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LEAGUE OF WOMEN VOTERS OF CALIFORNIA EDUCATION FUND Nonpartisan In Depth Analysis of Proposition 10 STATE AND COUNTY EARLY CHILDHOOD DEVELOPMENT PROGRAMS. ADDITIONAL TOBACCO SURTAX.

Initiative Constitutional Amendment and Statute

THE QUESTION

Should an additional tobacco surtax be levied to fund early childhood development and anti-smoking programs throughout the state?

PROVISIONS

Proposition 10, the California Children and Families First Act of 1998, would:

• create a new state commission, the California Children and Families First Commission, to develop statewide program guidelines.
  • The state commission would be allocated twenty percent of the available revenues for (a) educating the general public on methods of encouraging proper child development and selecting child care, health and social services, (b) designing educational materials and training programs for parents and professionals, (c) developing educational programs and guidelines for child care providers, and (d) conducting research on and evaluating programs and services.

  • The commission would consist of seven appointed voting members and two ex officio nonvoting members, the Secretary of Health and Welfare and the Secretary of Child Development and Education.

• create county commissions to develop strategic plans with an emphasis on new programs.
  • Eighty percent of the revenues would go to counties that create commissions to establish programs that supplement and do not replace existing service levels. The commissions would consist of five to nine members appointed by the county board of supervisors, who would serve without pay. Two or more counties could form a joint commission.

• impose an additional 50 cents per pack tax on cigarettes to fund these programs. The total state excise tax would become 87 cents per pack.

• increase the excise tax on other kinds of tobacco products, such as chewing tobacco, pipe tobacco, snuff, and cigars, in two ways:
  • It imposes a new excise tax on the above products that equals a 50 cent per pack tax on cigarettes.

  • Current law requires that any increase in the tax on cigarettes automatically triggers tax increases on other tobacco products. Thus Proposition 10 increases the existing excise tax on the above tobacco products by another tax increase equivalent to 50 cents per pack. This would make the total increase in state excise taxes on these other tobacco products equivalent to an increase of $1 per pack in the tax on cigarettes.

The measure differentiates between the uses of revenues from the above new excise taxes and from the increase in the existing excise tax on other tobacco products. New excise tax revenues would be placed in a special fund—the California Children and Families First Trust Fund, which would be used to:

• fund the early childhood development programs administered by the new state and county commissions

• offset tax revenue losses, caused by the expected decline in tobacco sales resulting from the new tax, to health education or research programs established with funds from the Proposition 99 cigarette tax (25 cents per pack) and to Breast Cancer Fund-supported research and programs. If the revenue from existing tobacco taxes should decrease because of this Act, funds will be transferred from the California Children and Families First Trust Fund. The cost of implementing the Act will be paid from the trust funds.

Revenues raised can only be used for purposes outlined in the Act and then only to supplement, not supplant, state or local General Fund money.

In addition, the state Constitution would be amended to exclude new tax revenues from the provisions of Proposition 98, a 1988 initiative that dedicates a portion of general tax revenues to schools. The measure also amends the Constitution to exclude the use of new revenues from existing state and local government appropriations limits.

BACKGROUND

Early childhood development programs

Research demonstrates that the first five years of life are the critical period for a child's brain growth and development. To promote the development of healthy, well-adjusted adults a variety of federal, state and local programs have been established; examples are Head Start, the State Preschool Program, Child Care Food Program, and the Early Mental Health Initiative. These programs generally focus on the physical, social, emotional, and cognitive development of young children, particularly the disadvantaged. However, surveys indicate that affordable, accessible childcare programs are still in critically short supply for employed, low income families.

Tobacco taxes

California currently imposes an excise tax on cigarettes of 37 cents per pack:

• 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, which was established by Proposition 99 (1988). This Fund is 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).

Equivalent excise taxes are imposed on cigars, chewing tobacco, pipe tobacco, and other tobacco products; all of this revenue goes to the Cigarette and Tobacco Products Surtax Fund. The federal tax on cigarettes is currently 24 cents per pack. Californians therefore now pay a total cigarette tax of 61 cents per pack. Proposition 10 would increase this to $1.11 per pack of cigarettes.

In the first five years after California voters passed the Tobacco Tax Initiative (Proposition 99) in 1988, tobacco use declined 27 percent, three times faster than the U.S. average. This caused a decline in revenues from tobacco taxes and also one million fewer smokers in this state and an estimated savings of $211 million in direct health care costs each year, according to principal investigator John P. Pierce, a professor of cancer research.

In 1997-98 cigarette and tobacco product state excise taxes raised about $450 million for Proposition 99 programs, $33 million for Breast Cancer Fund, and $165 million for the General Fund.

FISCAL EFFECT

The Legislative Analyst estimates that this measure will raise revenues for the new California Children and Families First Trust Fund of approximately $400 million in 1998-99 (half year) and about $750 million in 1999-00 (first full year). Annual amounts will decline slightly after that.

The revenues generated by this measure will be adequate to fund the state and county costs for program and administration. However, the Legislative Analyst estimates that Proposition 10 would cause a decrease in taxable sales of tobacco products because (1) it would result in a decrease in consumption of tobacco products; and (2) it is likely to result in some increase in out-of-state sales of tobacco products, which would not be taxed. This would result in reduced revenues for Proposition 99 health care and resources programs of about $18 million in 1998-99 and $7 million annually thereafter.

Because sales taxes would increase with the increase in price for tobacco products, the General Fund would receive about $2 million in additional revenues in 1998-99 and $4 million annually thereafter. Local government sales tax revenues would increase by $3 million in 1998-99 and $6 million annually. The fiscal effect of reduced health care costs due to the anti-smoking campaign can not be accurately anticipated.

A YES vote means: An additional surtax on cigarettes of 50 cents per pack and an equivalent amount on other tobacco products will be imposed to fund early childhood development and anti-smoking programs throughout the state.

A NO vote means an additional surtax will not be added to cigarettes and tobacco products and the California Children and Families First Act will not be approved.

SUPPORTERS SAY

• This measure gives our youngest children the healthy foundation they need to succeed in school and in life.

• Higher excise taxes on cigarettes and other tobacco products would encourage more smokers to quit.

• California's resources for anti-smoking campaigns would be more than doubled.

• Counties would receive most of the revenues and have control over the programs.

OPPONENTS SAY

• Proposition 10 would create unnecessary state and county commissions.

• This proposition duplicates existing programs for children and families.

• Millions of tax dollars would be directed to unspecified programs.

• California schools would not get these new revenues.

• This measure exempts itself from a constitutional limit on state spending.

SUPPORT AND OPPOSITION

The official ballot arguments in support are signed by Rob Reiner, Chairman, "I am Your Child" Campaign; Alan Henderson, Dr. PH, President, American Cancer Society, California Division; and John D'Amelio, President, California School Boards Association.

The official ballot arguments in opposition are signed by Jane Armstrong, State Chairman, Alliance of California Taxpayers and Involved Voters; Helena Rutowski, member, Westminster School Board; and Dr. Ken Wilson, Family Physician.

For more information:
Supporters: www.children98.org, 800-847-4743
Opponents: www.defeatprop10.com, 916-446-6667

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Last updated: September 13, 1998
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