BILL ANALYSIS                                                                                                                                                                                                    Ó



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          (Without Reference to File)





          ASSEMBLY THIRD READING


          AB 10  
          X2 (Bloom)


          As Amended  March 3, 2016


          Majority vote


           ------------------------------------------------------------------- 
          |Committee       |Votes|Ayes                  |Noes                 |
          |                |     |                      |                     |
          |                |     |                      |                     |
          |                |     |                      |                     |
          |----------------+-----+----------------------+---------------------|
          |Public Health   |9-4  |Bonta, Bonilla,       |Maienschein, Baker,  |
          |                |     |Campos, Eduardo       |Mayes, Steinorth     |
          |                |     |Garcia, Levine,       |                     |
          |                |     |Santiago, Mark Stone, |                     |
          |                |     |Thurmond, Wood        |                     |
          |                |     |                      |                     |
          |                |     |                      |                     |
           ------------------------------------------------------------------- 


          SUMMARY:  Authorizes a board of supervisors of a county or city  
          and county to impose taxes on cigarette and tobacco  
          distributors, including within an incorporated city within the  
          county; allows counties, or cities and counties to enter into  








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          agreements with other counties, or cities and counties to share  
          any startup and administrative costs; and, also allows them to  
          enter into an agreement with the State Board of Equalization  
          (BOE) to perform functions incident to the administration or  
          operation of a tax imposed pursuant to the authorization of this  
          bill.


          FISCAL EFFECT:  This bill has not been analyzed by a fiscal  
          committee.


          COMMENTS:  According to the author tobacco is the leading cause  
          of preventable death and disease in the United States and  
          treatment for tobacco-related health conditions costs the state  
          billions of taxpayer dollars.  The author notes since the 1988  
          passage of Proposition 99, California has seen smoking rates  
          drop drastically due to the tax increase as well as due to the  
          programs funded by the tax.  The author contends it is time to  
          take the success of the statewide tax and utilize it on a more  
          local level, empowering local authorities to discourage the use  
          of tobacco products and providing a new source of funding to  
          important local programs.  The author states, while rates of  
          tobacco usage have decreased in recent decades, there are still  
          large numbers of teenagers and young adults who are picking up  
          their first cigarette and becoming addicted and the Surgeon  
          General projects that, without a serious reversal of current  
          trends, 5.6 million youth age 0-17 alive today will die  
          prematurely from tobacco use.  The author concludes it is time  
          to focus on what can be done on a local level to directly  
          address the issues that are leading Californians to begin and  
          maintain this harmful habit. 


          Tobacco taxes in California.  Prior to 1989, California levied  
          an excise tax of $0.10 on each pack of 20 cigarettes.  Passage  
          of Proposition 99 in November 1988 increased the excise tax on  
          cigarettes by $0.25 per pack (to $0.35 per pack) effective  
          January 1, 1989 and imposed a "tobacco products tax" on cigars,  








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          chewing tobacco, pipe tobacco, and snuff.  The tobacco products  
          tax, which is stated as a percentage of the wholesale cost of  
          tobacco, was set at a rate equivalent to the excise tax on  
          cigarettes.  Proposition 99 revenues are deposited into the  
          Cigarette and Tobacco Products Surtax Fund to support  
          anti-smoking education programs, tobacco-related diseases  
          research, indigent health care and public resources.  An  
          additional $0.02 per pack cigarette increase was added in 1994  
          to fund Breast Cancer Research.  The proceeds from the tax are  
          deposited in the Breast Cancer Fund, with allocations to the  
          Breast Cancer Research Program and the Breast Cancer Control  
          Program.  


          Passage of Proposition 10 in November 1998 further increased  
          both the cigarette and tobacco products tax rates, bringing the  
          state tax to $0.87.  Proposition 10 increased the cigarette tax  
          rate by $0.50 per pack and the other tobacco products tax rate  
          increased by an equivalent amount, effective January 1, 1999.   
          Proposition 10 requires that revenues from the Proposition 10  
          tax increase be deposited in the California Children and  
          Families First Trust Fund for the purpose of promoting,  
          supporting, and improving the development of children from the  
          prenatal stage to five years of age.  Proposition 10 also  
          indirectly generated a second increase in the other tobacco  
          products tax rate, beginning July 1, 1999.  This additional  
          increase resulted because Proposition 99 requires the other  
          tobacco products tax rate to be recalculated on July 1 of each  
          year based on the wholesale price of cigarettes in March of that  
          year.  Thus, when Proposition 10 increased the tax on a pack of  
          cigarettes by $0.50 on January 1, it indirectly triggered an  
          additional increase in the other tobacco products tax on July 1,  
          1999.  Revenues from this additional increase were deposited in  
          the Cigarette and Tobacco Products Surtax Fund to fund  
          Proposition 99 programs.  There is a federal excise tax on  
          cigarettes of $1.01 per pack.


          Tobacco-related diseases.  Every year, an estimated 443,000  








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          people in the United States die from tobacco and smoking-related  
          illnesses or exposure to secondhand smoke, according to the  
          Centers for Disease Control and Prevention (CDC).  The CDC also  
          reports that another 8.6 million people suffer from serious  
          smoking-related illnesses.  According to the Department of  
          Public Health (DPH), smoking causes heart disease, cancer,  
          stroke, and chronic lower respiratory diseases, which are the  
          leading causes of death and disability among adults in  
          California.  Smoking-attributed diseases are an economic burden  
          due not only to health care expenses but also productivity  
          losses related to disability or early death.  DPH asserts, since  
          the 1988 passage of Proposition 99 in California, adult smoking  
          rates declined by more than 40% from 22.7% to 13.3% in 2008.  As  
          smoking rates declined, mortality and morbidity rates for  
          diseases related to smoking also declined.  This parallel trend,  
          according to DPH, supports causal association between these  
          conditions and smoking.  


          Tobacco taxes and other states.  California's tobacco tax rate  
          ($0.87) ranks 33rd when compared to the rates of other states.   
          The national median cigarette tax rate is $1.54 per pack.  The  
          highest tobacco tax rate is in New York at $4.35 per pack and  
          the lowest is Virginia at $0.30 per pack.  Some local  
          governments, such as New York City ($5.85 per pack total tax  
          rate) and Chicago ($5.66 per pack total tax rate) have their own  
          tax in addition to the state tax.  California has not raised its  
          cigarette excise tax since 1998.  According to the Campaign for  
          Tobacco-Free Kids, the average price for a pack of cigarettes in  
          California is $5.44 with all taxes included. 


          Impacts of higher cigarette prices.  According to the  
          Legislative Analyst's Office (LAO), most revenue estimates  
          assume that an increased tax on cigarettes would raise the  
          retail prices of cigarettes to include the new cost.  This could  
          potentially result in consumers reducing the quantity of taxable  
          products they consume.  The LAO further reports, since the use  
          of tobacco products has been linked to various adverse health  








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          effects, an increased cigarette tax could reduce state, and  
          local government health care spending on tobacco-related  
          diseases over the long-term.  DPH maintains that higher taxes  
          are particularly effective in reducing smoking among vulnerable  
          populations, such as youth, pregnant women, and low-income  
          smokers. Increases in tobacco prices affect the behavior of the  
          young and low-income, who tend to be more responsive to price  
          changes than older and wealthier individuals.  Higher tobacco  
          taxes could encourage more low-income smokers to quit.  However,  
          if individuals considered to be low-income do not quit, the  
          tobacco tax increase could be considered a regressive tax  
          because these populations would be spending more of their income  
          on the product.


          Higher cigarette prices through tax or fee increases can also  
          exacerbate tax evasion and foster illegal cigarette sales.   
          These illegal activities include increased smuggling of  
          cigarettes and tobacco products into California and the sale of  
          counterfeit cigarette stamps and products.  


          According to the BOE, cigarette tax evasion is highly correlated  
          with cigarette prices and excise tax rates.  It was this concern  
          regarding illegal sales that led to the enactment of the  
          California Cigarette and Tobacco Products Licensing Act of 2003  
          [AB 71 (Horton), Chapter 890, Statutes of 2003], which  
          established a comprehensive licensing program for retailers,  
          manufacturers, distributors, and importers of cigarettes and  
          tobacco products.  According to the BOE, the California  
          Cigarette and Tobacco Licensing Act of 2003 has been successful  
          in reducing illegal sales.


          The American Cancer Society Cancer Action Network (ACS CAN) is  
          the sponsor of this bill and states California has one of the  
          lowest tobacco taxes in the nation, currently ranking 35th with  
          a tax of 0.87.  ACS CAN notes the average nationwide cigarette  
          tax in $1.60 per pack, and that local control of tobacco taxes  








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          is a critical tool in allowing communities to set public health  
          priorities that can better meet the needs of its citizens.  ACS  
          CAN concludes tobacco taxes are one of the most effective ways  
          to drive down smoking and studies have shown communities benefit  
          when those tobacco taxes are passed.


          The American Heart Association/American Stroke Association  
          (AHA/ASA) states regular, significant increases in the retail  
          price of cigarettes reduce the number of people who begin  
          smoking and increase the number of smokers who quit.  AHA/ASA  
          points out for every 10% increase in the price of cigarettes;  
          there is a 4% reduction in overall cigarette consumption and a  
          0.5% reduction in youth consumption.   




          The California Distributor Association opposes this bill stating  
          it would create massive confusion for retailers and consumers  
          alike because small businesses in the same area but different  
          municipalities will have different tax-rates, allowing the store  
          with the lower tax a business advantage.


          Analysis Prepared by:                                             
                          Lara Flynn / P.H. & D.S. / (916) 319-2097   FN:  
          0002647



















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