BILL ANALYSIS Senate Appropriations Committee Fiscal Summary Senator Christine Kehoe, Chair 602 (Padilla) Hearing Date: 05/28/2009 Amended: 05/18/2009 Consultant: Mark McKenzie Policy Vote: Rev&Tax 5-3 _________________________________________________________________ ____ 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. _________________________________________________________________ ____ Fiscal Impact (in thousands) Major Provisions 2009-10 2010-11 2011-12 Fund 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 STAKE Act: penalties Unknown penalty revenue gains, potentially Special* in the range of $1,000 - $2,000 annually __________ * Cigarette and Tobacco Products Compliance Fund; also General Fund, other tobacco tax special funds (see staff comments) _________________________________________________________________ ____ STAFF COMMENTS: SUSPENSE FILE. AS PROPOSED TO BE AMENDED. 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. (these provisions deleted from bill by suspense amendments) 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 Page 2 SB 602 (Padilla) 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 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 and 25-day license suspension. 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, as defined. 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. Page 3 SB 602 (Padilla) 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 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. Proposed amendments would delete provisions that prohibit BOE from issuing a new cigarette and tobacco products license for a retail location in an "area of overconcentration," and specify penalty amounts for violations of the STAKE Act ($750 for a first conviction and $1,500 for a second conviction).