Car tax reduction not linked to welfare increase

By Julia Cheever, Bay City News Service

February 17, 2007

SAN FRANCISCO (BCN) - A state appeals court in San Francisco ruled Friday that Gov. Arnold Schwarzenegger's reduction in the state's vehicle license tax in 2003 did not trigger an increase in welfare benefits for indigent families.

The Court of Appeal by a 2-1 vote overturned a 2004 decision in which San Francisco Superior Court Judge James Warren ordered a 3.5 percent cost-of-living adjustment in a welfare program called CalWORKs, formerly known as Aid to Families for Dependent Children.

The adjustment, which never went into effect while the state appealed, would have increased a family of three's monthly payment from about $700 to $725 and would have cost $120 million per year statewide.

Schwarzenegger's reduction of the car tax was a campaign issue and was his first official act after being elected in November 2003 in a recall contest in which voters ousted Gov. Gray Davis from office.

He reduced the tax from 2 percent of a vehicle's value - a level put in place by Davis in June 2003 - to 0.65 percent. The change was estimated to cost the state $4 billion a year in revenue.

At the time, any reduction in the tax was tied by a state law to a cost-of-living adjustment in the CalWORKs program.

Clare Pastore, a lawyer for three mothers in the program, said the law in effect from 2000 to 2003 was intended to take cost-of-living increases out of the rest of the budget process.

Pastore said, "The Legislature was saying, 'If motorists can get a break, we can afford to give needy families a break.'"

The appeals court majority, ruling in a lawsuit filed by the three mothers, said Warren misinterpreted the complex law defining reductions in the car tax. It said the tax had not been reduced from the previous fiscal year because the increase put into effect by Davis was refunded to car owners.

Court of Appeal Justice William McGuinness wrote, "As a result of Governor Schwarzenegger's order and the refunds, motorists did not experience a true increase in tax relief in 2003."

Pastore said, "We think the ruling is very, very disappointing and legally incorrect." She said the welfare mothers are likely to appeal to the state Supreme Court.

If the recipients win an appeal, the increase for 2003 would be added to their current benefits, Pastore said.

The lawsuit was made into a class action on behalf of CalWORKs recipients nationwide.

The three original plaintiffs are Juana Guillen of San Francisco, the mother of 8- and 9-year old daughters; Tina Howerton of San Leandro, a college student with a 9-year-old daughter; and Regina Jefferson of Los Angeles, who has sons aged 10 and 16.

Pastore said CalWORKs recipients received a 2.7 cost-of-living adjustment in December 2004 under a new state law that did not tie increases to the car tax. The current law also bars any cost-of-living adjustments in the 2005-06 and 2006-07 fiscal years.

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