Is The Fire Tax Unconstitutional?

Recent issues of Budget Fact Check have examined whether the Governor's proposed tax increase would benefit priorities like education and higher education.

This issue of Budget Fact Check spotlights state budget funding for one of government's most important responsibilities - fire protection. 

The newly-enacted $150 fire tax will be imposed on residents living in State Responsibility Areas to fund CalFire.  Its adoption has been a controversial move both politically and legally.  The outcome of the political debate and expected legal challenges could significantly impact the 2012-13 budget.

Consider that:

  • Assembly Bill 29x requires homeowners in State Responsibility Areas to pay a fire tax of $150 annually, but they do not receive any additional fire protection.
  • The fire tax violates Proposition 26, which requires any new fee or tax that broadly benefits the public to pass by a two-thirds vote of the Legislature.  Assembly Bill 29x passed with only a majority vote.
  • The 2011-12 Budget Act includes $50 million in new fire tax expenditures and the Governor proposes $48 million for 2012-13.  During the same period, General Fund baseline expenditures have been reduced by $191 million, requiring reductions in engine and dozer crews, Tahoe basin staffing and air attack capabilities.  Any revenue collected from the fire tax is not meant to backfill these reductions.
  • The Governor's reliance on up to $88 million from the illegal tax could create an additional hole in the 2012-13 budget.  For example, the Board of Equalization recently estimated fire tax revenues could be $67 million. This uncertainty will put additional pressure on next year's budget.  The state has already borrowed $50 million from the General Fund in 2011-12 to make up for uncollected fire taxes.

New $150 Fire Tax Enacted in 2011-12 Majority Vote Budget

Last year, the Legislature enacted as part of the 2011-12 majority vote budget plan a new "fire tax" on residents who live in State Responsibility Areas.  (Assembly Bill 29x, Chapter 8, 1st Extraordinary Statutes of 2011). 

Across California, there are approximately 31 million acres of land in State Responsibility Areas, which encompass primarily rural and sparsely populated regions of the state.  It is estimated that the owners of approximately 800,000 homes will have to pay this new fire tax going forward. 

As enacted by the Legislature, the fire tax was capped at a maximum of $150 per structure.  In November, the Board of Forestry imposed a revised fire tax of $150 per habitable structure within a State Responsibility Area.  Property owners will receive a $35 discount if the structure is located within the boundaries of a local agency that provides fire protection services.

Proponents of the fire tax argued that this plan was necessary to protect General Fund dollars for fire protection in State Responsibility Areas.  But in practice, the 2011-12 majority vote budget uses the fire tax as a revenue stream to pay for a portion of the CalFire budget.  This has enabled the Legislature to redirect General Fund dollars to other priorities, such as funding additional benefits for long-term welfare recipients.  The fire tax will not provide any additional fire protection for residents living in State Responsibility Areas.

It has also been argued that the new state fire tax amounts to double taxation on home owners in the affected areas, as many already pay locally-assessed fees for fire protection services.

Fire Tax May Violate Proposition 26

When the Legislature voted to impose the new fire tax, they did so using the provisions of Proposition 25, which allows the budget to be enacted by a majority vote of the Legislature.  Proposition 25 also allows so-called budget "trailer bills" to also be enacted by a majority vote.  Trailer bills are the policy changes necessary to implement the budget.i

Taxpayer advocates and Republican lawmakers have argued that passing the fire tax by a majority vote of the budget may violate another provision of the state constitution that was also enacted by voters in the 2010 election.

Proposition 26 requires that any new fee or tax that broadly benefits the public must receive a two-thirds vote of the Legislature in order to pass.ii  As the new fire tax is being used for activities that are currently funded by the General Fund, legal experts have argued that its adoption by a majority vote of the Legislature violates Proposition 26.  Taxpayer advocates have vowed to challenge the constitutionality of the fire tax in the courts.

2012-13 Budget Relies on Potentially Illegal Tax Increase

Once fully enacted, the Governor's Department of Finance expects the fire tax will generate $50 million in revenueiii in the 2011-12 fiscal year and $88 million in 2012-13iv.

Because of the controversy surrounding the fire tax, the state has been unable to collect it in the current fiscal year.  This has forced the Brown Administration to borrow $50 million from the General Fund in anticipation of receiving this still-uncollected fire tax revenue.  In all likelihood, both the fire tax in 2011-12 and 2012-13 will be collected in 2012, bringing the one year cost to homeowners a whopping $300 per structure. 

But the prospect of a major lawsuit from taxpayer advocates puts this revenue source at risk in both the 2011-12 and next year's 2012-13 budget.  By relying on the fire tax to generate $88 million in new revenue in the 2012-13 budget that may never materialize, this could create an additional hole in the Governor's Budget. 

Click here to read past issues of "Budget Fact Check"