Legislative Analyst's Office

Analysis of the 2002-03 Budget Bill

Motor Vehicle Account Condition

The Motor Vehicle Account (MVA) derives most of its revenues from vehicle registration and driver license fees. In 2001-02, those fees account for 88 percent of the estimated $1.3 billion in MVA revenues. Another 5 percent of MVA revenues are derived from the sale of information. The majority of MVA revenues support the activities of the California Highway Patrol (66 percent), the Department of Motor Vehicles (25 percent), and the Air Resources Board (7 percent).

MVA Faces Deficit in Budget Year Without Corrective Actions

Increased costs for security activities in the budget year, together with other Motor Vehicle Account (MVA) expenditures, will result in an MVA shortfall if corrective actions are not taken. The budget proposes a combination of expenditure reductions, fee and penalty enhancements, and federal reimbursement to bridge the funding gap.

The budget proposes MVA expenditures totaling $1.5 billion in 2002-03. To finance the expenditures and to provide for a reserve, the 2002-03 budget assumes the state will receive or approve $195.4 million in new revenues, expenditure reductions, and federal reimbursement grants. Assuming these actions, the budget projects a balance of $188 million at the end of 2002-03.

Penalty and Fee Increases Aimed at Boosting MVA Revenues. The budget proposes to boost MVA revenues by $76 million in the budget year and $98 million each year thereafter, as shown in Figure 1. Specifically, the budget proposes to:

The Department of Motor Vehicles (DMV) indicates that legislation is needed to implement each of these changes except for the increased fees for the purchase of information.

Figure 1

Motor Vehicle Account Revenue Proposals

(In Millions)




Higher penalties for late registration



Doubled charges for sale of information



Merge Motor Carriers Permit fee with MVA



New driving test retake fee



DUI appeal and license reissuance fees







Budget Proposes Expenditure Reductions. The budget proposes to cut MVA-funded expenditures by $10.8 million at the DMV, $10.5 million at the Air Resources Board (ARB), and $8.5 million at the California Highway Patrol (CHP), as follows.

Federal Funds for Enhanced Security Assumed. The budget proposes $89.6 million in MVA expenditures to boost the state's security and protection against terrorism. The budget assumes this amount will be reimbursed by federal funds. (Please see a discussion of the proposal in this "Crosscutting Issues" section.)

Future Will Bring Deepening Shortfalls if Changes Not Approved. Our review shows that without the actions proposed in the budget and the projected federal reimbursements, the MVA would face a shortfall of $7 million at the end of the budget year. Figure 2 shows the condition of MVA under the Governor's budget proposal and the account balance if no corrective actions are taken and federal funds do not materialize. As Figure 2 shows, without corrective actions, the MVA would have a shortfall of $230 million at the end of 2003-04. This shortfall would increase further in 2004-05.

If only the proposed expenditure reductions are adopted, the account would have a relatively small balance of $23 million at the end of the budget year. However, the account would still face a substantial shortfall by the following year. If, for example, revenues were to grow at the average rate of the past six years, and assuming expenditures stay relatively constant beyond 2002-03, the account would face a shortfall of more than $167 million in 2003-04. 

Proposed MVA Use Raises Important Issues

The Motor Vehicle Account is not an appropriate funding source to pay for the costs of security activities on an ongoing basis.

A key contributing factor to the MVA shortfall, absent corrective actions, is the proposal to use a total of $129 million for enhanced security activities by CHP in the current and budget years. The budget anticipates that these expenditures will be reimbursed by federal funds.

Our review of the budget's proposal to fund these security activities out of MVA raises two concerns:

One-Time Funding Proposed for Ongoing Expenses. According to the CHP, almost all of the increased security costs proposed to be funded by MVA are ongoing expenses. The budget assumes one-time federal funds to cover these expenditures in the current and budget years. At the time this analysis was prepared, the federal funds for 2002-03 were still highly uncertain. Additionally, there is no federal program that would provide money for the proposed security activities on an ongoing basis. Thus, beyond 2002-03, the Legislature and administration would still have to provide a source of funds for these activities.

MVA Is Not Appropriate as Sole Fund Source for Protective Services on an Ongoing Basis. Until 1995, the California State Police (CSP) provided protective services for state property and employees. The CSP allocated its costs to other departments, which funded CSP through reimbursements. After the CSP consolidated with CHP, it continued the reimbursements-based funding system. But the system grew increasingly complex and inefficient.

In 2000-01, CHP's protective services were funded directly, with funding divided between the General Fund and MVA. In 2001-02, with the state facing increasing pressure on the General Fund, MVA became the sole funding source for CHP protective services activities.

The primary purpose of the MVA, however, is to finance vehicle regulation and traffic enforcement by the DMV and the CHP, rather than to provide for statewide protective and security services. Additionally, Article XIX of the State Constitution requires that revenues collected by state fees and taxes on vehicles or their use or operation must be used for vehicle regulation and traffic enforcement. Our review shows that on average, about 90 percent of MVA revenues are subject to Article XIX restrictions. For 2002-03, of the $1.4 billion in MVA revenues projected (including the proposed fee increases), we estimate that the use of all but about $163 million is restricted constitutionally. Thus, for 2002-03, there are sufficient unrestricted MVA funds to cover the approximately $125 million in protective and security activities proposed in the budget.

However, our analysis shows that beyond 2002-03, the MVA would not have sufficient nonrestricted funds to support protective and security activities on an ongoing basis and at the same time accommodate the growth in expenditures for other activities funded from the MVA. Given MVA's primary purpose, we think that MVA funds should first be dedicated to traffic enforcement and regulation activities. The MVA should not be solely relied upon to provide funding for ongoing security activities.

Ongoing Protective Services Should Be Funded With Mix of Funds  

We recommend that the ongoing support for protective services and security activities be funded with a combination of General Fund, Motor Vehicle Account , and reimbursements. We further recommend the adoption of supplemental report language directing the California Highway Patrol, working with the Department of Finance, to prepare a cost allocation study to provide a basis to determine the appropriate level of funding from the three respective sources for the 2003-04 and subsequent budgets.

Because not all of CHP's protective service and security activities are related to transportation and the enforcement of vehicle laws, we do not think that MVA is an appropriate funding source to provide ongoing support of all of these activities. Rather, the MVA fund should be used on an ongoing basis for services related to transportation, such as patrol of state transportation facilities. Security services that are non-transportation-related, including the patrol and security of state buildings and state employees in general should be funded from the General Fund. Where security activities are enhanced for particular departments or programs, those services should be reimbursed.

Accordingly, we recommend that on an ongoing basis beyond 2002-03, CHP protective and security services be funded from a combination of General Fund, MVA funds, and reimbursements. In order to establish a baseline for this funding split, we recommend the adoption of supplemental report language directing CHP, in cooperation with the Department of Finance, to prepare a cost-allocation study based on budget-year allocation of resources to transportation versus non-transportation-related security activities and associated expenditures, as follows:

The California Highway Patrol (CHP), in cooperation with the Department of Finance, shall prepare a cost-allocation study to provide the baseline for determining the appropriate mix of General Fund money, Motor Vehicle Account funds, and reimbursements to support CHP's protective and security activities. The study shall be based on the 2002-03 allocation of resources to transportation versus non-transportation-related security activities. This report shall be submitted to the Chair of the Joint Legislative Budget Committee and the chairs of the appropriations and budget committees of each house no later than January 10, 2003 as part of the 2003-04 budget proposal.

Return to Transportation Table of Contents, 2002-03 Budget Analysis