Santa Paula: Bets Future on 2004 Schwarzenegger Vehicle License Fee Tax Swap

By Sheryl Hamlin

Who would have thought that former Governor Arnold Schwarzenegger would play a role in Santa Paula’s financial future?

This history did not come up during the Saturday, June 17, 2017 Special City Council Meeting when former Simi Valley City Manager Mike Sedell presented his detailed financial model comparing the annexation to the Ventura County Fire Protection District versus retaining the city’s fire department.

To watch the video and download the spreadsheets, click here.

Revenue Assumptions in the Model

It is important to review the revenue assumptions used in the model as shown for the current year in the following chart. Note that Property taxes (secured) have been decreased by 80%. The Property Tax in Lieu of VLF (Vehicle License Fee) is unchanged. It is important to understand the two line items.

General Fund Revenue Sources used in Sedell Modell

The line labeled “Property Tax” represents the “Secured” Property taxes as dictated by the AB8 TRA (Tax Rate Allocation) which is the California model for apportioning a city’s share of taxes with all stakeholders, such as schools and libraries. This model is used statewide. Note the reduction from $3,684,900 to $736,961, an 80% reduction in the secured property tax after annexation. This is based on the reduction of the city’s share of the secured property tax from .206 minus .1650 yielding a reduction of around 80%. Click here to see the slice change with the insertion of the .1650 into the TRA pie chart.

VLF Tax Swap

The line “Property Tax (VLF)” represents the 2004 Schwarzenegger Property Tax in lieu of VLF Tax Swap. Schwarznegger decided to compensate for funds “borrowed” from the ERAF (Educational Revenue Augentation Funds). The ERAF funds were were established in 1992 under Wilson.

The 2004 deal involved reducing the rate of the VLF fees that go to the State General Fund, moving that entire reduced amount to the ERAF to compensate for reduced property tax and then shifting the ERAF property tax to the city/county. This is why the line is called “Property Tax in lieu of VLF”. Click here for diagram.

Why is this important?

The following note must be explored. How long is the 2004 tax swap protected?

Note: Proposition 1A does not contain the provisions of the “VLF-for-Property-Tax-Swap of 2004” nor the ERAF III local government contributions. These were part of the State Budget Act of 2004. Source

The Property Tax in Lieu of VLF does not apply to annexations. How is/was the 500 acre Limoneira annexation affected? For more restrictions and history, click here.

The Sedell Model Assumes Continuation of 2004 Tax Swap Permanently

Returning to the model presented at the Special Meeting of June 17, 2017, it is important to remember this graph. What the graph shows is that for the first three years there is a cost savings to join VCFPD, but after that it becomes more expensive as costs increase. The Sedell revenue model includes the 2004 Property Tax Revenue in Lieu of VLF ad infinitum. However, if those monies were distributed through the statewide TRA, then they would be subject to the .1650 annexation rate to the VCFPD, assuming the annexation is passed, which would reduce this line item.

Sedell Model Comparing Annexation to Retention

VLF a Political Football

Although the VLF has been relatively stable since the Grey Davis/Schwarzenegger era and SB 1057 of 2006, could it again be ripe for redistribution and/or reduction? Orange County has been a target of the State’s desire to use these revenues.

At 18.4% of Santa Paula’s General Fund revenue, the reliance on the tax swap revenue should give pause to the management.

Budget Ramifications

Santa Paula has been operating with an interim budget. As reported earlier, 30% of Measure T funds were used to balance the FY 17-18 budget, a budget which Mike Sedell called “challenging”. Read report here. So it is difficult to understand how the City Manager and the City Council could approve citywide raises without an adapted budget and a picture of the first quarter’s revenues.

More Information

Two informative articles about the proportionally allocated California property tax:


For more information on author click sherylhamlin dot com

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SB 89 2011 … … dedicated $12 of VLF fund to realignment …

So VLF is a constant target …


With the passage of Proposition 1A in November 2004, the voters of California constitutionally protected major city, county and special district revenues, including property taxes. With regard
to local property taxes, Proposition 1A prohibits the Legislature from reducing the share of property tax revenues going to the cities, county and special districts in any county, and shifting
those shares to the schools or any other non-local government function. However, the Legislature may alter the allocation of property taxes among cities, counties and special districts
within a county with two-thirds approval in each house. Note: 2/3 vote to alter allocation …