November, 1998
Early Childhood Development Programs. Currently, state and local governments administer a variety of early childhood development programs, such as the Head Start Program, the State Preschool Program, and the Early Mental Health Initiative. In general, these types of programs focus on the social, emotional, and/or cognitive development of young children.
Tobacco Taxes. Current state law imposes an excise tax on cigarettes, which amounts to 37 cents for each pack. Of this amount, 25 cents is allocated to the Cigarette and Tobacco Products Surtax Fund (established by Proposition 99 of 1988), 10 cents is allocated for state General Fund purposes, and 2 cents is allocated to the Breast Cancer Fund. Cigarette and Tobacco Products Surtax Fund monies are earmarked for programs to reduce smoking, to provide health care services to indigents, to support tobacco-related research, and to fund resources programs (primarily in the Departments of Fish and Game and Parks and Recreation). The Breast Cancer Fund supports research and services related to breast cancer.
Current state law also imposes an excise tax on other tobacco products--such as cigars, chewing tobacco, pipe tobacco, and snuff. This excise tax is equivalent to the excise tax on cigarettes (if both taxes were calculated as a percentage of the wholesale costs of these products). All of these tax revenues are allocated to the Cigarette and Tobacco Products Surtax Fund for Proposition 99 programs.
Cigarette and tobacco product taxes are administered by the State Board of Equalization. In 1997-98, these state excise taxes generated about $450 million for Proposition 99 programs, $33 million for the Breast Cancer Fund, and $165 million for the General Fund.
In addition to the state excise tax, there is currently a federal excise tax on cigarettes of 24 cents per pack, as well as federal excise taxes (in varying amounts) on other tobacco products.
This measure imposes an additional excise tax on cigarettes of 50 cents per pack. The total state excise tax, therefore, would be 87 cents per pack.
The measure also increases the excise tax on other types of tobacco products--such as cigars, chewing tobacco, pipe tobacco, and snuff--in two ways:
Thus, the measure increases the excise taxes on other tobacco products in total by the equivalent of a $1 per pack increase in the tax on cigarettes.
The measure requires that the revenues generated by the new excise taxes on cigarettes and other tobacco products be placed in a new special fund--the California Children and Families First Trust Fund. These revenues would:
The revenues resulting from the increase in the existing excise tax on other tobacco products would be placed in the Cigarette and Tobacco Products Surtax Fund (for Proposition 99 programs).
The additional excise tax on cigarettes would begin January 1, 1999. The increase in the excise tax on other tobacco products would begin July 1, 1999.
The measure establishes the California Children and Families First Program to promote and develop early childhood development programs. The program would be funded by the revenues resulting from the increased tax on cigarettes and other tobacco products. The new program would be carried out by state and county commissions.
State Commission. The measure creates a new state commission--the California Children and Families First Commission--which would be responsible for administration of the early childhood development program. The commission would be composed of seven voting members (appointed by the Governor, the Speaker of the Assembly, and the Senate Rules Committee) and two ex officio nonvoting members.
The commission would develop statewide program guidelines, distribute educational materials, provide technical assistance to the county commissions, and conduct research and evaluations of early childhood development programs. The program guidelines must address parenting education and related support services; the availability and provision of high quality, accessible, and affordable child care; and the provision of specified types of child health care and prenatal and postnatal maternal health care services.
Twenty percent of the available revenues would be allocated to the state commission, to be spent for the following purposes:
County Commissions. Eighty percent of the available revenues would be allocated to counties that create county commissions (consisting of five to nine members appointed by the county board of supervisors) to implement programs in accordance with strategic plans to support and improve early childhood development in the county. The formula for allocating these funds is based on the number of births in each participating county. The strategic plans must be consistent with guidelines adopted by the state commission. Two or more counties could form a joint county commission, adopt a joint county strategic plan, or implement joint programs, services, or projects.
The measure requires that funds be used to supplement and not replace existing service levels. In addition, the measure amends the California Constitution to provide that (1) the new tax revenues shall not be considered General Fund revenues for the purposes of determining the level of funding to be provided for public schools pursuant to Proposition 98 of 1988, and (2) the appropriation of revenues from the additional taxes imposed by the measure shall not be subject to the existing state or local appropriations limits. (Current law places limits on the level of certain appropriations made by the state and local governments.)
New Revenues and Expenditures--The California Children and Families First Trust Fund. The measure would raise revenues of approximately $400 million in 1998-99 (half year) and about $750 million in 1999-00 (first full year), and slightly declining amounts annually thereafter, for the new California Children and Families First Trust Fund.
This estimate assumes that the distributors of cigarettes and other tobacco products would likely pass the full amount of the tax increase along to consumers in the form of higher prices. This, in turn, is likely to cause a decrease in taxable sales within the state for two reasons:
This decrease in sales would reduce revenues from existing state excise taxes on tobacco products for the Breast Cancer Fund and the Cigarette and Tobacco Products Surtax Fund.
Most of the revenues generated by this measure would be available to fund the costs of the California Children and Families First Program. This includes the administrative costs for the new state and county commissions and the costs of program activities. Additionally, a small amount of the new revenues (less than 1 percent) would be used to offset revenue losses to the Breast Cancer Fund. Also, about 2 percent of the new revenues would be used to offset losses to the Cigarette and Tobacco Product Surtax Fund in 1998-99, and less than 1 percent in subsequent years, as discussed below.
Other Costs. The State Board of Equalization would incur administration and enforcement costs, related to the additional excise taxes, of about $800,000 in 1998-99, $850,000 in 1999-00, and $600,000 annually thereafter. These costs would be reimbursed out of the proceeds of the new taxes.
Effect on Cigarette and Tobacco Products Surtax Fund Revenues. The measure would result in a decrease in revenues to the Cigarette and Tobacco Products Surtax Fund (Proposition 99). The decrease is due to two offsetting factors. First, to the extent that the measure results in a reduction in overall tobacco product sales, it would decrease the revenues resulting from the existing excise taxes on these products. Second, the measure would increase the revenues resulting from the existing excise tax on other tobacco products (cigars, snuff, etc.) that are allocated to the Cigarette and Tobacco Products Surtax Fund. As noted above, this occurs because the measure triggers an increase in this existing excise tax.
The measure requires that the revenue losses to Proposition 99 health-related education and research programs be offset by revenues resulting from the new excise taxes established by this measure. However, revenue reductions to Proposition 99 health care and resources programs would not be offset. We estimate net revenue losses of about $18 million in 1998-99 and $7 million annually thereafter for Proposition 99 health care and resources programs.
Effect on the State General Fund and Local Tax Revenues. The measure would result in a net increase in state General Fund revenues of about $2 million in 1998-99 and $4 million annually thereafter. These net increases are due to the measure's effect on: (1) sales tax revenues (which increase because the measure would increase the price of tobacco products) and (2) existing cigarette excise tax revenues (which would decrease due to reduced sales). Also, there would be a net increase in local government sales tax revenues of about $3 million in 1998-99 and $6 million annually thereafter.
Potential Long-Term Savings. The use of tobacco products has been linked to various adverse health effects by the United States Surgeon General and numerous scientific studies. The state and local governments incur costs for providing (1) health care for low-income persons and (2) health insurance coverage for state and local government employees. Consequently, changes in state law that affect the health of the general populace--and low-income persons and public employees in particular--would affect publicly funded health care costs. To the extent that this measure results in a decrease in the consumption of tobacco products, it would probably reduce state and local health care costs over the long term. The magnitude of these savings is unknown.
Due to the potential effects of the additional expenditures on early childhood development programs, the measure also could result in state and local savings over the long term in programs such as special education. The amount of such potential savings is unknown.