State law requires the State Controller's Office (controller's office) to calculate and report by October 15, 2005, the vehicle license fee adjustment for fiscal year 2005-06. The term vehicle license fee adjustment is used in state law when referring to the compensation local cities and counties receive from property taxes to make up for the reduced revenues from vehicle license fees. Our audit report 2005-125.1, issued on September 30, 2005, describes more fully the statutory changes that altered the funding source for compensating local governments. The funding source changed from the General Fund to local property taxes.
We found that the controller's office complied with state laws when it calculated the vehicle license fee adjustment for fiscal year 2005-06 and notified county auditors of the adjustment effective October 14, 2005. Specifically, the controller's office calculated the three statutorily required components of the vehicle license fee adjustment. For the first component, the controller's office correctly calculated a $4.4 billion vehicle license fee adjustment. To make this calculation, the controller's office started with the amount of vehicle license fees that would have been deposited in the Transportation Tax Fund—Motor Vehicle License Fee Account (Transportation Tax Fund) in fiscal year 2004-05 and allocated to local governments if the vehicle license fee rate remained at 2 percent after deducting the State's costs to administer and enforce the vehicle license fee program. Then the controller's office computed the difference between that amount and the actual vehicle license fees paid from the Transportation Tax Fund to local governments during the same period.
For the second statutorily required component, the controller's office took into account the growth factor for assessed property values in cities and counties, as required by state law, and calculated a $0.5 billion increase in property values between fiscal years 2004-05 and 2005-06. By adding the $0.5 billion growth factor to the $4.4 billion difference computed in the first component, the controller's office calculated that the vehicle license fee adjustment with growth factor totaled $4.9 billion for fiscal year 2005-06.
Finally, for the third component of the vehicle license fee adjustment, the controller's office determined that its calculation of the vehicle license fee adjustment for fiscal year 2005-06 was $0.3 billion greater than the fiscal year 2004-05 estimated adjustment. The controller's office increased the fiscal year 2005-06 vehicle license fee adjustment to incorporate that difference. As a result, the controller's office calculated that the countywide vehicle license fee adjustment—the amount allocated to cities and counties throughout the State—totaled $5.2 billion for fiscal year 2005-06.
The controller's office concurred with the results of our review and acknowledged the cooperative effort between the Bureau of State Audits (bureau) and the controller's office in determining the vehicle license fee adjustment.