated, and the answers will be provided for in court," Peace said.

The controversy centers on the law that reduced the license fee, which had been set at 2 percent of a vehicle's value. In recent years, it's gone down in steps to 0.67 percent.

The law contained a "trigger" that allows the fee to go back up again when the state has "insufficient moneys."

Several sources say the increase was planned for today. It would take 90 days for the fee hike to take effect.

The Department of Finance and Controller Steve Westly issued a joint legal opinion in March describing the circumstances under which the trigger would be pulled. With the state facing a $38.2 billion budget deficit, officials said it was just a matter of time before the increase was triggered, raising the annual fee an average of $124 per vehicle.

However, an opinion sought by Campbell from the legislative counsel is at odds with the earlier interpretation.

It says the controller alone is responsible for determining when to increase the fee -- and that the fee could vary each month with fluctuations in the state's fiscal status.

"You could literally have a situation where someone pays a $600 car tax in October, and then in November their neighbor with exactly the same car, bought one month later, would pay a $200 tax," Campbell said.

The recent opinion also makes it clear that the state is not yet sufficiently strapped for cash to trigger the increase, he said.

"The circumstances to pull the trigger do not exist today," Campbell said. "We are not out of cash. In fact, the state just sold $11 billion worth of bonds, and all that cash is in the bank."

Jon Coupal, president of the Howard Jarvis Taxpayers Association, said his organization is prepared to file a lawsuit within several days of the car fee being increased.

Although taxpayers are barred from protesting a tax until after they've paid it, he said, "that doesn't mean we can't sue to have it declared illegal."

But Coupal said it was likely that vehicle owners would have to pay the higher rate until the court made a ruling.

Peace said numerous other legal opinions have reached different conclusions. For instance, the state constitution would not allow an interpretation that resulted in monthly changes in the vehicle license fee, he said, because taxpayers in similar circumstances cannot be treated differently.

Peace refused to say whether the fee increase will be triggered today.

"The thing about triggers is they go 'boom' and they happen just like that," he said. "You'll know when I know, and that will be at the moment it happens."

City and public safety officials worked the halls of the Capitol on Thursday arguing against cuts to their budgets and calling for the vehicle license fee increase.

Sacramento Mayor Heather Fargo said the city counts on it for $18 million in annual revenue.

"We need the VLF triggered," she said. "We need the money returned to cities where it rightfully belongs so we can spend it on the things that matter to the residents of our city and, frankly, to the residents of California."