Gov. Arnold Schwarzenegger will propose hiking the cost of insurance for millions of California homes and businesses in the budget he unveils Thursday, with the money to be used for firefighting efforts.
The proposal, a copy of which was obtained by The Times, calls for new charges to be tacked onto the insurance bill for every residential and commercial property in the state. Administration officials call the charges fees and defend them as consistent with the governor’s pledge, repeated in his State of the State address Tuesday, to not raise taxes.
Anti-tax groups and consumer advocates say the assessments are a tax.
The plan, which the insurance industry has agreed to support, would cost California property owners and renters $12.50 for every $1,000 in insurance premiums, for a projected $125 million.
It would most benefit Californians who live in areas vulnerable to wildfires.
Administration spokesman Adam Mendelsohn said the proposal ultimately would save Californians money by limiting the devastation caused by wildfires and other disasters that have cost state government and policyholders billions of dollars.
“The economics of this makes sense,” he said, asserting that the cost would be $10 a year for the average California homeowner. “Consumers and the state will end up saving money.”
The governor is calling for consumers statewide to pay for larger state firefighting crews, helicopters, fire engines and satellite tracking equipment a few years after voters in San Diego, hit hard by wildfires, rejected two proposals to fund increased fire protection with higher local hotel taxes.
“I don’t know how you avoid calling it a tax,” Lew Uhler, president of the National Tax Limitation Committee, said of the assessment. “The ability of government officials to figure out new ways to tax us is limitless, no matter what their nomenclature.”
A fee can pass the Legislature on a simple majority. A tax requires a two-thirds vote, which would have to include Republican support -- something GOP lawmakers have traditionally withheld on new taxes.
The levy is the latest to be championed by the governor. Last fall, Schwarzenegger signed a bill that raised California drivers’ registration payments by as much as $11 to pay for research on alternative fuels. And his healthcare plan relies on new taxes on tobacco users, hospitals and employers.
Others said the plan would not necessarily lead to enhanced fire protection.
As the money came in, the governor could cut existing funds from firefighting agencies and use it to help close a budget gap that his office projects at $14 billion, said one consumer advocate, who asked why the burden would fall on property owners instead of insurance companies.
“If the governor wants to fill the budget gap, he should find an honest way to do it,” said Doug Heller, executive director of the Foundation for Taxpayer and Consumer Rights. “He’s wrong to target insurance customers, whose premiums are already too high.”
Administration officials acknowledged that some of the money raised could be used to balance the budget. They declined to be precise about how much.
“Overall, [firefighting] resources will grow,” said Dan Dunmoyer, the governor’s deputy chief of staff.
He said the improvements in the state’s emergency response capabilities would help all California communities, not only those prone to wildfires.
Some would benefit from the loan of 100 new fire engines to local governments, he said.
Others would be able to call on the expanded state firefighting force to respond to floods and other disasters.
Insurance industry representatives said they were not involved in drafting the plan for the 1.25% surcharge.
They said they learned about it at a meeting of insurance company executives in the governor’s office in mid-December. Under the governor’s plan, insurers would collect the surcharge from consumers and distribute it to the state.
“The report I got was that the governor made a compelling case for the need for revenue,” said Bill Sirola, a spokesman for State Farm Mutual, California’s largest insurer, which covers 1.4 million homeowners.
Many insurers have decided “to cooperate with and support the governor,” said Ken Gibson of the American Insurance Assn., a Sacramento-based trade group.
The charge would be added to an existing 2.35% premium tax on property insurance policies. That tax, which is not earmarked for any particular program, generated $216 million for the state budget in 2006, according to the Department of Insurance.
State regulators were briefed on the governor’s plan Monday.
“We don’t have enough detail to make a complete assessment, one way or the other,” said Byron Tucker, a spokesman for Insurance Commissioner Steve Poizner.
The plan’s prospects with lawmakers are uncertain. Republicans are vowing to block any new taxes.
And although the Democrats who control the Legislature are eager to bring in new revenue, some are skeptical of the governor’s approach.
Sen. Michael Machado (D-Linden), chairman of the Banking, Finance and Insurance Committee, said he saw no reason that policyholders in downtown San Francisco, who already pay taxes to support their fire department, should pay for firefighters to protect homes built in fire-prone areas such as the Sierra Nevada, Lake Arrowhead and inland San Diego County.
Machado said it was unfair to charge “a firefighting fee in downtown San Francisco to do range protection in areas like Truckee.”