This week the Legislature passed Assembly Bill 398, purportedly designed to curb carbon emissions.  This will lead to another increase of 71 cents on a gallon of gasoline. This comes on top of the 12 cent increase they just approved.  (There seems to be no end to the misery that Sacramento is willing to impose on average California taxpayers.)

Because AB 398 amounts to a tax increase, passage required a two-thirds vote under Proposition 13.  To gain enough support for passage, leadership sought to “bribe” fiscally conservative lawmakers who represent rural areas, by “suspending” the fire tax.  This means no fire tax bills next year.

At HJTA we are pleased that this illegal tax has been “suspended,” but there is no guarantee that once they have achieved their goals, they will not reinstate this tax, which, of course, they call a “fee.”  Additionally, lawmakers have not provided any provision for refunds of the hundreds or thousands of dollars so many rural homeowners have already paid.

Because of this, HJTA lawyers will continue to aggressively prosecute the suit against the State of California to have the fire tax declared illegal, and to require refunds to be made to those homeowners who have filed a request for “redetermination” (legalese for paying under protest).

Despite State lawyers doing everything to delay this case, we hope to have a decision by the superior court before the end of the year.

We will keep you posted on new developments.

Below, please find a detailed report from our lead attorney, HJTA Director of Legal Affairs Tim Bittle.

You may have read the news that California’s controversial “cap-and-trade” program was extended to the year 2030 through the passage of Assembly Bill 398 earlier this week.  AB 398 contained a provision repealing the fire prevention fee that is the subject of HJTA’s class action lawsuit.  This email will explain why the cap-and-trade bill made changes to the fire prevention fee, describe how the bill affects HJTA’s lawsuit, and answer a couple of commonly asked questions.

The cap-and-trade program establishes an annually declining cap on overall greenhouse gases emitted by covered businesses.  The program creates a supply of Allowances (tradable authorizations to emit greenhouse gases).  Covered businesses must purchase Allowances equal to their emissions each year in order to stay in business.  As the emissions cap gets stricter and the supply of Allowances shrinks, businesses can either reduce their emissions, pay more for Allowances, move out of California, or close their doors.  The California Air Resources Board auctions the Allowances to the highest bidders.  These quarterly auctions bring in approximately $1.4 billion a year in state revenue.

Because the price paid for Allowances is deemed a tax under Proposition 26, the bill to extend the program required a two-thirds vote of the state legislature under Proposition 13.  Extending the cap-and-trade program was a priority for Governor Brown, who sees the auction revenue as funding for his infamous High Speed Rail project.  To achieve the required two-thirds majority it was necessary for the Governor to entice some Republicans to vote for the bill.  Most Republicans opposed the bill because adding the cost of Allowances to products sold in California drives up the price of consumer goods, including a steep increase in the price of gasoline.  The handful of Republicans who agreed to vote for the bill insisted, as a condition for their vote, that a provision be added to repeal the fire prevention fee.

Our state constitution limits legislative bills to a “single subject,” which means that two unrelated matters cannot be contained in the same bill.  You might ask, how is the fire prevention fee related to the cap-and-trade program?  The answer is not smoke and mirrors; it’s just smoke.  Forest fires produce smoke that is heavily composed of greenhouse gases.  Preventing forest fires thus advances the same goal as capping industrial emissions.  AB 398 repeals the fire prevention fee, and in its place now requires fire prevention activities to be funded with revenue from cap-and-trade.  AB 398 states, “moneys derived from the auction or sale of Allowances … shall be used to replace [the fire prevention fee] to continue fire prevention activities.”

Although HJTA opposes cap-and-trade, this development is good for HJTA’s lawsuit.  Our lawsuit alleges that the fire prevention “fee” was really a tax that needed two-thirds legislative approval in order to pass.  Because it received only a simple majority vote, we allege, the “fee” was invalid from the beginning.  Among other things, we argue that the general public is benefitted by fire prevention, not just those who own homes in the State Responsibility Area.  By including in AB 398 this provision shifting the cost of fire prevention from SRA homeowners to all California consumers, the Legislature has acknowledged that the responsibility for funding fire prevention should not fall on just rural homeowners.  Clean air benefits everyone, so all California consumers should help pay for the program.

Finally, we have received several questions about AB 398 and would like to share the answers to several commonly asked questions:

I heard that the fire fee is just suspended.  Does that mean it could come back?  Under AB 398, collection of the fire fee is suspended through the year 2030.  After that, the entire fire fee Act is repealed.  It is a two-step process because the State has tens of millions of dollars of unspent fire fee revenue sitting in a reserve fund.  AB 398 keeps the fire fee Act alive so that these reserve funds will be appropriated for purposes outlined in the Act.  But yes, in theory, the “fee” (actually a tax) could be brought back at any time between now and 2030.

Does AB 398 require the State to refund past payments of the fire fee?  No.  Refunds will be paid only if HJTA prevails in its lawsuit and refunds are ordered by the Court.

Does the two-thirds vote approving AB 398 have the effect of retroactively ratifying the original fire fee?  No.  AB 398 contains no language authorizing collection of the fire fee, only suspension and repeal of the fire fee.  Moreover, AB 398 specifies that its effective date is July 1, 2017, not some retroactive date.

Does AB 398’s repeal of the fire fee make HJTA’s lawsuit moot?  No.  HJTA’s lawsuit must still be resolved by the courts because it seeks refunds for past payments of the fire fee.