BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
SB 24 (Hill) - Electronic cigarettes: licensing and
restrictions
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|Version: April 21, 2015 |Policy Vote: HEALTH 6 - 0 |
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|Urgency: No |Mandate: Yes |
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|Hearing Date: May 4, 2015 |Consultant: Brendan McCarthy |
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This bill meets the criteria for referral to the Suspense File.
Bill
Summary: SB 24 would raise the minimum legal age to purchase or
consume tobacco products and electronic cigarettes from 18 to
21. The bill would extend many existing restrictions or
prohibitions on the use of tobacco products to electronic
cigarettes. The bill would require electronic cigarette
manufacturers, wholesalers, and retailers to be licensed.
Fiscal
Impact:
One-time costs of about $180,000 to revise regulations and
educational materials relating to the prohibition on the sale
of tobacco products to minors by the Department of Public
Health (General Fund or tobacco tax funds).
SB 24 (Hill) Page 1 of
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Ongoing costs in the hundreds of thousands per year for
additional survey activities at retail stores selling
electronic cigarettes (General Fund or tobacco tax funds).
Current federal law requires the state to determine the rate
at which individuals under 18 years of age can illegally
purchase tobacco products. The Department of Public Health
conducts random inspections at about 750 retail locations
annually to determine a statewide average rate at which
retailers are not in compliance with state and federal law.
The total annual cost to conduct the current survey is
$400,000.
Federal law would continue to require the Department to
conduct the existing survey. In addition, it is likely that
under this bill the Department would expand the existing
survey, to determine the rate at which individuals between 18
and 21 years of age are able to purchase tobacco products.
There are about 1,100 retail locations that only sell
electronic cigarettes and related products. Because this bill
would expand the universe of retail locations subject to the
inspection requirement, the Department is likely to incur
additional costs to survey a sample of those retail locations
to accurately determine the rate at which minors can purchase
electronic cigarettes.
Ongoing costs in the hundreds of thousands to low millions per
year for enforcement actions relating to illegal sales of
tobacco products and electronic cigarettes to individuals
under 21 years of age (General Fund or tobacco tax funds).
Under current law, the Department of Public Health enforces
the law prohibiting the sale of tobacco products to minors by
conducting compliance inspections using youth decoy purchasers
and following up on complaints from the public. The total
annual cost for the Department's enforcement program is $1.6
million per year.
By raising the minimum age to purchase tobacco products, the
bill is likely to substantially increase the Department's
enforcement workload, at least in the early years. In order
to continue to comply with federal restrictions on the sale of
tobacco to individuals under age 18, it is likely that the
Department will need to keep much of its existing enforcement
SB 24 (Hill) Page 2 of
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program in place. In addition, the Department will likely need
to take separate enforcement actions against retailers who
sell tobacco products to individuals between 18 and 21 years
of age.
By adding electronic cigarette retailers to the current
enforcement program, the bill will increase the Department's
enforcement efforts, particularly for retailers who do not
already sell traditional tobacco products. The amount of that
increased enforcement activity will depend both on the number
of additional retailers covered by the law and the compliance
rate of those retailers (or if retailers of traditional
tobacco products are found to be selling electronic cigarettes
to minors at higher rates than traditional tobacco products).
Because the state has fully allocated the existing federal
funding for this program, any additional costs will be borne
by the General Fund, tobacco tax funds, or other fund sources.
Ongoing licensing costs of about $300,000 for the Board of
Equalization to license retailers who sell electronic
cigarettes but are not currently licensed because they do not
sell tobacco products (Compliance Fund and General Fund).
Under current law, the Board licenses wholesalers and
retailers of tobacco products, to facilitate the collection of
tobacco taxes. This bill will require the Board to also
license electronic cigarette retailers. Currently, the Board
expends about $280 per licensee to operate the licensing
program. Licensees pay a one-time licensing fee of $100. The
remaining program costs are offset with tobacco tax revenues.
According to the Stanford Prevention Center, there are about
1,000 retailers in the state that specialize in electronic
cigarettes and do not sell other tobacco products. The Board
would incur additional licensing costs to license those
retailers, which would be partially offset by the initial
licensing fee. It is not clear whether the Board could use
tobacco tax revenue to supplement the licensing fee or whether
General Fund monies would be needed to pay for the shortfall.
Reduced total excise tax and sales tax revenues on tobacco
products of $68 million per year in the near term (various
funds). The Board of Equalization projects reduced tobacco
excise tax revenues of about $43 million per year (about $4
million of which would come from the General Fund and the
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remainder from special funds that support a variety of public
health programs). The Board estimates reduced sales tax
revenues of about $25 million per year (about $13 million
coming from the General Fund and the remainder coming from
local government sales tax revenues). This tax loss analysis
assumes a reduction in tobacco use proportional to the share
of the population between 18 and 21.
Additional long-run reductions in tobacco excise and sales
tax, likely over $100 million per year (various funds). In the
long-run, the bill will reduce tobacco tax use both by
prohibiting its use among those 18 to 21 and by reducing the
long-term smoking rate in the adult population, because
delaying initial tobacco use reduces the likelihood of
long-term use. According to the federal Institute of Medicine,
raising the legal minimum age to purchase tobacco products is
likely to reduce the overall long-term smoking rate amongst
adults by 12 percent. This is because most long-term tobacco
users begin using tobacco products before age 21 and a
relatively low number of long-term tobacco product users begin
using such products after age 21.
Unknown, but significant health care cost savings to public
payers (various funds). According to the Centers for Disease
Control and Prevention, estimates of annual direct health care
costs related to smoking are between $130 billion and $180
billion per year, nationally. This bill is likely to reduce
health care costs, by reducing tobacco use rates. If the
long-term reduction in the expenditure of health care costs
relating to smoking is proportional to the reduction in the
use rate, total direct health care costs in the state would be
reduced by as much as $2 billion per year in the long-run. A
significant portion of those savings would likely accrue to
public payers such as the Medi-Cal program and CalPERS.
Minor costs to the state to replace or add to existing "no
smoking" signage in and around state buildings (General Fund
and special funds). As an employer generally, and as the
operator of certain buildings such as schools and state
hospitals, the state will be required to either replace
existing signage or modify existing signage to include the
prohibition on using electronic cigarettes in certain areas.
SB 24 (Hill) Page 4 of
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Background: Under current law (the Stop Tobacco Access to Kids Enforcement
or STAKE Act) the Department of Public Health is responsible for
enforcing the prohibition on furnishing tobacco products to
minors (those under 18 years of age). Federal law requires
states to demonstrate that they are complying with federal law
in this area, by demonstrating that the rate at which minors can
purchase tobacco products does not exceed 20%. The Department
fulfills these requirements by conducting a survey of about 750
retail stores, using minors to attempt a purchase. Using
information from the survey, as well as public complaints and
other sources, the Department conducts enforcement actions
against retailers in violation of the law. In addition to
assessing fines for non-compliance, the Department is authorized
to notify the Board of Equalization of repeated violations by a
retailer; the Board is then authorized to suspend the retailer's
license.
Current law requires the Board of Equalization to license
tobacco wholesalers and retailers. The purpose of this licensing
requirement is to facilitate the collection of state tobacco
taxes and prevent tax evasion. Tobacco products are subject to
both a specific excise tax on tobacco products as well as the
general Sales and Use Tax.
Current state law prohibits smoking of tobacco products in
various places, such as school campuses, public buildings,
places of employment, retail food facilities, and other places.
Current law requires employers generally, and operators of
certain facilities such as hospitals, clinics, and food
facilities specifically, to post signs declaring that no smoking
is permitted, with certain exceptions. Those requirements are
enforced at the local level.
Proposed Law:
SB 24 would raise the minimum legal age to purchase or consume
tobacco products and electronic cigarettes from 18 to 21. The
bill would extend many existing restrictions or prohibitions on
the use of tobacco products to electronic cigarettes. The bill
would require electronic cigarette manufacturers, wholesalers,
and retailers to be licensed. The bill does not redefine tobacco
products to include electronic cigarettes, but rather adds
SB 24 (Hill) Page 5 of
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electronic cigarettes specifically to many provisions of law
regulating the use of tobacco products.
Specific provisions of the bill would:
Raise the minimum legal age to purchase or consume tobacco
products and electronic cigarettes from 18 to 21;
Extend the existing provisions of the STAKE Act to electronic
cigarettes;
Prohibit the use of electronic cigarettes in specific places,
such as schools, places of employment, public buildings,
apartments, and other places;
Require places where smoking is currently prohibited to have
signage that states both "no smoking" and "no using electronic
cigarettes";
Make electronic cigarette wholesalers and retailers subject to
licensure by the Board of Equalization;
Require all cartridges for electronic cigarettes and solutions
for refilling electronic cigarettes to be in childproof
packaging.
Related
Legislation:
SB 140 (Leno) would expand the definition current law of
"tobacco product" in certain sections of law to include
electronic cigarettes. That bill is on this committee's
Suspense File.
SB 151 (Hernandez) would raise the minimum legal age to
purchase or consume tobacco products from 18 to 21. That bill
is on this committee's Suspense File.
AB 216 (Garcia) would raise the fine for selling an electronic
cigarette to a minor. That bill is pending in the Assembly.
AB 768 (Thurmond) would prohibit the use of electronic
cigarettes in any baseball stadium. That bill is pending in
the Assembly
Staff
Comments: The only costs that may be incurred by a local agency
relate to crimes and infractions. Under the California
Constitution, such costs are not reimbursable by the state. As
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noted above, the bill requires operators of certain buildings to
change existing no smoking signage to specifically prohibit the
use of electronic cigarettes. This provision is likely to impose
costs on local governments. However, because the provisions of
the bill apply generally (to employers or operators of
hospitals, for example) this requirement does not create a
reimbursable state mandate.
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