BILL ANALYSIS Ó AB 18 X2 Page 1 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 AB 18 X2 Page 2 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: AB 18 X2 Page 3 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) | | | | | | | | | AB 18 X2 Page 4 |--------------------------+--------+---------+-------| |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 AB 18 X2 Page 5 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 AB 18 X2 Page 6 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 AB 18 X2 Page 7 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 AB 18 X2 Page 8 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 AB 18 X2 Page 9 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. AB 18 X2 Page 10 Analysis Prepared by: Dharia McGrew / HEALTH / (916) 319-2097 FN: 0002437