EXECUTIVE ORDER S-1-03


Whereas, California has relied upon a motor vehicle tax in the form of a license fee as a substitute for ad valorem property taxes upon motor vehicles since 1935; Whereas, at the time it was instituted, the motor vehicle tax was 1.75% of a vehicle's current value; Whereas, in 1948 the motor vehicle tax was raised to 2% of a vehicle's current value; Whereas, the revenue from the motor vehicle tax fees is distributed to cities and counties to fund operations of local government; Whereas, in the years 1981 through 1983, the legislature reduced the amount of motor vehicle tax revenues to be distributed to local governments by approximately $700 million; Whereas, Proposition 47 was passed by the voters in 1986 to provide that all motor vehicle tax revenues, less the cost of collecting the tax, must be allocated to cities and counties; Whereas, in 1998, in order to permanently relieve California taxpayers from paying the full tax burden imposed by motor vehicle taxes, section 10754 was added to the Revenue and Taxation Code to allow for an offset against monies that would otherwise be collected by the motor vehicle tax; Whereas, in 1998, in order to make up any shortfall in the amounts payable to local governments on account of the offset under Revenue and Taxation Code section 10754, section 11000 was added to the Revenue and Taxation Code to require transfers from the General Fund as successor tax revenues to the motor vehicle tax; Whereas, section 10754 of the Revenue and Taxation Code also provides that during any period in which it is determined that insufficient monies are available to be transferred from the General Fund to fully fund the offsets, the amount of the offsets may be reduced; Whereas, pursuant to such a determination, on June 20, 2003, the Director of Finance acted to raise the car tax, reinstate the full vehicle license fee, eliminate the offset and relieve the General Fund of the obligation to fully fund the offset; Whereas, the Department of Finance has general powers of supervision over all matters concerning the financial and business policies of the State and at the instance of the Governor, shall institute or cause the institution of such investigations and proceedings as it deems proper to conserve the rights and interests of the State; Whereas, because at the time the offset was eliminated, the Director of Finance did not provide priority for the vehicle license fee offset over other state obligations of equal legal entitlement, and did not take into account funds available to the state through borrowing, the Director's determination was in error, not a reasonable interpretation of the statute and the circumstances required by section 10754 were not met; Whereas, it is in the interest of all Californians to control government spending and avoid unnecessary taxation; Whereas, raising the car tax should only be a measure of last resort to relieve the General Fund of the responsibility for payments to local government when absolutely necessary due to dire economic and budgetary conditions; Whereas, due consideration of the priority and importance of the obligation of the General Fund to offset the vehicle license fee will avoid the unnecessary taxation of Californians, restrict unnecessary government spending and help restore California to fiscal integrity and accountability, the offset to the vehicle license fee should be restored, and the offset should be funded through an appropriation from the General Fund. NOW, THEREFORE, I, ARNOLD SCHWARZENEGGER, Governor of the State of California, by virtue of the power and authority vested in me by the Constitution and statutes of the State of California, do hereby issue this order to become effective immediately: 1. The letter issued by the Director of Finance on June 20, 2003, to reinstate the full vehicle license fee and eliminate the offset from the State General Fund is rescinded and shall be of no force and effect; 2. The Department of Motor Vehicles shall reinstate the General Fund offset to the vehicle license fee provided in Revenue and Taxation Code section 10754 (a)(3)(A) as soon as administratively feasible; 3. The Department of Motor Vehicles is directed to refund to taxpayers all overpayments of vehicle license fees paid since the Director of Finance's letter of June 20, 2003, in excess of the amounts due after taking into account the offset provided by Revenue and Taxation Code section 10754(a)(3)(A). IT IS FURTHER ORDERED that the Department of Motor Vehicles take any and all steps necessary to fully effectuate this order. Additionally, in carrying out the directives set forth in this order, all executive departments and agencies are directed to assist the Department of Motor Vehicles to the extent permitted by law. This order is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity, against the State of California, its departments, agencies, or other entities, its officers or employees, or any other person.