BILL ANALYSIS                                                                                                                                                                                                    Ó






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                                   THIRD READING 


          Bill No:  SBX2 14
          Author:   Hernandez (D)
          Introduced:9/9/15  
          Vote:     27  

          SENATE HEALTH & DEV. SVCS. COMMITTEE:  9-4, 9/10/15
           AYES: Hernandez, Beall, Hall, Leno, McGuire, Mitchell, Monning,  
            Pan, Wolk
           NOES: Morrell, Anderson, Moorlach, Nielsen

           SENATE APPROPRIATIONS COMMITTEE:  5-2, 9/10/15
           AYES: Lara, Beall, Hill, Leyva, Mendoza
           NOES: Bates, Nielsen

           SUBJECT:   Tobacco: electronic cigarettes: taxes: managed care  
                     organization provider tax: in-home supportive  
                     services


          SOURCE:    Author


          DIGEST:  This bill imposes an additional excise tax of $2 per  
          package of 20 cigarettes, imposes an equivalent one-time "floor  
          stock tax" on the cigarettes held or stored by dealers and  
          wholesalers, and indirectly increases the tobacco products tax.   
          Imposes a tax on electronic cigarettes equivalent to the $2 per  
          package tax imposed on cigarettes by this bill. Requires revenue  
          from tobacco and electronic cigarette taxes to be used for  
          various tobacco use prevention and research, law enforcement,  
          medical school education, for improved payments for Medi-Cal  
          funded services, and to backfill existing tobacco-tax funded  
          services for any revenue decline resulting from the additional  








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          tax. Imposes a managed care organization provider tax (MCO tax)  
          on health plans, with different taxing tiers based on  
          enrollment. Continuously appropriates funds from the MCO tax for  
          purposes of funding the nonfederal share of Medi-Cal managed  
          care rates, and transfers $230 million, to be used upon  
          appropriation by the Legislature, to increase the funding  
          provided to regional centers and to increase rates paid to  
          providers of service to the developmentally disabled. Repeals  
          the 7% reduction in hours of service to each In-Home Supportive  
          Services recipient of services.


          ANALYSIS:   


          Existing law:

          1)Imposes an 87 cents tax per pack of 20 cigarettes on  
            distributors of cigarettes and tobacco products, which funds a  
            variety of programs and services including: tobacco-related  
            health education, tobacco-related disease research, hospital  
            and physician services, fire prevention, environmental  
            conservation, breast cancer research and early detection  
            services, and early childhood development programs.  


          2)Requires the Board of Equalization (BOE), under the Cigarette  
            and Tobacco Products Licensing Act of 2003 (Licensing Act), to  
            administer a statewide program to license manufacturers,  
            importers, distributors, wholesalers and retailers of  
            cigarettes and tobacco products.


          3)Establishes the county-administered In-Home Supportive  
            Services (IHSS) program, under which qualified aged, blind,  
            and disabled persons are provided with services to permit them  
            to remain in their own homes and avoid institutionalization.  
            Existing law provides for a 7% reduction in hours of service  
            to each IHSS recipient of services.


          4)Establishes the Medi-Cal program, administered by the  
            Department of Health Care Services (DHCS), under which health  
            care services are provided to qualified, low-income persons.  







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            Under existing law, one of the methods by which Medi-Cal  
            services are provided is through contracts with various types  
            of managed care plans. 


          5)Imposes a sales tax on sellers of Medi-Cal managed care  
            organizations (MCOs), until July 1, 2016.


          6)Requires, under the Lanterman Developmental Disabilities  
            Services Act, the Department of Developmental Services (DDS)  
            to contract with regional centers to provide services and  
            supports to individuals with developmental disabilities. Under  
            existing law, the regional centers purchase needed services  
            for individuals with developmental disabilities through  
            approved service providers or arrange for those services  
            through other publicly funded agencies. The annual Budget Act  
            also appropriates funds to DDS to fund regional center  
            operations.


          7)Establishes specified rates to be paid to certain  
            developmental service providers and the rates to be paid for  
            certain developmental services. Requires that rates to be paid  
            to other developmental service providers either be set by DDS  
            or negotiated between the regional center and the service  
            provider.
          
          This bill:


          1)Imposes an additional excise tax of $2 per package of 20  
            cigarettes, and imposes a one-time "floor stock tax" on the  
            cigarettes held or stored by dealers and wholesalers. 


          2)Imposes a tax on electronic cigarettes equivalent to the $2  
            per package tax 

          imposed on cigarettes by this bill.

          3)Expands the definition of "tobacco products" to include  
            electronic cigarettes, as defined, for purposes of the  
            Licensing Act, thereby subjecting manufacturers, importers,  







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            distributors, wholesalers, and retailers of e-cigarettes to  
            the same licensing requirements imposed under the Licensing  
            Act applicable to tobacco products. 


          4)Creates the California Health Care, Developmental Services,  
            and Prevention Tobacco Tax Act Fund of 2015 in the State  
            Treasury, and requires all revenue from the $2 excise tax  
            increase and equivalent tax on e-cigarettes be deposited in  
            this fund.


          5)Prohibits the cigarette and e-cigarette taxes imposed by this  
            bill from being considered part of the General Fund, or be  
            considered General Fund revenue for purposes of Proposition  
            98.

          6)Establishes the California Health Care, Research, and  
            Prevention Tobacco Tax Act of 2015 in the State Treasury as a  
            continuously appropriated fund, to be used for the following  
            purposes:



             a)   To offset the revenue decrease resulting from the  
               imposition of the additional tax in this bill on the  
               existing tobacco-tax funded Breast Cancer Fund, Proposition  
               99 and Proposition 10-funded programs based on the decrease  
               in tobacco consumption resulting from the additional tax  
               imposed by this bill;

             b)   To reimburse the Board of Equalization (BOE) in the  
               administration, calculation, and collection of the tax, the  
               calculation and distribution of funds and in regulation  
               promulgation, with a 1% cap for administrative costs;



             c)   To reimburse the State Auditor up to $400,000 for actual  
               costs incurred to conduct audits required by this bill;



             d)   To provide $40 million in funding to the University of  







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               California (UC) for the purpose and goal of increasing the  
               number of physicians trained in California;

             e)   To provide $48 million for the purpose of funding law  
               enforcement efforts and investigative activities to reduce  
               illegal sales of tobacco products, illegal sales to minors,  
               reduce cigarette smuggling, tobacco tax evasion and  
               counterfeit tobacco products, to enforce licensing  
               requirements, to enforce tobacco-related laws, court  
               judgments and legal settlements, and to conduct law  
               enforcement training and technical assistance for  
               tobacco-related statutes, provided these funds are not used  
               to supplant existing state or local funds. Apportions these  
               funds in the following manner:



               i)     $30 million to the Department of Justice to be  
                 distributed to local law enforcement to support and hire  
                 front-line law enforcement peace officers;

               ii)    $6 million to BOE to be used to enforce laws that  
                 regulate the distribution and retail sale of cigarettes  
                 and other tobacco products;

               iii)   $6 million to the Department of Public Health (DPH)  
                 to be used to support programs, including grants to local  
                 law enforcement agencies to provide training and funding  
                 for the enforcement of state and local laws related to  
                 the illegal sales of tobacco to minors;

               iv)    $6 million to the Attorney General to be used for  
                 activities including enforcing laws that regulate the  
                 distribution and sale of cigarettes and tobacco products.


             f)   Requires the BOE, beginning two years after the  
               effective date of this bill, to determine the reduction in  
               revenues from a reduction in cigarette and tobacco product  
               consumption due to the additional taxes. Requires BOE, if  
               it determines there has been a reduction, to reduce the  
               amounts in a) through e) above proportionately.

          7)Requires the Controller to allocate, after the transfers in 6)  







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            above, the remaining moneys as follows:


             a)   82% to the Health Care Treatment Fund, to be used by  
               DHCS to increase funding for existing Medi-Cal health care  
               programs and services by providing improved payments,  
               including funding support for county and UC hospitals and  
               the governmental entities with which they are affiliated,  
               for the nonfederal share of payments. Requires, to the  
               extent possible, payments and support to be increased based  
               on criteria developed and updated by DHCS in consultation  
               with the Legislature as part of the annual state budget  
               process, provided these funds are used to supplant existing  
               state general funds for these same purposes. Requires the  
               criteria to include, but not be limited to, ensuring timely  
               access, specific geographic shortages of services or  
               ensuring quality care. Requires, consistent with federal  
               law, the funding to be used to draw down federal funds;


             b)   13% for the purpose of funding comprehensive tobacco  
               prevention and control programs, provided that these funds  
               are not used to supplant existing state or local funds,  
               apportioned in the following manner:


               i)     85% to DPH for tobacco control programs, and  
                 requires DPH to award funds to local government and  
                 community-based organization for the implementation,  
                 evaluation and dissemination of evidence-based health  
                 promotion and health communication activities in order to  
                 monitor, evaluate and reduce tobacco use, tobacco-related  
                 disease rates and health disparities;

               ii)    15% to the Department of Education for school  
                 programs to prevent and reduce the use of tobacco and  
                 nicotine products by young people;


             c)   5% to the UC Tobacco-Related Disease Research Program  
               for basic, applied and translational medical research  in  
               California into the prevention of, early detection of,  
               treatments for, complementary treatments and potential  
               cures for all types of cancer, cardiovascular and lung  







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               disease, oral disease and tobacco-related diseases.

          8)Requires the State Auditor to define "administrative costs"  
            via regulation, and caps administrative costs at specified  
            amounts.


          9)Requires the State Auditor to conduct at least biennially an  
            independent financial audit of the state and local agencies  
            receiving tobacco tax funds. Requires the State Auditor to  
            prepare a report detailing its review, including any  
            recommendations for improvements.


           10)Requires state agencies and departments receiving tobacco  
             tax funds under this bill to publish on an annual basis on  
             their internet web site an accounting of how much money was  
             received, and how the money was spent.


           11)Repeals a provision of law that reduces by 7% the hours of  
             service for each IHSS recipient.


           12)Establishes a new MCO tax, to be administered by DHCS, in  
             consultation with the Department of Managed Health Care  
             (DMHC). 


           13)Assesses the MCO tax on health plans licensed by DMHC and  
             managed care plans contracted with DHCS to provide Medi-Cal  
             services, with some exceptions, as specified. 


           14)Requires health plans to report to DHCS specified enrollment  
             information, on a quarterly basis, beginning with the 2016-17  
             state fiscal year.


           15)Establishes applicable taxing tiers and per enrollee amounts  
             for the 2016-17 fiscal year. Requires, commencing with the  
             2017-18 fiscal year, DHCS and DMHC to determine tax tiers and  
             per enrollee tax amounts. Requires DHCS to request approval  
             from the federal Centers for Medicare and Medicaid Services  







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             as necessary to implement these provisions.


           16)Establishes the Health and Human Services Special Fund in  
             the State Treasury, into which all revenues, less refunds,  
             derived from MCO taxes imposed by this bill would be  
             deposited. Requires the moneys in the fund to be allocated as  
             follows:



              a)    $230 million transferred annually from the Health and  
                Human Services Special Fund to the Developmental  
                Disabilities Fund created by this bill, to be used upon  
                appropriation by the Legislature, to do both of the  
                following:



               i)     Increase the funding provided to a regional center  
                 for the regional center's operating budget by up to 10%  
                 above the levels in effect on the effective date of this  
                 bill; and,


               ii)    Increase all rates paid to service providers for  
                 providing services to developmentally disabled  
                 individuals by up to 10% above the levels in effect on  
                 the effective date of this bill.





             b)   Continuously appropriates to DHCS for the purpose of  
               funding the nonfederal share of Medi-Cal managed care  
               rates.





          Comments








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          1)Author's statement.  According to the author, this  
            comprehensive piece of legislation directly addresses the  
            shortage of funding for California's most vulnerable  
            communities. The author states this legislation guarantees  
            funding to improve quality and expand access to health care  
            for those on Medi-Cal, as well as restores funding for our  
            developmentally disabled community, and clearly demonstrates  
            California's commitment to help those that need it most,  
            including seniors, children, families, and individuals with  
            special needs. This bill would increase the cigarette tax by  
            $2 a pack, and would impose an equivalent increase on  
            e-cigarette products, which is preliminarily estimated to  
            generate nearly $1.3 billion annually. The revenue would go  
            towards increasing Medi-Cal reimbursement rates to help  
            improve access to quality providers for Medi-Cal recipients,  
            and to ensure a robust tobacco prevention program by providing  
            increased funding for existing tobacco-funded programs  
            including law enforcement and smoking prevention efforts. In  
            addition, the legislation also would enact the Governor's most  
            recent proposed tax on MCO and allocates the funding directly  
            to Med-Cal managed care rates and to increase rates to  
            providers of services to individuals served by the  
            developmental disabilities system and regional center  
            operations budgets by up to 10%.  The author concludes that  
            this bill is a win-win for Californians as it will not only  
            generate much needed revenue for health care and developmental  
            services, but it will also help reduce smoking rates and deter  
            teenagers from getting hooked on a deadly habit. The revenue  
            generated by enacting this bill will help provide care for the  
            most underserved and neediest communities in California.
          
          2)Cigarette and tobacco products tax law.  State law imposes an  
            87 cent excise tax on a package of cigarettes. Federal law  
            imposes a tax of $1.01 per pack of 20 cigarettes with the  
            majority of the funds being used to fund children's health  
            programs, under federal law. Since 1998, the Legislature and  
            voters have adopted three tobacco tax measures which have  
            raised the cigarette tax by 77 cents. Current state taxes and  
            surtaxes are allocated in the following manner: 10 cents to  
            the state General Fund; 25 cents to the Cigarette and Tobacco  
            Products Surtax Fund (Proposition 99, 1988); 2 cents to the  







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            Breast Cancer Fund; and 50 cents to the California Children  
            and Families Trust Fund (Proposition 10, 1998). In November  
            1998, state attorney generals and tobacco companies entered  
            into the Master Settlement Agreement, whereby, tobacco  
            companies, agreed to change the way tobacco products were  
            marketed and agreed to pay, in perpetuity, various annual  
            payments to compensate for medical costs for caring for  
            persons with smoking-related illnesses.  In 2012, California  
            received a Master Settlement Payment of around $735.7 million,  
            which adds an additional 50 cents tax per pack.


            Current law provides that increasing the cigarette tax  
            triggers an automatic tobacco products tax increase.   
            Specifically, a provision of Proposition 99 requires the BOE  
            to annually determine the tobacco products tax rate at a rate  
            equivalent to the combined rate of all taxes imposed on  
            cigarettes.  Additionally, because the cigarette tax increase  
            and indirect tobacco products tax will be included in the  
            total sales price, the bill will increased sales tax revenues.  
             

          3)The Lanterman Act.  The Lanterman Developmental Disabilities  
            Services Act establishes an entitlement to services and  
            supports for Californians with developmental disabilities,  
            defined as a disability originating before the age of 18, that  
            can be expected to continue, indefinitely, and constitutes a  
            substantial disability. Approximately 290,000 children and  
            adults with developmental disabilities are served in  
            community-based programs and supported by state- and federally  
            funded services that are coordinated by 21 local, nonprofit  
            regional centers. An additional 1,100 individuals are served  
            in four state-run institutions, including three Developmental  
            Centers. Approximately 45,000 agencies provide services in  
            more than 150 service category types including residential  
            care, day programs, behavioral therapies, independent and  
            supported living, supported employment, respite,  
            transportation and many others. 

            Since 2009, the state has reduced costs to community-based  
            developmental services programs by more than $1 billion (GF)  
            including restrictions on payments for specific services, caps  
            on costs provided for other services, across-the-board  
            reductions, mandated holidays and other cuts. Prior to the  







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            2009 cost-containment measures, the state had frozen rates to  
            providers in order to contain costs. Regional centers also  
            have struggled with heavy caseloads and low salary  
            reimbursements during this time period. 

          4)In-Home Supportive Services. The IHSS program provides  
            personal care services to approximately 420,000 qualified  
            low-income individuals who are aged (over 65), blind, or who  
            have disabilities. Services include tasks like feeding,  
            bathing, bowel and bladder care, meal preparation and  
            clean-up, laundry, and paramedical care. These services  
            frequently help program recipients to avoid or delay placement  
            in institutional care settings. The average annual cost of  
            services per IHSS client is estimated to be around $14,217  
            ($1,185 per client per month) for 2015-16.

            In December 2011, as a part of the Governor's budget trigger  
            package that took effect as a result of lower than anticipated  
            state revenues, a 20% across-the-board reduction of IHSS hours  
            was imposed. A federal district court prevented the reduction  
            from taking effect, pending the outcome of litigation. In  
            March 2013, the Administration and plaintiffs (labor unions  
            and disability rights advocates) announced a settlement  
            agreement from an 8% across-the-board reduction to authorized  
            service hours, effective July 1, 2013, and a 7%  
            across-the-board reduction to service hours July 1, 2014. The  
            settlement agreement includes a provision to "trigger off" the  
            ongoing reduction of up to 7%-in whole or in part-as a result  
            of enhanced federal funding received pursuant to an  
            "assessment" (a provider tax under Medicaid law) on home  
            health care services, including IHSS. 

            DHCS was required by statute to submit a proposal for its  
            implementation to the federal government by October 2014, but  
            the Administration instead submitted a letter to the  
            Legislature in August 2014, indicating that it had worked in  
            good-faith to develop a federally-compliant proposal but,  
            given the new federal guidance on health care related taxes,  
            it was unable to meet the deadline. The letter indicated that  
            the Administration would work with all parties on viable  
            legislation early in the 2015-16 session. Instead, the  
            Governor's budget included a proposal to create a new MCO tax,  
            which is projected to raise for 2015-16 an additional $215.6  
            million GF in revenues (to be matched with federal funds) to  







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            fully restore the 7% reduction in IHSS hours.

          5)MCO tax. California's existing MCO tax imposes a 3.9% tax on  
            the total revenue received by MCOs through their Medi-Cal  
            managed care plans. This existing tax holds the MCOs harmless  
            and generates funding to offset other GF costs. According to  
            the Senate Budget Subcommittee on Health and Human Services,  
            for 2015-16, the current MCO tax is projected to generate  
            $1.13 billion in non-federal funding for the Medi-Cal program.  
            The revenues are deposited into the Children's Health and  
            Human Services Special Fund. Half of the MCO tax revenues are  
            used to draw down federal Medi-Cal funds and then used to pay  
            back Medi-Cal managed care plans in order to "make them  
            whole." The other half of these funds is used to offset GF  
            expenditures for Medi-Cal managed care rates for children,  
            seniors and persons with disabilities, and dual eligibles.  
            California's current MCO tax sunsets on July 1, 2016.

            In a July 2014 letter to State Medicaid Directors, the federal  
            Centers for Medicare and Medicaid Services (CMS) indicates  
            that taxes structured like California's current MCO tax will  
            likely be considered health care-related taxes that would have  
            to meet Medicaid requirements. This means the tax must: 

               a)     Be applied to all providers in a class (meaning the  
                 tax must be applied to all MCOs and not just MCOs  
                 providing services to Medi-Cal beneficiaries, unless a  
                 waiver is obtained); 
               b)     Applied at the same rate for all payers of the tax  
                 (unless a federal waiver is obtained); and, 
               c)     Cannot directly or indirectly guarantee that  
                 providers receive their tax back. 

            The federal deadline for states to reform tax structures that  
            are out of compliance is the end of the states' legislative  
            session, which is August 31, 2016 for California.

            The Administration revised its MCO proposal in early September  
            2015. This revised tax continues to use enrollment ranges with  
            tax tiers for enrollment in each range, but it taxes Medi-Cal  
            enrollees at a higher amount than non-Medi-Cal enrollees. The  
            revised proposal continues to generate roughly the same amount  
            of revenue ($1.3 billion GF net to the state), but reduces the  
            net impact to managed care plans from the Administration's  







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            prior proposal of $669 million, to $317 million. A more recent  
            proposal further reduces the net impact to the plans to $114  
            million by selectively reducing corporate, gross premiums and  
            corporate tax rates for plans paying the MCO tax, and by  
            increasing some of the MCO taxing tier amounts and by  
            exempting three plans from the MCO tax entirely. In addition,  
            the revised proposal reduces the net impact to every plan,  
            significantly reduces tax rates for non-Medi-Cal lives and  
            reduces the differential between tiers for non-Medi-Cal  
            enrollees from the previous proposal, particularly for those  
            middle tiers that had the burden of the highest rates under  
            the Administration's prior proposal.

          FISCAL EFFECT:   Appropriation:    Yes         Fiscal  
          Com.:YesLocal:   Yes

          According to the Senate Appropriations Committee:

           Tobacco Tax Revenues. Estimated total annual revenue increase  
            of $1.3 billion per year from taxes paid on cigarettes and  
            other tobacco products ($1.2 billion per year) and electronic  
            cigarettes ($100 million per year ) (General Fund).

           Tobacco Tax Expenditures. The bill specifies that revenues  
            resulting from the increased tobacco tax will be spent as  
            follows:

               o      Ongoing costs of about $100 million per year to  
                 backfill existing programs supported with tobacco tax  
                 revenues (General Fund). Under current law, existing  
                 tobacco tax revenues are used to support Breast Cancer  
                 Research, programs supported by Proposition 99 (including  
                 public health and environmental protection programs), and  
                 programs supported by Proposition 10 (for early childhood  
                 education). The bill requires that reductions in existing  
                 tobacco tax revenues for those programs (due to declining  
                 tobacco use resulting from higher overall taxes) would be  
                 backfilled with revenue from the additional tobacco tax  
                 imposed by the bill. (Note that the bill does not require  
                 new tobacco tax revenues to be used to backfill the  
                 portion of the tobacco tax that is deposited in the  
                 General Fund.)









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               o      Ongoing costs up to $12 million per year for  
                 administration and enforcement by the Board of  
                 Equalization (General Fund). The bill authorizes the  
                 Board of Equalization to use up to 1% of new tax revenues  
                 (after backfilling existing programs) for administration  
                 and enforcement.


               o      Annual costs of $400,000 per year for required  
                 audits of tobacco tax revenues by the Bureau of State  
                 Audits (General Fund).


               o      Annual costs of $40 million per year to support  
                 physician training programs within the University of  
                 California System (General Fund).


               o      Annual costs of $48 million per year for enforcement  
                 programs at the local level, the Board of Equalization,  
                 the Department of Public Health, and the Attorney  
                 General's Office (General Fund).


               o      Annual costs up to about $900 million per year for  
                 increased payments to Medi-Cal providers (General Fund).  
                 The bill provides that 82% new tobacco tax revenues  
                 (after accounting for the above expenditures) shall be  
                 used by the Department of Health Care Services to augment  
                 payments to Medi-Cal providers. The General Fund monies  
                 allocated in the bill would be augmented with federal  
                 matching funds, more than doubling the actual amount of  
                 payments made to Medi-Cal providers. 


               o      Annual costs up to about $140 million per year for  
                 tobacco prevention and control programs by the Department  
                 of Public Health and the Department of Education (General  
                 Fund). 


               o      Annual costs up to about $55 million per year for  
                 research on tobacco-related diseases by the University of  
                 California (General Fund). Similar to the increase in  







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                 Medi-Cal provider payments, the actual amount of funding  
                 that would be available will be reduced by any backfill  
                 of existing programs.


           Managed Care Organization Tax Revenues. Annual revenues of  
            $1.939 billion per year in tax revenues paid by managed care  
            organizations, including those providing services under the  
            Medi-Cal program and those managed care plans that do not  
            contract with the Medi-Cal program (General Fund).

           Managed Care Organization Tax Expenditures. The bill would  
            allocate the resulting revenues as follows:

               o      Annual costs of $1.645 billion to provide increased  
                 capitation payments to Medi-Cal managed care plans ($576  
                 million from the Managed Care Organization Tax revenues  
                 and $1.069 billion in matching federal funds).


               o      Annual costs of $230 million per year to increase  
                 provider rates in the regional center system for services  
                 provided to individuals with developmental disabilities  
                 and increases in regional center operational budgets.


               o      Annual General Fund revenues of $1.133 billion used  
                 to offset current expenditures in the Medi-Cal program  
                 (General Fund).


           Other state costs. In addition to the dedication of new  
            revenues for specific expenditures, the may impose other  
            direct costs on the state.

           Potential increased Proposition 98 funding obligation. The  
            bill may result in additional state funding obligations for  
            education (General Fund). The state constitution generally  
            requires the state to make payments for K-14 education equal  
            to about 50% of annual General Fund revenues. (The actual  
            funding formulas for Proposition 98 are complex and vary from  
            year to year based on economic conditions and state  
            budgeting.) Historically, the state has not counted revenues  
            from the existing Managed Care Organization Tax towards the  







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            Proposition 98 funding requirement. However, because this  
            measure imposes new taxes, the resulting revenues may be  
            subject to the requirements of Proposition 98. The state could  
            therefore be obligated to increase payments for education on  
            average by about 50% of the resulting revenues - in this case  
            about $650 million per year due to the increased tobacco tax  
            and $970 million per year due to the Managed Care Organization  
            Tax.

               o      IHHS restoration. Ongoing annual costs of $275  
                 million (General Fund only) to restore an existing 7%  
                 reduction in In-Home Supportive Services hours.


               o      Cost to the state through CalPERS managed care  
                 plans. Annual costs to the state of about $11 million per  
                 year, due to the cost of the Managed Care Organization  
                 Tax on CalPERS plans (General Fund and special funds).  
                 CalPERS health care plans would be subject to the tax as  
                 commercial managed care plans. Presumably those  
                 contracting managed care plans would pass along the  
                 increased tax cost to the state through higher premiums.


               o      Ongoing reduction in General Fund tobacco tax  
                 revenue. By increasing tobacco taxes, the bill will  
                 reduce overall consumption of tobacco products, reducing  
                 revenues from the existing tobacco taxes. Based on the  
                 projected reduction in consumption, the bill will result  
                 in an annual reduction of about $14 million per year in  
                 tobacco tax revenue that is deposited in the General  
                 Fund. Unlike the other programs supported by existing  
                 tobacco tax revenues, the reduced General Fund revenue  
                 would not be backfilled with new tobacco tax revenue.



          SUPPORT:   (Verified2/5/16)




          American Federation of State, County and Municipal Employees,  
          AFL-CIO 







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          American Lung Association in California


          OPPOSITION:   (Verified2/5/16)


          Bay Area Council
          California Business Roundtable
          California Chamber of Commerce
          California Manufacturing & Technology Association
          California Taxpayers Association
          Greater San Fernando Valley Chamber of Commerce
          Los Angeles Area Chamber of Commerce
          Pacific Business Group on Health
          Simi Valley Chamber of Commerce


          ARGUMENTS IN SUPPORT:     The American Federation of State,  
          County and Municipal Employees (AFSCME) writes in support of  
          this measure that without a permanent funding source, the state  
          will reinstate the 7% cut in IHSS hours on July 1, 2016, which  
          would be a terrible injustice to the hundreds of thousands of  
          Californians who rely on the IHSS program to live independently  
          and safely in their homes. AFSCME states these cuts were  
          devastating to all IHSS recipients but particularly so to  
          families with developmental disabled loved ones who rely heavily  
          on the IHSS program.


          ARGUMENTS IN OPPOSITION:     The California Taxpayers  
          Association (CalTax) writes in opposition to the $2 per pack  
          cigarette tax and the equivalent rate imposed on other tobacco  
          products and e cigarettes. CalTax writes that relying on a  
          declining revenue source to fund important programs creates  
          long-term funding shortfalls that can be paid for only through  
          siphoning revenue from other budgetary needs or through  
          additional tax increases. In addition, CalTax argues this tax is  
          a regressive tax that has a greater burden on lower- and  
          middle-income taxpayers, and this bill will provide a financial  
          windfall for criminals as higher taxes create an increased  
          incentive for the black market and this problem would worsen  
          should the tax increase by $2 a pack. 









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          Prepared by:Scott Bain / HEALTH / 
          2/9/16 10:28:58


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