California Governor to Propose Insurance Surcharge

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The Southern California wildfires are burning a bigger hole in California’s budget, adding to the state’s $11.2 billion deficit, the governor’s finance spokesman said.

The state has spent $305 million on emergency firefighting since the start of the fiscal year on July 1, $236 million more than lawmakers had allocated in their 2008-2009 plan.

That budget, which the governor signed in September, also included a $1.7 billion reserve for this fiscal year, some of which could have been used to help pay extraordinary firefighting costs. Since then, revenues have fallen so dramatically that the state is now projected to end the year with a double-digit deficit that is projected to grow to nearly $28 billion by June 2009.

Schwarzenegger called the Legislature into a special session to address the deficit and has proposed filling the gap with $4.5 billion in spending cuts and a 1.5 percentage point increase in the state’s sales tax over three years. At press time, Democrats and Republicans had failed to agree to a compromise.

The emergency costs come on top of an annual regular firefighting budget of $529 million. This year’s $69 million emergency fund is intended to pay for unexpected staffing and equipment costs associated with large fires.

Last year’s wildfires were the most expensive in history, costing California more than $518 million. H.D. Palmer, spokesman for the state Department of Finance, said California will try to get some of its costs reimbursed from the federal government, which pays for firefighting on federal land.

But Palmer acknowledged that the additional fire costs will make it more difficult to solve the budget shortfall.

Last year, Schwarzenegger proposed dealing with the state’s mounting firefighting costs by imposing a surcharge on homeowners’ insurance policies. It would have added 1.4 percent to residential and commercial property insurance premiums in areas at high risk of fires, floods or earthquakes — about 80 percent of the state. Homeowners in the other areas would pay a 0.75 percent premium.

Democrats who control the Legislature doubled those percentages in their budget proposal, a plan that would have cost about $25 a year for the average homeowner in a high danger area or $13.50 for those in lower risk areas. The surcharge would have raised an estimated $280 million a year for emergency response but did not make it into the final budget compromise negotiated by the Legislature and the governor.

Schwarzenegger has said he intends to propose the surcharge again, possibly in his January release of the 2009-2010 budget.