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LEAGUE OF WOMEN VOTERS OF CALIFORNIA EDUCATION FUND Nonpartisan In Depth Analysis of PROPOSITION 28 REPEAL OF PROPOSITION 10 TOBACCO SURTAX

Initiative Statute

THE QUESTION

Should the surtax on cigarettes and tobacco products enacted by Proposition 10 of 1998 be repealed, and its funding for early childhood development and anti-smoking programs be eliminated?

PROVISIONS

• Proposition 28 would repeal the increase in state excise tax on tobacco products approved by the voters as Proposition 10 in November 1998.

• The measure would decrease the amount of state excise tax imposed on a pack of cigarettes from 87 cents to 37 cents.

• Newly planned early childhood development programs as well as smoking and substance abuse prevention programs resulting from Proposition 10 activities would lose their source of funding.

• This proposal would prohibit any future increase of surtaxes on tobacco products unless passed by the state legislature.

BACKGROUND

Voters narrowly passed Proposition 10, called "State and County Early Childhood Development Programs. Additional Tobacco Surtax," on November 3, 1998. The vote was 50.5% "For" and 49.5% "Against."

Recognizing the research which shows that the first five years of life are the critical period for a child's brain growth, Proposition 10 seeks to promote the development of healthy, well-adjusted children. Successful model programs such as Head Start, the State Preschool Program, Child Care Food Program, and the Early Mental Health Initiative are in critically short supply for employed low-income families.

Starting on January 1, 1999, California imposed a total excise tax of 87 cents per pack of cigarettes:

• 50 cents goes to the California Children and Families First Trust Fund (Proposition 10)
• 10 cents goes to the General Fund
• 2 cents goes to the Breast Cancer Fund
• 25 cents goes to the Cigarette and Tobacco Products Surtax Fund (Proposition 99--1988)

In addition, the federal tax on cigarettes is currently 24 cents per pack.

The excise tax on other tobacco products such as chewing tobacco, cigars, and pipe tobacco was increased in two ways:

• A new excise tax equivalent to the 50 cents per pack rate for cigarettes was imposed beginning January 1, 1999.

• The preexisting excise tax was increased by an additional equivalent of 50 cents per pack on July 1, 1999. (This effect occurred because under pre-Proposition 10 law, an increased tax on cigarettes also triggers an increased tax on other tobacco products.)

Revenues derived from Proposition 10 are used to fund early childhood development programs as well as anti-smoking and substance abuse prevention programs. The Legislative Analyst has estimated that revenues from the new tax were expected to be nearly $360 million in 1998-1999 and climb to about $690 million in 1999-2000. The revenues are expected to decline somewhat in ensuing years. The decline is attributed to a predicted decline in smoking rates.

The new program is governed by the appointed state Children and Families First Commission as well as commissions appointed in each county of California. The state commission, which receives 20% of the surtax revenues, is directed to spend budgeted money on specific efforts that promote educational activities and support for childcare providers. The state commission is also charged with conducting research on and evaluating programs and services derived from this proposition.

The remaining 80% of tobacco surtax monies are distributed to the local county commissions that are directed to devise strategic plans to promote early childhood development programs in each county. Programs are designed to supplement but not replace existing services. Counties are awarded funding based upon their local birth rates.

In addition, about one percent of the tax money derived from Proposition 10 is used to offset losses to the Breast Cancer Fund and the Cigarette and Tobacco Surtax Fund (Proposition 99) due to predicted declining tobacco sales.

Proposition 28 would repeal the tobacco surtax established by Proposition 10 and therefore eliminate funding of the California Children and Families First Programs. Without a source of funding, the newly appointed state and county commissions would probably cease to function.

FISCAL EFFECT

Proposition 28 would eliminate all funding for programs planned under Proposition 10. The Legislative Analyst has identified six revenue impacts if Proposition 28 were to pass:

• The California Children and Families First Trust Fund revenues would be eliminated completely and all of its associated programs would cease operations. Estimated revenue loss for the 1999-2000 partial year would be $215 million. The estimated yearly revenue loss for the 2000-2001 fiscal year would be $670 million.

• The Cigarette and Tobacco Surtax Fund revenues would increase by a few million dollars annually since there would probably be an increase in the sale of cigarettes and other tobacco products due to the price reduction.

• Breast Cancer Fund revenues: The Legislative Analyst sees no net effect on money going to this fund if this measure passes.

• State General Fund and local tax revenues: The Legislative Analyst estimates that the General Fund will lose about seven million dollars per fiscal year if this proposition passes. Excise tax revenues from higher sales will not offset a decrease in sales tax revenue after the surtax is eliminated.

• Fiscal savings from the impact of a decrease in smoking and subsequent improvement of the public's health: Under Proposition 10, state and county health care costs may be reduced due to reduction of tobacco use. Smoking has already declined 30% since the passage of the proposition. The passage of Proposition 28 would eliminate these potential savings.

• Savings derived from the impact of the California Children and Families First programs: Any potential savings which result from the effectiveness of the Family First programs would not be realized if Proposition 28 passes. Examples include savings derived from a decline in the need for special education services or for juvenile justice programs.

IMPACT OF YES OR NO VOTE

A YES vote means that the surtax of 50 cents per pack of cigarettes and commensurate increases on other tobacco products, provided by Proposition 10 to fund early childhood development programs and anti-smoking and substance abuse programs, would be repealed.

A NO vote means Proposition 10 would remain in effect, including the 50 cents per pack cigarette tax imposed last year.

SUPPORTERS SAY

• Proposition 10 duplicates existing programs for children and families.

• Proposition 10 has created unnecessary state and county commissions and is an unwarranted governmental intrusion into the parent/child relationship.

• Proposition 28 repeals a fundamentally flawed program. There is not enough oversight built into Proposition 10--the potential for wasting money is real.

• None of the Proposition 10 funds have been spent yet.

OPPONENTS SAY

• Proposition 28 would eliminate millions of dollars in newly planned programs that benefit the most needy young children and their families.

• This measure would eliminate anti-smoking programs that would benefit pregnant women and their babies.

• Tobacco sales have already decreased by 30% in the state since Proposition 10 passed, and what the tobacco companies fear most is lost revenues due to declining smoking rates.

• Fiscal benefits of Proposition 10 are certain to be realized from a further decrease in smoking and in problems prevented through early childhood intervention programs.

SUPPORT AND OPPOSITION

The official ballot arguments in support are signed by Ned Roscoe, President, Cigarettes Cheaper! stores.

The official ballot arguments in opposition are signed by Paul Murata, M.D., President, American Cancer Society, California Division; William D. Novelli, President, Campaign for Tobacco-Free Kids; Kay McVay, R.N., President, California Nurses Association; Jacqueline Antee, State President, American Association of Retired Persons; Rosalyn Bienenstock, R.R.T., M.P.H., Chair, American Lung Association of California; and Mary Bergan, President, California Federation of Teachers.

Other opponents mentioned in the ballot arguments include the American Heart Association of California, California Medical Association, California School Boards Association, Child Care Resource & Referral Network, Para Los Ninos Child Development Center, and Wu Yee Children's Services.

For more information:

Supporters: Ned Roscoe, President of Cigarettes Cheaper!, 1-800-Cheaper, www.voteprop28.com

Opponents: No on Prop 28 Campaign, 310-247-7422, email Info@NoOnProp28.org, www.NoOnProp28.org

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Last updated: January 24, 2000
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