2009-10 Budget Analysis Series: Resources

Governor’s Emergency Response Initiative

The Governor’s budget includes the ERI—a proposal to levy a new surcharge on property insurance policy premiums statewide and to use the resulting revenues to support emergency response activities in several departments, but primarily within CalFire. Below, we separately address the proposed source of funds and the uses of these funds, as we believe that the Legislature should independently weigh how to fund emergency response and what program activities should be funded in this area of the budget.

New Insurance Surcharge Proposed To Fund Emergency Response

New Surcharge Proposal. The Governor proposes to levy a surcharge on all residential and commercial property insurance policies in the state. The surcharge rate would be 2.8 percent of the premium and would raise an estimated $70 million in the budget year and $278 million annually thereafter. Revenues from the proposed surcharge would be spent by several departments, as shown in Figure 10.

Figure 10

Uses of Governor’s Proposed Insurance Surcharge

(In Millions)




Program Expansions






California Emergency Management Agency



Military Department



Deposited into Reserveb



  Total Revenues




a  Reflects full-year surcharge revenues.

b  The proposal would deposit revenues above planned expenditures into a reserve to be used to pay
for unanticipated disaster costs.

Surcharge Is a Tax. Based upon our discussions with staff at Legislative Counsel, we believe that this proposal would be considered a state tax. Legislative Counsel staff have also advised us that if this proposal were to be enacted, it would increase the state’s funding obligations under Proposition 98, a constitutional provision mandating a set portion of the proceeds of state taxes be used to provide specified minimum funding levels for public schools and community colleges. The Governor’s budget proposal does not reflect this increased obligation under Proposition 98. Therefore, if the Legislature were to approve the Governor’s proposal, it would increase the Proposition 98 obligation beyond what is projected in the budget.

Recommend Rejection of the Surcharge Proposal. While the Governor’s proposal is described as an emergency response measure, in practice much of the revenues generated would be used for wildland fire protection. We do not think it is good policy to raise additional general tax revenues for specific uses that benefit a defined population. Instead, we believe the specific beneficiaries of these expenditures should pay for them. Therefore we recommend against enacting the proposed surcharge.

Instead, as we discuss earlier under “Balancing the 2009–10 Budget,” we recommend that the Legislature assess a fee on landowners in areas threatened by wildfire to pay for a portion of the state’s cost for providing wildland fire protection that directly benefits those landowners.

Governor Proposes CalFire Augmentations Funded From New Surcharge

The Governor’s budget proposes to spend revenues from the proposed insurance surcharge in several state agencies—including CalFire, the Military Department, and CalEMA. We discuss the spending proposals for CalFire below. We will discuss the spending proposals for the Military Department and the California Emergency Management Agency in our separate “General Government” budget analysis document.

Total budget–year expenditures from the ERI in CalFire would be about $42 million. It is important to note that expenditures for some of the components of the proposal would not begin in the budget year. With its budget proposal, the administration has presented a multiyear spending plan showing additional program augmentations in future years when the proposed insurance surcharge would be fully operational. If the Legislature approves the budget proposal without specifying otherwise, the administration interprets this as authorizing the entire proposal, so that future–year spending (totaling about $67 million in a typical year) would be included in the department’s future base budget.

The Governor’s budget proposes the following program augmentations to CalFire’s budget, to be funded by the proposed insurance surcharge:

Recommend Against Funding Most of the Proposed Augmentations. Given the state’s dire fiscal situation, we believe it is important for the Legislature to only authorize augmentations when there is a critical and immediate need. While many of the elements of this proposal have merit and could likely improve the protection of life, property, and state resources, we recommend that most of these augmentations be rejected in the budget year. Our comments on the particular budget requests are below.


Taken together, our recommendations on the ERI would provide $265,000 in additional funding to improve the state’s emergency response capabilities but reduce the 2009–10 level of spending proposed under the administration’s budget plan by $41.3 million in the budget year. Our proposal would result in a modest General Fund increase for aviation coordination because fee revenues from our SRA fee recommendation may not materialize until 2010–11. In future years, the cost of this small augmentation could be offset by new fee revenues.

Additionally, our recommendation to reject the Governor’s insurance surcharge proposal would avoid additional General Fund costs due to the state’s Proposition 98 minimum funding guarantee. These costs are not recognized in the Governor’s budget plan.

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