BILL ANALYSIS
Bill No: SB
1258
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Roderick D. Wright, Chair
2009-2010 Regular Session
Staff Analysis
SB 1258 Author: Kehoe
As Introduced: February 19, 2010
Hearing Date: April 13, 2010
Consultant: Chris Lindstrom
SUBJECT
Emergency Services: property insurance surcharge.
DESCRIPTION
SB 1258, an urgency measure, would implement the Governor's
Emergency Response Initiative (ERI).
Specifically, the bill:
1)Establishes the Local Government Mutual Aid Enhancement
Program in the California Emergency Management Agency
(CalEMA).
2)Requires, beginning July 1, 2011, and each year
thereafter, that 31.3 percent of the funds deposited in
the newly created Emergency Response Fund, to be
allocated to the program upon appropriation by the
Legislature, for specified purposes.
3)Requires the Secretary of CalEMA to allocate funds to
specified entities, for the purpose of enhancing or
sustaining fire and rescue disaster mutual aid capacity
to combat the effect of all hazard disasters, as
specified.
4)Requires the Secretary, in consultation with specified
entities, to develop a strategy for the enhancement of
mutual aid, and would require each fire and rescue
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operational area to submit to the Secretary a 3-year
strategy for the enhancement of fire and rescue disaster
mutual aid, as specified.
5)Creates the Emergency Response Fund in the State
Treasury. Requires insureds to pay a special purpose
surcharge (of 4.8%) on commercial and residential fire
and multi-peril insurance policies, including policies
with combined property and liability coverage, issued or
renewed on or after July 1, 2010, as specified. Funds
from this surcharge would be available for appropriation
by the Legislature to fund emergency activities, as
defined, of the CalEMA, the Department of Forestry and
Fire Protection (CALFIRE), and the Military Department.
Any balance remaining in the fund at the end of a fiscal
year would be retained and carried forward to the next
fiscal year.
6)Requires insurers collecting the surcharge to make a
specified disclosure on the policy declarations page,
billing statement, or a separate document accompanying
the declarations page or billing statement.
7)Require the Department of Insurance, CALFIRE, and other
state agencies and departments to cooperate and provide
information to CalEMA as necessary.
8)Takes effect immediately as an urgency statute.
EXISTING LAW
Existing law establishes the California Emergency
Management Agency, which is responsible for the state's
emergency and disaster response services for certain
manmade disasters and emergencies, including responsibility
for activities necessary to prevent, respond to, recover
from, and mitigate the effects of emergencies and disasters
to people and property.
Existing law authorizes the Governor to appoint the
Secretary of California Emergency Management, subject to
Senate confirmation and grants the Secretary the authority
to coordinate all state disaster response, emergency
planning, emergency preparedness, disaster recovery, and
disaster mitigation activities, as well as homeland
security activities.
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Designates CalEMA a law enforcement organization, thereby
allowing department employees to receive criminal
intelligence information.
There is within the State Budget reserve for Economic
Uncertainties a Disaster Response Emergency Operations
Account.
Existing statute authorizes the Director of Finance to
allocate any money within that account to state agencies
for disaster response or recovery costs resulting from a
Governor declared state of emergency.
Existing law requires the Insurance Commissioner, in
cooperation with insurers, the Emergency Management Agency,
and other emergency service agencies, to establish
procedures for the coordination of efforts between insurers
and their representatives and those of emergency response
agencies.
BACKGROUND
Purpose of the bill. According to the author's office, "SB
1258 is sponsored by Governor Arnold Schwarzenegger. The
bill is the legislative vehicle for the Governor's
Emergency Response Initiative (ERI), and it is cosponsored
by the California Fire Chiefs Association, California
Professional Firefighters, and the Fire Districts
Association of California.
"California's communities constantly face a potentially
devastating range of fire emergencies and other natural
threats or disasters, including flooding, extreme
temperatures, mudslides, drought, and earthquakes. The
state has a responsibility to aggressively prepare for the
next, inevitable emergency or natural disaster. The
Emergency Response Initiative will ensure California is
prepared by providing first responders with new equipment
and technology, improving overall emergency preparedness
and response, and proactively helping to save lives and
property. This proposal will benefit all Californians -
north, south, coastal, inland, rural, or urban."
Background. California has suffered catastrophic disasters
and fires that have impacted the entire state's economy,
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quality of life and insurance costs-and will likely
continue to do so into the future. Our state also has the
best mutual aid response system in the world. However, the
fiscal crises at the state and local levels has created
challenges in funding first response capabilities and the
premier mutual aid system in the world. The state
currently lacks all of the financial resources it needs to
fully fund its role in the mutual aid system and local
governments are having increasing difficulty in funding its
shared responsibilities in the system. This situation is
becoming critical and impacts the public safety of all
Californians when a disaster strikes.
Government's first responsibility is the safety of its
citizens. California's state and local firefighters are
the first to respond in a disaster situation, and as such,
the state has a responsibility to ensure they have the
necessary resources to carry out their job effectively and
efficiently. SB 1258 is intended to improve California's
overall emergency preparedness and response capabilities.
Proponents of the bill argue that this bill will benefit
all Californians, no matter where they live, by helping to
ensure the integrity and responsiveness of the state's
mutual aid system.
SB 1258 would impose a 4.8% emergency response surcharge on
all new or renewed commercial and residential fire or
multiperil insurance premiums issued or renewed on or after
July 1, 2010 in California. Revenue from the surcharge
would be allocated directly to CALFIRE (California
Department of Forestry and Fire Protection), CalEMA
(California Emergency Management Agency), and local
governments to fund critical emergency mutual aid response,
equipment and other much-needed resources.
Specifically, the bill would fund CALFIRE in support of its
operations, including the acquisition of updated emergency
response and other aerial firefighting assets and ensure
that first year collections aid in backfilling cuts and
setting aside monies to fund unanticipated emergency
disasters within CALFIRE's purview. It would also fund
CalEMA's support in coordinating emergency response mutual
aid resources under its direction, such as mutual aid
response fire engines and strike teams.
Beginning July 1, 2011, SB 1258 would require direct
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distribution of 31.3 percent of the revenue collected to
local governments on a per capita basis to support their
participation in the state's fire and rescue mutual aid
system. Revenue from the surcharge would also help fund
the National Guard for its support role in the state's
emergency response network.
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LAO's comments . A recent LAO report on the Governor's
Emergency Response Initiative can be accessed at:
http://www.lao.ca.gov/handouts/resources/2010/Governor_Emerg
ency_Response_Initiative_012110.pdf .
The following are excerpts of LAO's comments on the
proposal:
The Governor's budget includes ERI-a proposal to levy a new
surcharge on all property insurance policies statewide. The
Governor proposes to use the resulting revenues to offset
General Fund costs in 2010-11 in CalFire. Beginning in
2011-12, these revenues would also be used to augment state
program and local assistance expenditures in three
departments with emergency response
responsibilities-CalFire, CalEMA, and the Military
Department, and to offset General Fund costs in CalEMA.
Below, we evaluate the Governor's proposed new funding
mechanism for emergency response, comment on the proposed
program augmentations, and offer an alternative fee-based
funding mechanism.
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 4.8 percent of the premium amount. The administration
estimates that such a surcharge would generate about $238
million in the budget year and about $480 million per year
thereafter.
Surcharge Is a Tax. Based on LAO's discussions with staff
at Legislative Counsel, LAO believes that this proposal
constitutes a state tax increase. Legislative Counsel
staff have also advised LAO 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 to 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 create a Proposition 98 obligation, and therefore an
additional state cost, that is not now recognized in the
administration's budget plan.
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Recommend Rejection of the Surcharge Proposal. LAO finds
that the Governor's proposal to fund certain emergency
response activities, largely involving wildland fire
protection, with revenues from the proposed insurance
surcharge is not a good approach. LAO therefore recommends
that the proposal be rejected. While the Governor's
proposal attempts to link a certain levy (the insurance
surcharge) to the benefits received by those paying it, LAO
thinks that there is a much clearer, more direct way of
making such a linkage. As an alternative to the Governor's
proposed funding mechanism, LAO offers what it considers to
be a true fee-one that links the charge to the benefits
received directly by a defined, identifiable group of
property owners.
If Legislature Enacts Surcharge, Retain Flexibility in Use
of Revenues. Should the Legislature approve in concept an
insurance surcharge as a new tax revenue source, LAO would
then recommend that the surcharge revenues be deposited
into the General Fund, and that the use of such revenues be
governed by the Legislature's funding priorities for
General Fund revenues for the particular budget year being
considered.
Arguments in support . California Professional Firefighters
strongly supports SB 1258. SB 1258 proposes a modest 4.8%
emergency response surcharge on all new or renewed
commercial and residential fire or multi-peril insurance
premiums in California. The revenue that is generated by
this modest fee would be allocated directly to CALFIRE,
CalEMA and the military department, as well as directly to
local governments for the purpose of funding critical
emergency mutual aid response, equipment and other needed
resources.
The fee proposed by SB 1258, which is linked to property
insurance policies, is absolutely the best nexus to fire
disaster response services given that it most accurately
reflects the risks and demands of those services. Such
policy premiums are established based on the value of one's
property and the risk of where that property is located. SB
1258 proposes to use this same measure in determining how
best to assess the fee.
It is no secret that California's mutual aid system is on
the brink of reaching its breaking point. This is due, in
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part, to the squeezed economic climate at the local, state
and federal levels. California is in a fiscal crisis and
is also facing a disaster response crisis -- as the events
in Santa Barbara, and the recent spate of earthquakes have
clearly shown.
Government's first responsibility is the safety of its
citizens. State and local responders are essential to
preserving this safety. SB 1258 ensures that a measure of
the state's disaster response system is maintained, and
that the doctrine of "local control" doesn't result in
gaping holes in our critical statewide disaster response.
SB 1258 will dramatically help improve our state's overall
emergency preparedness and response capabilities, and in
turn, it will proactively help first responders fulfill
their sworn duty to save lives and property. Ultimately,
SB 1258 will benefit Californians statewide -- north,
south, coastal, inland, rural and urban -- by satisfying
all levels of the mutual aid system.
The League of California Cities has a Support if Amended
position on SB 1258. The League argues that the bill does
not adequately ensure that the funding designated to assist
emergency response agencies will be spent as intended. As
such, the League respectfully requests that amendments be
adopted that will make the appropriation from the Emergency
Response Fund to these agencies automatic and continuous.
In addition, the League requests a further amendment that
would decrease the surcharge by 31.3 percent should
revenues intended for local governments be diverted for
another purpose.
Arguments in opposition . The Howard Jarvis Taxpayers
Association argues that SB 1258 is clearly a tax because it
fails to meet the definition of a true fee. Money that
goes into the "Emergency Response Fund" established by the
bill to support firefighting efforts is far more likely to
support rural rather than urban residents. It also fails
to mitigate harm to the fee payer or establish a regulatory
program. The tax frees up money allowing legislators to
devote even more funds to developing new programs and
expanding government. We are pleased that the Legislative
Counsel has recognized the lack of a nexus in this bill and
has appropriately keyed it as a two-thirds vote tax.
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PRIOR/RELATED LEGISLATION
AB 2601 (Jeffries), 2009-2010 Legislative Session . Enacts
the California Emergency Fire and Rescue Apparatus Funding
Act of 2010. Deposits $45.6 million, annually, to the
General Fund from the funds received from accessing oil and
gas reserves located beneath state coastal waters,
generally, known as the "T-Ridge Project", to be expended
for firefighting purposes, as specified.
ABX8 36 (Ma), 8th Extraordinary Session of 2009 . SB 1258
is identical to ABX8 36. (Never heard in committee or on
the floor before the 8th Extraordinary Session concluded.)
AB 196 (Budget), 2009-2010 Legislative Session . This bill
provides for the following: (1) Emergency Response
Surcharge . Establishes a 4.8 percent surcharge on all new
or renewed commercial and residential fire and multiperil
property insurance policies issued or renewed on or after
January 1, 2010. There is no penalty on insurers if
collection does not begin prior to July 1, 2010; (2)
Emergency Response Fund . Revenues created by this
surcharge will be deposited into the newly established
Emergency Response Fund for use for emergency activities of
the California Emergency Management Agency, the Department
of Forestry and Fire Protection, and the Military
Department; (3) Emergency Response Grants . Establishes
the Local Government Mutual Aid Enhancement Program to
provide local agencies additional funding to enhance or
sustain fire and rescue disaster mutual aid capacity to
combat the effects of emergencies and disasters. Local
agencies will receive 31.3 percent of revenues deposited
into the Emergency Response Fund beginning July 1, 2010;
and, (4) Refunds to Customers . Ensures that, if a property
insurance policy is cancelled prior to the start of the
coverage period, the consumer receives a refund of the
surcharge. If the policy is cancelled after the coverage
period begins, the surcharge is not refunded. (Died in
Senate Rules Committee.)
SUPPORT: As of April 9, 2010:
Alameda County Fire Department
Bakersfield Fire Department
Belmont-San Carlos Fire Department
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Big Bear Lake Fire Protection District
Brea Fire Services Department
Burbank Fire Department
Butte County Fire Chiefs Association
California Fire Chiefs Association (Co-sponsor)
California Professional Firefighters (Co-sponsor)
Central County Fire Department
Contra Costa County Fire Department
Cosumnes Fire Department
Fire Districts Association of California (Co-sponsor)
Folsom Fire Department
Kentfield Fire Protection District
Kings County Fire Department
Mariposa County Fire Department
Meeks Bay Fire Protection District
Montecito Fire Protection District
North County (San Mateo) Fire Authority
Novato Fire District
Palm Springs City Fire Department
Rialto Fire Department
San Bernardino County Fire Chiefs Association
San Diego County Fire Chiefs Association
San Diego Rural Fire Protection District
San Jose Fire Department
Shasta Lake Fire protection District
West Covina Fire Department
Windsor Fire Protection District
OPPOSE: As of April 9, 2010
Howard Jarvis Taxpayers Association
DUAL REFERRAL: Senate Banking, Finance and Insurance
Committee
FISCAL COMMITTEE: Senate Appropriations Committee
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