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S&P: California Cut in Motor Fees Not to Impact Program Rating

10 September 1998

S&P: California Cut in Motor Fees Not to Impact Program Rating

    NEW YORK, Sept. 9 -- Standard & Poor's affirmed its single-
'A' rated enhancement program for California cities and counties, despite a
25% reduction in motor vehicle license fees approved by Governor Pete Wilson
and the state legislature as part of the recently adopted 1998 budget act.
The reduction in license fees will not affect the amount of revenues available
to service obligations secured under the program since the state is required
to replace the revenues on a dollar for dollar basis.
    New legislation adopted as part of the state budget reduces motor vehicle
license fees by 25% beginning Jan. 1, 1999.  The fiscal 1999 estimated savings
to car owners is about $500 million, with a full-year impact of about
$1 billion.  The legislation provides that additional reductions in license
fees will occur between 2001-2004, to as much as a total 67.5% reduction from
current levels, if state revenues are projected to reach certain targets.
Under California's constitution, vehicle license fees are distributed to
cities and counties, although the level of fees and the allocation formula has
always been subject to state statutes.
    The reduced license fees will not impact the revenues available to local
government since the legislation requires the state to supplement the license
fee account from state general funds in the same amount as the reduction.  The
new statute automatically rescinds the fee reduction, or a proportion of the
fee reduction, if sufficient general fund revenues are not available to fully
fund the offset.
    State statutes permit cities and counties to guarantee G.O. or
lease-secured obligations with amounts received by the state from the motor
vehicle license fee account.  Standard & Poor's recognizes this guarantee
program with a minimum single-'A' rating as long as certain conditions are
met, including structuring the transaction to account for the monthly
distribution of license fee revenues and providing for adequate notification
requirements.  The single-'A' rated program also requires that the cities or
counties covenant not to guarantee payment on other obligations unless they
can demonstrate 2.5 times coverage of guaranteed debt service by license fee
revenues, Standard & Poor's said. - CreditWire