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.

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:

• Aviation Asset Coordinator. During significant fire events, CalFire works with the Military Department and federal military agencies to respond with firefighting aircraft. The budget proposes to add 1.5 positions at a cost of $265,000 to better coordinate these activities between CalFire and other agencies.
• Wide Area Network Upgrade. Many of CalFire’s facilities are located in rural areas with limited communications infrastructure. As a consequence, personnel in the field have limited access to the department’s IT system. The budget proposes to begin implementation of an IT project to connect most of CalFire’s facilities to a wide area network. The cost for this proposal would be $11.4 million in the budget year and about $3 million per year thereafter, with additional, periodic upgrades of equipment in future years.
• Four–Person Staffing. CalFire’s current practice is to staff fire engines with three personnel. In recent years, the department—under executive order—has increased staffing on fire engines to four personnel in targeted areas during peak fire season. The budget proposes to extend this additional staffing level to all fire engines throughout the state, during peak and transition fire seasons. This would entail hiring about 1,100 additional seasonal firefighters (230 personnel–years). While the cost to augment staffing as needed (under the executive order) has been about $13 million annually in recent years, this proposal would cost about $43 million per year, or $30 million more than the current–year level of expenditures.
• Automatic Vehicle Locators. CalFire’s current dispatch and communications system relies on fire engine or aircraft crews to report their location to the dispatch center. If the department loses contact with a crew, it has to rely on information from the crew’s last report to determine where the vehicle or aircraft is located. The administration proposes to upgrade all vehicles and aircraft with a system that will allow the department to automatically determine a vehicle or aircraft’s location at all times—allowing help to be dispatched if contact with a crew is lost. First–year costs for this element of the proposal would be about $4.9 million in 2010–11 and would rise to an ongoing cost of about $6.4 million per year.
• Helicopter Replacements. The department’s helicopter fleet is composed of UH–1H helicopters procured from the federal Department of Defense in the early 1990s. This class of helicopter was first produced in the 1960s. While the department keeps up with all Federal Aviation Administration–required and manufacturer–recommended maintenance, over time the cost of replacing increasingly rare spare parts will grow. In addition, the department’s helicopters are not equipped for night flight. The administration proposes to begin acquiring new helicopters in 2010–11. The cost of this proposal is about $28 million per year over five years, which includes costs for related facility upgrades.

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.

• Approve Aviation Asset Coordinator. We find that this is a worthwhile proposal to better leverage state and federal aviation assets at a relatively low cost. However, since we recommend the rejection of the proposed insurance surcharge, we recommend that the cost of this proposal be paid for from the General Fund initially, to be offset with revenues from our recommended wildland fire protection fee when these revenues become available.
• Reject Wide Area Network Upgrade. We find that this proposal is not justified at this time because the administration did not sufficiently consider alternative means of improving the IT system at a lower cost. In particular, the growing penetration of high–speed Internet access in the state may make it possible to achieve many of the goals of this proposal in the near future without the costly investment in new IT infrastructure. While this proposal would likely improve CalFire’s operational efficiency, the department has been able to fulfill its mission with the current system.
• Reject Four–Person Staffing. The department has not been able to justify why the increased staffing level is cost–effective and needed throughout the state and in all years, rather than targeted to areas of high fire risk or during fire seasons of unusual danger. It is also important to note that the department has not estimated the impact from the proposed staffing expansion on its facility costs and capital outlay requirements. The department plans to house the additional firefighters in existing facilities, but most are at, or near full, capacity. The costs to create additional capacity in the department’s facilities are unknown but could result in substantial increases in the department’s capital outlay budget in future years. Finally, we note that the Governor still has the authority used in the last several years to implement four–person staffing in targeted areas and times through executive order.
• Reject Vehicle Locators. We find that the proposal to upgrade CalFire’s dispatch system to provide additional safety to its employees has merit. However, the department has not completed a feasibility study report for this project, which would provide information on alternative ways to meet the project goals, potentially at lower costs. Since the department does not intend to implement this upgrade until 2010–11, we recommend the Legislature reject the proposal at this time, and direct the department to examine whether there is a more cost–effective way to implement this project in future years.
• Reject Helicopter Replacements. Maintenance costs for the existing helicopter fleet will increase in the coming years. However, the department has not presented a cost–benefit analysis demonstrating that this increase in maintenance costs justifies the replacement of the department’s entire fleet over the next few years. Additionally, the department has provided very little detail on the type of helicopters to be purchased, their capabilities, or their cost. The limited information provided thus far indicates that the department would purchase helicopters with features such as night flight capability and dual engines that may be useful but that are not necessarily essential to their mission. Because the department does not intend to begin replacement of the fleet in the budget year, we recommend that the Legislature reject this proposal at this time and direct the department to report back next year with a more detailed proposal.

Conclusion

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.