BILL ANALYSIS Ó
AB 1396
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Date of Hearing: April 21, 2015
ASSEMBLY COMMITTEE ON HEALTH
Rob Bonta, Chair
AB 1396
(Bonta) - As Amended April 16, 2015
SUBJECT: Public health finance.
SUMMARY: Allocates the revenues generated by SB 591 (Pan), the
California Tobacco Tax Act of 2015 (Tobacco Tax Act), to various
state funds, as specified. Specifically, this bill:
1)Makes this bill contingent upon enactment of SB 591.
2)Requires the Board of Equalization (BOE) to:
a) Calculate the adverse impact the tax proposed by SB 591
has on the revenues collected by existing tobacco taxes and
their specific purpose; and,
b) Determine the fiscal effect that any resulting decrease
in tobacco consumption has on the Cigarette and Tobacco
Products Surtax Fund, the Breast Cancer Fund, the
California Children and Families Trust Fund, and the
General Fund (GF) and then transfer revenues to offset the
revenue decrease directly resulting from imposition of
additional taxes.
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3)Creates the California Tobacco Tax Act Fund as a trust fund,
established solely to carry out the purposes set forth in this
bill.
4)Requires the Controller to allocate the moneys remaining in as
yet unspecified percentages to the following accounts and
purposes:
a) The Tobacco Prevention and Education Account to be used
by the Department of Public Health (DPH), Department of
Education (DOE), and the University of California (UC).
a) The Tobacco Disease Related Health Care Account to be
used by the Department of Health Care Services (DHCS) to
improve existing programs to provide quality and access to
health care programs for families and children.
b) The Tobacco Law Enforcement Account to be used by BOE,
DPH, and the Department of Justice (DOJ) for enforcing laws
that regulate the distribution and sale of cigarettes and
other tobacco products, including laws that prohibit
cigarette smuggling, counterfeiting, selling untaxed
tobacco, selling tobacco without a proper license, and
selling tobacco to minors, and enforcing tobacco-related
laws, court judgments, and settlements.
5)Requires that no more than 2% of the funds received from the
Tobacco Tax Act Fund to be used by any department for
administrative costs.
6)Requires agencies receiving funds, except the BOE, to publish
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annually on their respective Internet Websites an accounting
of moneys received from the Tobacco Tax Act and how the moneys
were spent.
EXISTING LAW:
1)Imposes a tax on distributors of cigarettes and tobacco
products, set at $.87 cents per pack of 20 cigarettes.
Requires the taxes on cigarette and tobacco products to fund a
variety of programs and services including: health education,
research, hospital care, fire prevention, environmental
conservation, breast cancer research and early detection
services, and early childhood development programs.
2)Requires BOE to administer tobacco tax provisions, including
collecting the tax.
3)Requires BOE to annually set a tax on other tobacco products,
such as cigars and chewing tobacco, at an amount equivalent to
the tax on cigarettes.
4)Requires retailers of cigarettes and tobacco products to be
licensed by BOE.
5)Grants responsibility for public health programs, including
tobacco control to various state entities, including DPH, DOE,
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and UC.
6)Grants responsibility for enforcing compliance with tobacco
laws to various state entities, including BOE, DOJ, and DPH.
7)Establishes DHCS which administer Medi-Cal, which, among other
things, treats patients with tobacco related illnesses.
8)Provides, under existing federal law, a $1.01 tax per pack of
20 cigarettes with the majority of the funds being used to
fund children's health programs.
FISCAL EFFECT: This bill has not been analyzed by a fiscal
committee.
COMMENTS:
1)PURPOSE OF THIS BILL. According to the author, this bill will
ensure that tobacco tax revenues generated by SB 591 are used
to provide efficiency, economy, and quality of care to all
patients regardless of economic circumstance. The author
states the revenue allocations in this bill would provide
critical stability to health care provider networks and ensure
access to healthcare services for people receiving services in
the Medi-Cal program. The author estimates $1.5 billion to be
raised will help the states cope with the dramatic expansion
of enrollment in California's Medi-Cal program, according to
the author, in particular helping to increase Medi-Cal rates.
California already pays its Medi-Cal providers some of the
lowest rates in the entire country (for primary care and
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obstetric care, California ranked 48th among all states in
2012, and overall, Medi-Cal compensated physicians at only 51%
of Medicare levels). The author states that having expanded
Medi-Cal under the Patient Protection and Affordable Care Act
(ACA), California needs to ensure that Medi-Cal provider rates
provide sufficient access to Medi-Cal beneficiaries. The
author concludes, in order for the expansion of Medi-Cal
program to result in access to care, an adequate number of
health care providers must be available to provide care to
Medi-Cal patients.
2)TOBACCO TAXATION IN CALIFORNIA. According to BOE, there are
two types of excise taxes for cigarettes and tobacco products
distributed in California: a) the cigarette tax; and, b) the
cigarette and tobacco products surtax. While cigarettes are
subject to both the cigarette tax and the cigarette and
tobacco products surtax, tobacco products are subject only to
the cigarette and tobacco products surtax. Tobacco products
include all forms of cigars, smoking tobacco, chewing tobacco,
and snuff, as well as other products containing at least 50%
tobacco. The tax and the surtax are paid by distributers
through the use of tax stamps which are purchased from BOE and
affixed to each packet of cigarettes before distribution. In
the 1960's the Legislature passed a $0.10 cigarette tax that
was allocated to the GF. The Legislature and voters have
adopted the following three additional tobacco tax measures
since 1988:
a) AB 478 (Friedman), Chapter 660, Statutes of 1993, and AB
2055 (Friedman), Chapter 661, Statutes of 1993, added a
cigarette excise tax of $0.02 per package of 20 cigarettes
for breast cancer research and early detection services.
b) Proposition 99, from the November 1988 ballot, was
passed and imposed a cigarette and tobacco product surtax
of $0.25 per package of 20 cigarettes and is used for the
following purposes: tobacco-related health education
programs and disease research; medical and hospital care
and treatment of patients who cannot afford those services,
and for whom payment will not be made by any private
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coverage or federal program; programs for fire prevention,
environmental conservation, protection, restoration,
enhancement, and maintenance of fish, waterfowl, and
wildlife habitat areas; and, enhancement of state and local
parks and recreation.
c) Proposition 10, passed November 3, 1998, imposed an
additional cigarette and tobacco product surtax of $0.50
per package of 20 cigarettes and is used for programs that
encourage proper childhood development, including: the
development of professional and parental education and
training; informed selection of childcare; development and
education of childcare providers; and, research into best
practices and standards for all programs and services
relating to early childhood development.
3)Smoking prevalence in California. According to the 2012
Surgeon General's Report, nearly 90% of smokers in the U.S.
started smoking by the age of 18, and 99% started by age 26.
In California, 64% of smokers started by the age of 18 and 96%
started by age 26. According to DPH in 2010, 36.8% of high
school students had smoked a whole cigarette by 13 or 14 years
of age and, in 2012, illegal tobacco sales to minors rose from
5.6% in 2011 to 8.7%.
According to DPH, the state's adult smoking rate has hit a
record low. In 2010, 11.9% of California adults smoked, down
from 13.1% in from 2009, making California one of only two
states to reach the federal Healthy People 2020 target of
reducing the adult smoking prevalence rate to 12%. However,
research highlights that the burdens of smoking do not fall
evenly across the state. According to the American Lung
Association (ALA), African-American men and women have the
highest smoking usage rate at 21.3% and 17.1% respectively,
followed by white men at 17.2% and Latino men at 16%. The ALA
reports that Korean men have an unusually high tobacco usage
rate at 27.9% as do Lesbian, Gay, Bisexual, and Transgender
women who smoke at almost triple the rate of women in general.
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4)Tobacco-related diseases in California. Every year, an
estimated 443,000 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
DPH, smoking causes ischemic 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.
5)California Tobacco Control Program. The California Tobacco
Control Program (CTCP) is a program administered by DPH.
Established in 1990 through the passage of Proposition 99,
CTCP funds and coordinates the efforts of local communities in
California to create smoke-free environments, prevent illegal
sales of tobacco to youth, counter the aggressive marketing
practices of the tobacco industry, and help smokers to quit.
To ensure that federal, state, and local laws are followed,
CTCP works closely with law enforcement agencies. CTCP
currently works in all 58 counties in partnership with many
non-profit community-based organizations around the state. A
key component of CTCP's comprehensive approach is its focus on
changing social norms rather than a frontal attack designed to
market cessation services directly to tobacco users.
According to a recent study conducted by UC San Francisco,
while CTCP has cost $2.4 billion over the span of the over 20
years of the program's existence, CTCP has reduced health care
costs by $134 billion.
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6)Tobacco taxes and other states. California's tobacco tax rate
ranks 33rd when compared to the rates of other states. The
national mean cigarette excise tax is $1.48 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.
7)Impacts of higher cigarette prices. According to the
Legislative Analyst's Office (LAO), most revenue estimates
assume that an increased excise tax on cigarettes would raise
the retail prices of cigarettes and other tobacco products to
include the new cost. This could potentially result in
consumers reducing the quantity of taxable products they
consume. Additionally, the state and local governments in
California incur costs for providing: a) healthcare for
low-income and uninsured persons; and, b) health insurance
coverage for state and local government employees and
retirees. Consequently, changes in state law, such as the
2014 Tobacco Act tax that affects the health of the general
population and low-income and uninsured persons and public
employees in particular, could affect publicly-funded health
care costs. The LAO further reports, since the use of tobacco
products has been linked to various adverse health effects, an
increase in a cigarette excise 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
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more low-income smokers to quit. According to the Federal
Trade Commission Cigarette Report, since three out of every
four smokers expected to quit because of cigarette tax
increase are estimated to be low-income, the public health
benefits of reduced tobacco-related illnesses from smoking
will also be borne by lower-income households. 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 is precisely 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
establishes a comprehensive licensing program for retailers,
manufacturers, distributors and importers of cigarettes and
tobacco products. According to BOE, the California Cigarette
and Tobacco Licensing Act of 2003 has been successful in
reducing illegal sales.
8)SUPPORT. According to supporters, this bill, together with SB
591, will prevent kids from smoking, improve access to health
care services, fund prevention and education efforts, and help
tobacco users quit. Tobacco related diseases are the leading
cause of preventable death in California, claiming more than
40,000 lives each year and costing the state of California
over $13 billion in healthcare costs annually. Over $3.5
billion are taxpayer dollars used to treat Medi-Cal patients
with tobacco-related illnesses. The best way to offset these
costs and protect millions of California residents is through
investment in the California Tobacco Control Program, which
has successfully reduced smoking rates and cigarette
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consumption in our state. This program, since its inception
in 1989, has saved the state of California $139 billion
dollars. This bill would generate over $151 billion in
revenues that will be used to fund proven and effective
tobacco prevention and cessation programs, as well as improved
access to health care for low-income families.
9)POSSIBLE AMENDMENT. This does not specify the percentages to
be allocated to the DPH, DOE, and UC from the Tobacco
Prevention and Education Account. Additionally, SB 591 does
not specify the percentages to be assigned from the Tobacco
Tax Act Fund to the Tobacco Prevention and Education Account,
the Tobacco Disease Related Health Care Account, and the
Tobacco Law Enforcement Account. The Committee may want to
ask the author about plans and timing of amendments for the
likely levels of funding in the various programs.
10)RELATED LEGISLATION. SB 591 imposes an additional tax on the
distribution of cigarettes at the rate of $2.00 per pack and
provides that the revenues collected from the additional tax
be deposited in the Tobacco Tax Act Fund. SB 591 is pending
in the Senate Governance and Finance Committee.
11)PRIOR LEGISLATION.
a) SB 768 (De León) of 2014, would have enacted the
California Tobacco Act of 2014 which would have imposed an
additional cigarette tax at a rate of $2.00 per package of
20 cigarettes. SB 768 was held on the Senate
Appropriations Committee suspense file.
b) SB 600 (Padilla) of 2009, would have imposed an
additional excise tax of $1.50 per package of 20
cigarettes, adjusted annually by the consumer price index,
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and indirectly increased the tax on other tobacco products.
SB 600 was held on the Senate Appropriations Committee
suspense file.
REGISTERED SUPPORT / OPPOSITION:
Support
American Lung Association (cosponsor)
California Medical Association (cosponsor)
American Cancer Society Cancer Action Network
California Black Health Network
Campaign For Tobacco-Free Kids
Health Access California
Planned Parenthood Affiliates of California
Opposition
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None on file.
Analysis Prepared by:Rylan Gervase / HEALTH / (916) 319-2097