BILL ANALYSIS Ó ABX2 11 Page 1 Date of Hearing: September 8, 2015 ASSEMBLY COMMITTEE ON FINANCE Shirley Weber, Chair ABX2 11 (Nazarian) - As Introduced July 16, 2015 SUBJECT: Cigarette and tobacco product licensing: fees and funding. SUMMARY: Updates the Cigarette and Tobacco Products Licensing Program under the Board of Equalization (BOE) by increasing licensing, distributor, and wholesaler fees. Specifically, this bill: 1)Increases, beginning January 1, 2016, the current one-time retailer license fee of $100 per location to $265 per location on an annual basis of a tobacco retailer license. 2)Increases, beginning January 1, 2016, the annual distributor and wholesaler licensing fee from $1,000 to $1,200. 3)Requires BOE to report back to the Legislature no later than January 1, 2019, regarding the adequacy of funding for the Cigarette and Tobacco Products Licensing Act of 2003. Requires the report to include data and recommendations about whether the annual licensing fee funding levels are set at an appropriate level to maintain an effective enforcement program. ABX2 11 Page 2 EXISTING LAW: 1) Requires, under the Cigarette and Tobacco Licensing Act of 2003 (Licensing Act), a retailer to have in place and maintain a license to engage in the sale of cigarettes or tobacco products. Provides that a retailer license is valid for a 12-month period and must be renewed annually. 2) Requires a retailer, in order to obtain a license, to file a license application accompanied by a one-time license fee of $100 for each retail location. Requires the retailer to renew the license annually but only requires the $100 fee per retail location with the initial application. 3) Requires, if a retailer's license has expired, that as a condition of reinstatement, they pay an additional fee of $100. FISCAL EFFECT: Unknown administrative costs for the BOE to make required computer system changes and notify retailers. The BOE indicates that implementing the bill by January 1, 2016, will require the BOE to redirect resources from existing responsibilities to make the necessary changes included in this bill. According to the BOE, a delay in implementation to January 1, 2017, would allow the BOE to make the necessary changes within existing resources and estimates costs to be about $18,000 for 2015-16. ABX2 11 Page 3 According to the LAO, the estimated revenue raised from the change in fee structure is about $11 million annually from increased licensing fees on tobacco retailers and on distributors and wholesalers (Compliance Fund). COMMENTS: According to the author, the one-time tobacco licensing fee is not adequate to cover costs associated with maintaining a viable enforcement program, which is crucial to help maintain Master Settlement Agreement (MSA) compliance. The author notes that the intent of the bill is to shift the administrative costs from the tobacco programs such as First 5 California, Proposition 10, and Proposition 99 back to the retailers and wholesalers, while maintaining the enforcement requirements under the MSA. According to a 2015-16 LAO Budget Brief: Cigarette Tax and Licensing Programs, the initial influx of revenue from the licensing program was sufficient to pay the program's costs, however in subsequent years fee revenue has been one-tenth of the initial level and expenditures consistently exceed revenue. Beginning in 2005-06, annual expenditures averaged $7 million more than annual fee revenue. As a result, the Legislature, in fiscal year 2006-07, allowed the BOE to charge the funds that receive cigarette and tobacco excise tax revenue to cover the administration of the licensing program. Consequently, the funds pay about four-fifths of the licensing program's costs, which have led to reduced programmatic resources. ABX2 11 Page 4 REGISTERED SUPPORT / OPPOSITION: Support American Cancer Society Cancer Action Network American Heart Association/American Stroke Association American Lung Association in California California Academy of Family Physicians California Dental Association California Medical Association California Pan-Ethnic Health Network Children's Defense Fund - California Chronic Care Coalition First 5 Association of California First 5 Los Angeles ABX2 11 Page 5 Planned Parenthood Affiliates of California Service Employees International Union Opposition None on file. Analysis Prepared by:Genevieve Morelos / FINANCE / 916-319-2099