BILL ANALYSIS                                                                                                                                                                                                    Ó



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          ASSEMBLY THIRD READING


          AB 18  
          X2 (Bonilla)


          As Amended  September 10, 2015


          2/3 vote.  Tax levy


           ------------------------------------------------------------------ 
          |Committee       |Votes|Ayes                  |Noes                |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |----------------+-----+----------------------+--------------------|
          |Public Health   |9-4  |Bonta, Bonilla,       |Maienschein, Baker, |
          |                |     |Campos, Eduardo       |Mayes, Steinorth    |
          |                |     |Garcia, Levine,       |                    |
          |                |     |Santiago, Mark Stone, |                    |
          |                |     |Thurmond, Wood        |                    |
          |                |     |                      |                    |
          |----------------+-----+----------------------+--------------------|
          |Finance         |6-3  |Weber, Bloom, Gomez,  |Melendez, Bigelow,  |
          |                |     |                      |Obernolte           |
          |                |     |                      |                    |
          |                |     |Jones-Sawyer,         |                    |
          |                |     |McCarty, Ting         |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
           ------------------------------------------------------------------ 


          SUMMARY:  Imposes a $0.05 per drink tax on all spirits-based  
          cocktails purchased in restaurants, bars, and other venues in  
          the state to fund developmental disability services and other  








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          health programs.  


          FISCAL EFFECT:  According to the Assembly Finance Committee: 


          1)Board of Equalization (BOE) Costs.  According to BOE,  
            approximately $2 million is necessary for start-up costs to  
            implement a new surtax program.  The initial costs for this  
            bill would be paid for by a one-time General Fund loan, to be  
            reimbursed once revenues are generated.  There are  
            approximately 15,000-20,000 licensees that would need to  
            register with BOE for the purposes of administering this new  
            tax.  According to BOE, the one-time implementation costs for  
            this bill would include developing computer programs,  
            developing forms and publications, creating registration for  
            licensees, carrying out compliance and audit efforts,  
            developing regulations, training staff, and answering  
            surtax-related inquiries from taxpayers and licensees.


            This bill would likely result in ongoing annual costs to the  
            BOE of approximately $1 million for the continued support of  
            this program.  This cost would be funded by revenues generated  
            from the surtax.  The ongoing costs will support the ongoing  
            maintenance and annual restructuring of this tax.


          2)BOE Revenue. The BOE has estimated that this new tax will  
            generate $22 million annually. This estimate is based upon  
            data from the North American Industry Classification System  
            (NAICS) codes related to food services and drinking places, as  
            well as 2012 United States (U.S.) Census data specifically  
            pertaining to specified NAICS codes. The methodology used for  
            this revenue estimate is based upon available taxable sales  
            data.


          COMMENTS:  








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          Under the current Alcoholic Beverage Tax Law, the following  
          taxes and surcharges are assessed on the sale of beer, wine, and  
          distilled spirits:








                  ----------------------------------------------------- 
                 |                          |  Tax   |   Per   | Total |
                 |                          |        | Gallon  |       |
                 |                          |        |         |       |
                 |                          |        |         |       |
                 |                          |        |Surcharge|       |
                 |                          |        |         |       |
                 |                          |        |         |       |
                 |                          |        |         |       |
                 |--------------------------+--------+---------+-------|
                 |Beer                      |  $0.04 |  $0.16  | $0.20 |
                 |                          |        |         |       |
                 |                          |        |         |       |
                 |                          |        |         |       |
                 |                          |        |         |       |
                 |                          |        |         |       |
                 |                          |        |         |       |
                 |                          |        |         |       |
                 |--------------------------+--------+---------+-------|
                 |Wine (not more than 14%   |  $0.01 |  $0.19  | $0.20 |
                 |alcohol)                  |        |         |       |
                 |                          |        |         |       |
                 |--------------------------+--------+---------+-------|
                 |Wine (more than 14%       |  $0.02 |  $0.18  | $0.20 |
                 |alcohol)                  |        |         |       |
                 |                          |        |         |       |








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                 |--------------------------+--------+---------+-------|
                 |Sparkling wine            |  $0.30 |  $0.00  | $0.30 |
                 |                          |        |         |       |
                 |                          |        |         |       |
                 |                          |        |         |       |
                 |                          |        |         |       |
                 |                          |        |         |       |
                 |                          |        |         |       |
                 |                          |        |         |       |
                 |--------------------------+--------+---------+-------|
                 |Hard cider                |  $0.02 |  $0.18  | $0.20 |
                 |                          |        |         |       |
                 |                          |        |         |       |
                 |--------------------------+--------+---------+-------|
                 |Distilled spirits (100    |  $2.00 |  $1.30  | $3.30 |
                 |proof)                    |        |         |       |
                 |                          |        |         |       |
                 |                          |        |         |       |
                 |                          |        |         |       |
                 |                          |        |         |       |
                 |                          |        |         |       |
                 |                          |        |         |       |
                 |                          |        |         |       |
                 |--------------------------+--------+---------+-------|
                 |Distilled spirits (100+   |  $4.00 |  $2.60  | $6.60 |
                 |proof)                    |        |         |       |
                 |                          |        |         |       |
                 |                          |        |         |       |
                 |                          |        |         |       |
                 |                          |        |         |       |
                  ----------------------------------------------------- 


                 According to the author, this bill will help provide the  
          necessary funding to ensure California's compliance with the  
          Lanterman Developmental Disabilities Services Act (Lanterman  
          Act), a California law passed in 1969, which provides people  
          with developmental disabilities and their families the right to  
          receive necessary services in their community.  There have been  








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          significant reductions in the Department of Developmental  
          Services (DDS) budget.  One billion dollars has been lost since  
          the Great Recession.  This is about 25% of the entire DDS  
          budget.  According to information provided by the author,  
          approximately $400 million is needed for DDS programs including  
          in-home supportive services, community-based programs, and  
          supportive living services.  The current regional center  
          caseload ratio is 1 worker/75 consumers.  However, in statute  
          the regional center caseload is required to be 1 worker/62  
          consumers.  Given the current regional center caseload, the  
          state is at risk for losing federal dollars if it does not come  
          into compliance with the Lanterman Act.  In order to meet  
          caseworker ratios required under current statute, the state  
          would need about 650 additional regional center workers.  The  
          author further states that the funding from a $0.05 charge on  
          cocktails is needed for providers to deliver respite care,  
          transportation, day treatment programs; and independent and  
          supported living programs to our developmental disability  
          community.


          Alcohol Consumption and Public Health.  According to the Centers  
          for Disease Control and Prevention (CDC), excessive alcohol use,  
          either in the form of heavy drinking (drinking 15 or more drinks  
          per week for men or eight or more drinks per week for women), or  
          binge drinking (drinking five or more drinks on an occasion for  
          men or four or more drinks on an occasion for women), can lead  
          to increased risk of health problems such as liver disease or  
          unintentional injuries.  Alcohol use contributes to illnesses as  
          varied as liver cirrhosis, esophageal cancer, pancreatitis, and  
          epilepsy.  It also plays a role in violent crimes such as sexual  
          assaults, domestic violence, and child abuse, while also causing  
          serious injuries and traffic fatalities.  


          According to the CDC's Behavioral Risk Factor Surveillance  
          System (BRFSS) survey, more than half of the adult U.S.  
          population drank alcohol in the past 30 days.  Approximately 5%  
          of the total population drank heavily, while 17% of the  








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          population binge drank.  The 2010 BRFSS notes that, compared to  
          other states, Californians report relatively low rates of binge  
          drinking.  CDC states that excessive alcohol consumption cost  
          the United States $223.5 billion in 2006.  This amounts to about  
          $1.90 per drink, or about $746 per person.  The costs due to  
          excessive drinking largely resulted from losses in workplace  
          productivity (72% of the total cost), health care expenses  
          (11%), and other costs due to a combination of criminal justice  
          expenses, motor vehicle crash costs, and property damage.


          While a relatively small percentage of drinkers report binge or  
          heavy drinking, these drinkers accounts for a disproportionately  
          high percentage of state costs.  CDC estimates that binge  
          drinking is responsible for more than 70% of the cost of  
          excessive alcohol use in all states and the District of  
          Columbia.  Additionally, about $2 of every $5 of the economic  
          costs of excessive alcohol use were paid by federal, state, and  
          local governments.  CDC found that the total state costs for  
          excessive drinking were generally of the same order of magnitude  
          as the costs for smoking and Medicaid.


          California is the largest market for alcohol sales in the United  
          States.  It is estimated that in a single year, Californians  
          consume almost 14 billion alcoholic drinks (including spirits,  
          wine, and beer).  The National Institute of Alcohol Abuse and  
          Alcoholism Surveillance Report #102 estimated that, nationally,  
          Americans consumed an average of 2.34 gallons of ethanol each in  
          2013.  California was ranked with 30 other high consumption  
          states that had over 2.31 gallons per person per year.   
          According to the Distilled Spirits Council of the U.S., about  
          one-third of alcohol consumed in California is spirts-based,  
          while the remaining two-thirds are wine and beer.  


          A 2006 study published in the American Journal of Preventive  
          Medicine calculated the cost of excessive alcohol consumption in  
          California at $32 billion, with $13.7 billion coming from the  








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          state funds.  A 2008 study published in the journal Alcoholism:  
          Clinical and Experimental Research titled "The Cost of Alcohol  
          in California" calculated the overall economic cost of excessive  
          alcohol consumption - including costs such as health issues,  
          injury, violent crime, property crime, and traffic collisions -  
          at $38.5 billion.  According to the California Department of  
          Public Health, excessive alcohol consumption caused  
          approximately 88,000 deaths and 2.5 million years of potential  
          life lost annually in the U.S. during 2006 to 2010, making it  
          the fourth leading preventable cause of death.  In California,  
          the rate of alcohol-attributable deaths (ADD/year/100,000  
          population, 2006 to 2010) is higher for males (43.9) and African  
          Americans (36.6) in comparison with the total population (29.4).


          The Lanterman Act.  The Lanterman Act, which was enacted in  
          1977, guides the provision of services and supports for  
          Californians with developmental disabilities.  Each individual  
          under the Act (typically referred to as a "consumer") is legally  
          entitled to treatment and habilitation services and supports in  
          the least restrictive environment possible.  Lanterman Act  
          services are designed to enable all consumers to live more  
          independent and productive lives in the community.  The term  
          "developmental disability" is defined in statute as a disability  
          that originates before an individual attains 18 years of age,  
          continues, or can be expected to continue, indefinitely, and  
          constitutes a substantial disability for that individual.  It  
          includes intellectual disabilities, cerebral palsy, epilepsy,  
          and autism spectrum disorders.  It also includes disabling  
          conditions that are closely related to intellectual disabilities  
          or require treatment, care, and management similar to what is  
          required for individuals with an intellectual disability. These  
          conditions must occur before age 18, result in a substantial  
          handicap, be likely to continue indefinitely, and involve brain  
          damage or dysfunction (conditions that are solely psychiatric or  
          physical in nature are excluded).


          Passage of the Lanterman Act marked the beginning of  








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          California's shift from a model of care that relied on  
          institutional placement to one that focused on providing  
          services and supports at home or in other community-based  
          settings, and it was followed by a number of federal and state  
          legal decisions, as well as administrative and legislative  
          initiatives, which reinforced the new entitlement to services.   
          Of particular note was the 1994 settlement agreement reached in  
          the William Coffelt et. al. v. the California Department of  
          Developmental Services, et. al. class-action lawsuit to develop  
          additional community placement options and reduce the population  
          of individuals in institutions by 2,000 within five years. Five  
          years later, the U.S. Supreme Court ruled in Olmstead vs LC (527  
          U.S. 581 (1999)) that a lack of community supports was not legal  
          grounds for denying people with disabilities a move from an  
          institution into a community setting if they could benefit from  
          community placement.  The court ruled that such a denial  
          constituted a violation of individual civil rights, as well as  
          discrimination under the Americans with Disabilities Act. In  
          California, 10 years after the Olmstead decision, Capitol People  
          First et al. v DDS, et al. resulted in a settlement in which DDS  
          and the regional centers agreed to develop additional community  
          living options and establish new practices to ensure the  
          Lanterman Act's promise of services in the least-restrictive  
          environment would be maintained.


          Regional Center Rates.  Current statute and regulations set  
          forth rate requirements for regional centers to adhere to when  
          contracting with vendors to provide services to consumers.   
          There are different types of rates for services provided in  
          different settings, many of which are negotiated between  
          regional centers and vendors and are subject to a cap as a  
          result of the state's cost-containment efforts over the past  
          several years. July 1, 2008 marked the original implementation  
          date for statewide and regional center median rates, with a  
          requirement that regional centers do not negotiate rates higher  
          than the lower of the two median rates for services.  Each  
          regional center is required to annually certify to DDS its  
          median rate for each negotiated rate service, which DDS verifies  








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          during its biennial fiscal audit of the regional center.   
          Despite the median rate cap, a regional center can obtain a rate  
          increase from DDS under a "health and safety exemption" for a  
          particular consumer if the regional center can demonstrate the  
          exemption is necessary to maintain his or her health and safety.  
           Most recently, Fiscal Years 2014-15 and 2015-16 Budget trailer  
          bill provisions allowed for provider rate increases to address  
          new state minimum wage requirements and sick leave benefits. 


          The California Medical Association (CMA) states that alcohol  
          abuse is an issue that puts a significant cost burden on  
          California's healthcare system. Alcohol-related deaths from car  
          accidents still make up a third of all car accident fatalities.   
          CMA further states that alcohol taxes reduce excessive drinking  
          and alcohol-related problems; one estimate suggests that a  
          nickel-per-drink increase in alcohol would reduce fatal traffic  
          accidents by 7%.   The California Supported Living Network and  
          other supporters of this bill, state that it will provide an  
          important funding source to keep individuals and families  
          together, living independently, and getting the services that  
          integrate them into communities. 


          Opponents, representing makers, carriers, and sellers of alcohol  
          products, assert that there are no negative social costs  
          associated with normal moderate consumption of alcoholic  
          beverages and this bill unfairly penalizes 90% to 95% of  
          responsible drinkers. They argue that this bill could make it  
          even more difficult for businesses that are struggling to keep  
          their doors open and retain employees during these difficult  
          economic times by disproportionately targeting a specific  
          category of products for fee increases.  Opponents maintain that  
          the alcohol industry already pays more than its fair share of  
          revenue to the state, and that this bill would add new costs and  
          reporting burdens on small businesses in California's  
          hospitality industry.  










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          Analysis Prepared by:                                             
                          Dharia McGrew / HEALTH / (916) 319-2097  FN:  
          0002437