The California Fire Fee Approaches

After working on a recent project relating the new SRA Fire Fee, I wanted to take a quick look at the issue of fees and taxes in modern-day California.

While the vote for ABX1 29 in the Assembly split along party lines (Ayes 52, Noes 26), two Democrats in the Senate sided with the Republicans who opposed the measure (Ayes  23, Noes  16). In both cases, the measure received several more votes than were required, but still fell well short of meeting the two-thirds thresh-hold for new taxes.

So Why is That Important?

Since the passage of Proposition 26 in 2010, bills that increased taxes in California have required the approval of 2/3 of the membership of both houses of the legislature. Let’s take a quick side-step and look at the differences between fees and taxes;

  • Fees are charged in exchange for a service. This means that fee payers should see a direct benefit from the money they pay (the link between paying and the benefit is called a “nexus”).
  • Taxes are more general and can be spend on a wider range of goods and services; the person paying a tax has no real expectation of seeing a direct benefit from the taxes they pay (so state taxes collected in Yolo County can be used to incarcerate inmates from Los Angeles County at Corcoran State Prison (in Kings County).
  • The Nexus, as the link between the payment and receipt of a benefit, is usually described as either Strong (meaning that you get to see exactly what the fee paid for, like a new Drivers License) or Weak (meaning that there is reasonable doubt that the fee-payer is actually going to see any benefit for their money.

So, the passage of Proposition 26 (combined with Republican hesitation to approve tax increases) created a huge new incentive for Democrats in the Legislature to construct their “revenue-generating” bills as fees rather than as taxes.

So this brings us gradually back to the SRA Fire Fee. A number of bills were introduced in 2011 that Republican legislators felt were taxes (due to a weak nexus), but were tagged by Legislative Counsel as fee increases. Generally, the Republican doubts were ignored, and the bills passed with a simple majority and implemented.

What makes the SRA Fire Fee interesting is that it (for a number of reasons) is likely to become the test case that will be used in the future as the criteria for determining if a measure is a fee or tax increase.

Stay tuned, I promise this is going to get very interesting in the next few months.