BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
602 (Padilla)
Hearing Date: 05/11/2009 Amended: 04/28/2009
Consultant: Mark McKenzie Policy Vote: Rev&Tax 5-3
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BILL SUMMARY: SB 602 would prohibit the Board of Equalization
(BOE) from issuing a new cigarette and tobacco products license
for a retail location in an "area of overconcentration," as
specified. The bill would also authorize BOE to take action
related to the licensure of retailers who have violated the Stop
Tobacco Access to Kids Enforcement (STAKE) Act at any time. The
Department of Public Health (DPH) or other enforcement agency
would be required to notify BOE of any conviction of a violation
of either the STAKE Act or provisions that prohibit the sale of
tobacco products to minors.
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Fiscal Impact (in thousands)
Major Provisions 2009-10 2010-11 2011-12 Fund
BOE: determination of Unknown administrative costs, likely in
the Special*/
license applicant eligibiltiy range of $300 - $500
annually General
BOE: STAKE Act Unknown administrative costs, likely in
the Special*/
range of $250-$500 annually
General
DPH: tracking/reporting $89 $178
$178Special*/
of STAKE Act violations
General
Law enforcement reporting Unknown reimbursable mandate
costs, General
(local mandate) likely in the range of $300-$500
annually
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* Cigarette and Tobacco Products Compliance Fund, General Fund,
other tobacco tax special funds (see staff comments)
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STAFF COMMENTS: This bill meets the criteria for referral to the
Suspense File.
Tobacco retail license restriction
This provision is intended to prevent further proliferation of
tobacco retailers by requiring denial of new tobacco retail
licenses in areas of overconcentration.
Existing law requires retailers of cigarette and tobacco
products to pay a one-time license fee of $100 and requires
annual renewal of the retailer license. A retailer is subject
to a $100 reinstatement fee if they allow the license to expire.
Fees collected pursuant to the Cigarette and Tobacco Licensing
Act are deposited into the Cigarette and Tobacco Products
Compliance Fund and are available solely for the purpose of
implementing, enforcing, and administering the Act.
Approximately 38,200 retailers are currently licensed by BOE.
Each year approximately 6,000 new licenses are issued, but a
corresponding number are typically surrendered, so the total
number of active licenses has been fairly stable since the
Licensing Act was established in 2003.
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SB 602 (Padilla)
SB 602 would place unabsorbable administrative burdens on BOE,
primarily due to the requirement to determine whether an
applicant retail location is in an area of overconcentration,
determine a "public convenience or necessity" threshold, and
revise existing processes and procedures for tobacco retailer
licensure. At the time of this analysis, BOE had not finalized
a detailed estimate, but unabsorbable annual costs associated
with this provision of the bill would likely be in the range of
$300,000 to $500,000 annually.
The bill requires BOE, the State Department of Public Health
(DPH), and the Department of Alcoholic Beverages Control (ABC)
to share all information with respect to retailers'
implementation of the Licensing Act. The restriction on
issuance of a tobacco retailer license in an area of
overconcentration is modeled after a similar restriction on
ABC's issuance of a liquor license, which prohibits issuance if
it would result in "undue concentration," as specified. Current
law also authorizes BOE to issue a license without further
investigation of an applicant for a retail location if the
applicant holds a valid license issued by ABC for that same
location. Since both the ABC restriction and the restriction in
this bill use the same basis for determining concentration of
licenses in a specific census tract, information sharing could
create efficiencies. SB 602 would at a minimum require BOE to
develop procedures to define and identify "areas of
overconcentration. This provision would also require permanent
staffing for BOE to determine compliance with this restriction
for each of the 6,000 annual new applicants.
SB 602 provides an exception to the restriction of issuing a
tobacco retailer license in an area of overconcentration if a
local governing body determines within 90 days of notification
of a completed application that "public convenience or
necessity" would be served by the issuance. This exception
would presumably be most applicable to smaller communities and
rural areas with limited retail space. The bill also allows BOE
to issue a license under this exception after the 90-day period
if the applicant demonstrates "public convenience or necessity."
BOE would incur one-time costs to develop procedures to make
such a determination and ongoing administrative costs to
coordinate with applicable local agencies.
STAKE Act revisions
This provision is intended to reduce illegal sales of cigarette
and tobacco products to minors by strengthening penalties on
retailers convicted of furnishing these products to a person
under the age of 18.
Existing law requires DPH to take primary responsibility for
enforcement STAKE Act, and to enlist the assistance of persons
who are 15 or 16 years of age as decoys for the purpose of
attempting to purchase cigarettes. Penal Code Section 308 makes
it a violation to sell or furnish cigarettes or tobacco products
to minors. BOE is required to warn, suspend, or revoke a
retailer's license for sales to underage persons or related
offenses under the following circumstances:
First conviction: warning letter and training
requirement.
Second conviction in 12 months: $500 fine
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SB 602 (Padilla)
Third conviction in 12 months: $1000 fine
Fourth to seventh conviction in 12 months: 90-day
suspension of license
Eighth conviction in 24 months: revocation of license.
BOE's authority to suspend or revoke a license for underage
sales violations is limited to periods when the underage sales
rate in California is 13% or more, as measured in an annual
Youth Tobacco Survey conducted by DPH.
SB 602 would delete the restriction on BOE enforcement action
(13 percent trigger), thereby authorizing BOE to levy penalties
against a license holder for violations of underage sales at any
time. This bill also revises the penalty schedule as follows:
First conviction: warning letter, training requirement,
and an unspecified fine.
Second conviction: unspecified fine.
Third conviction within any three-year period: license
revocation.
This bill would also require DPH and state and local law
enforcement agencies to notify BOE of any convictions of
violations in a timely manner, and require BOE to take
appropriate action. BOE would be authorized to take action
against a retailer if other enforcement agencies fail to provide
timely notification.
SB 602 would increase the Department of Public Health's (DPH)
workload and resource expenditure by requiring mandatory
reporting of information not normally tracked or evaluated. DPH
would to develop and maintain an enforcement reporting system in
order to comply with the proposed reporting requirements. This
would require 2 PY of additional staff as follows: one
full-time Program Analyst position at a cost of $86,000 per
year, and a contract for 1 PY of Information Technology support
at a cost of approximately $92,000. Funding for these positions
would need to be allocated from the Cigarette and Tobacco
Products Compliance Fund.
Staff notes that any costs to local law enforcement agencies
related to the tracking and reporting of information for
convictions of the STAKE Act and Penal Code Section 308 (illegal
sales of tobacco products to minors) would likely be
reimbursable by the state. Reimbursable costs are unknown, but
previous assessments for similar legislation estimated a
mandated cost of $300,000 to $500,000 annually.
With respect to the requirements of the STAKE Act provisions of
SB 602, BOE would incur some costs for suspending or revoking
retail licenses, processing appeals filed for a suspended or
revoked licenses, inspecting suspended or revoked retail
licensee locations, and seizing, storage, and destruction of
cigarettes or tobacco products from retailers whose license has
been suspended or revoked. These unabsorbable costs are unknown
at this time, but likely in the range of $250,000 to $500,000
annually.
Compliance Fund deficiencies
Up until 2005-06, all BOE costs to enforce and administer the
Licensing Act were fully covered by license fee revenues,
penalties, and fines deposited into the Compliance Fund.
However, since the retail license revenues were predominantly a
one-time revenue gain, the Compliance Fund does not have
sufficient revenues to cover BOE's
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SB 602 (Padilla)
ongoing costs. In 2008-09, for example, revenues deposited into
the Compliance Fund totaled $1.1 million, while BOE's costs to
administer and enforce the Licensing Act were approximately
$10.2 million. The difference between revenues and costs are
currently offset with $1.1 million General Fund and other
tobacco tax revenues: $209,000 Breast Cancer Fund; $2.6 million
Cigarette and Tobacco Products Surtax Fund (Proposition 99); and
$5.2 million from the California Children and Families First
Trust Fund (Proposition 10). Staff notes that the
administrative costs associated with this bill would place
further strains on the General Fund and other tobacco tax funds.
To the extent that the restrictions in SB 602 results in fewer
overall licenses and less convenience for consumers, there would
be a net loss in excise tax and license fee revenues.