CALIFORNIA POLITICS

California health and child-welfare agency may seek increase in tobacco tax

A California health and child-welfare agency urges a boost in tobacco tax to make up for lost revenue

With smoking on the decline and cigarette sales continuing to fall in California, a state health and child-welfare agency that relies on tobacco taxes for funding is exploring new ways to get money.

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For the record

Nov. 19, 2014, 9:32 p.m.: An earlier headline on this article incorrectly stated that First 5 California is urging an increase in the tobacco tax. The agency is considering options but has not endorsed a proposal.

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Under preliminary consideration are proposals to push state lawmakers to tax "e-cigarettes" or increase existing taxes on tobacco products — and even to snag a share of any tax revenue from legalized marijuana sales if California decides to go that route.

The agency considering those options, First 5 California, is among a group of agencies and health organizations supported by California's web of tobacco taxes, which brought in an estimated $835 million in the 2013-14 fiscal year, a decline from $1.2 billion in 1999-2000, a year after cigarette taxes last rose.

First 5 and its branches in each county use the money for prenatal care, programs for children with autism, dental and health care for children, and other programs to assist with early childhood development and education. California also uses tobacco taxes to pay for anti-smoking media campaigns, breast cancer research and medical care for the poor.

The number of cigarette packs sold annually in California dropped from nearly 1.4 billion in 1999-2000 to an estimated 871 million in 2013-14, state tax records show. Not quite 14% of adults in the state smoke, according to the Centers for Disease Control — the second-lowest smoking rate in the nation, after Utah.

"These reductions in smoking represent success in California," said UC San Francisco tobacco expert Stanton A. Glantz, an outspoken critic of the tobacco industry.

But he says California trails the rest of the country when it comes to taxing cigarettes and could save billions of dollars in annual healthcare costs if it raised the tax to speed up the drop in smoking. California charges 87 cents a pack in taxes, ranking 33rd in the nation. By contrast, New York taxes cigarettes $4.35 a pack.

"The political class has not been willing to increase the tobacco tax" in California, Glantz said.

The drop in tobacco-tax income was expected, said Frank Furtek, chief counsel for First 5.

"The goal is to have no commission, because that means smoking would have stopped," Furtek said. "It is a good thing that our revenue is declining. The bad thing is that we have less money for early childhood development."

The drop has prompted the agency to explore alternative funding sources. Furtek emphasized that the commission has not endorsed any proposal so far, and it could only recommend options to state lawmakers or, potentially, proponents of a ballot initiative to legalize recreational use of marijuana.

An independent push for higher cigarette taxes is just getting underway. A coalition of public health, labor and medical groups this week announced that it would campaign for an additional $2 per pack.

Supporters of that idea say such new revenue would defray the cost of state-paid healthcare, support smoking prevention programs, subsidize University of California research on cancer and other tobacco-related diseases, and fund law enforcement efforts to crack down on tax evasion and cigarette smuggling.

The proposal's backers include the American Cancer Society Cancer Action Network, the California Medical Assn. and the Service Employees International Union.

"Right now our goal is to build a movement that ensures by this time two years from now ... that we have a new $2 tobacco tax," said Kimberly Amazeen, vice president of public policy and advocacy for the American Lung Assn. in California.

Amazeen said the coalition was considering both a legislative push and an initiative for the 2016 ballot.

Similar efforts have failed in recent years.

A 2006 initiative that would have imposed an additional $2.60 per pack failed. A 2012 ballot measure would have added $1, but voters rejected it. Newly installed state Senate leader Kevin De León (D-Los Angeles) proposed a $2-a-pack tax hike in a 2013 bill, but it died in committee.

David Sutton, spokesman for tobacco giant Altria, which owns Philip Morris, criticized the new proposal, saying it would create a market for counterfeit and contraband tobacco products.

Tax hikes "harm states because they increase the incentives for adult tobacco consumers to buy tobacco products through lower-taxed or untaxed sources," Sutton said. "It would be costly to legitimate businesses … including retailers and wholesalers in California. It would put [taxes] significantly higher than those of surrounding states" including Nevada and Arizona.

Since 2011, Altria and R.J. Reynolds have contributed nearly $51 million to California candidates, political parties and ballot measure campaigns; the bulk of it went toward opposing the 2012 ballot measure. The companies also have spent a combined $4.1 million on lobbying in Sacramento.

California began steadily increasing cigarette taxes in the late 1980s through ballot initiatives and Sacramento legislation. In 1988, voters passed a measure increasing the tax to 25 cents a pack to pay for health education, disease research, hospital care and environmental conservation. Five years later, the Legislature added 2 cents per pack to support breast cancer research and screening.

The biggest, and last, increase came in 1998, with Proposition 10, spearheaded by actor Rob Reiner. It added 50 cents a pack to support early childhood development programs.

A portion of the money covers collection costs. Some is dedicated to sustaining funding for breast cancer research and other programs that were previously in place.

The rest goes to First 5 to pay for an anti-smoking media campaign as well as for education and child-care training, and to counties for early childhood intervention programs.

Revenue raised by Proposition 10 has dropped by close to a third since 1999 — from $686 million to $462 million.

Officials from First 5 and a number of other groups supported by state tobacco taxes said the decline had been exacerbated by what they called an unfair money grab by the state Board of Equalization, the state agency that collects the tax.

The tax board now takes $17 million in Proposition 10 funds to track the sale of cigarettes and other tobacco products in California. Furtek said the ballot measure set aside money for the cost of collecting the taxes but not to bankroll an enforcement program created five years after Proposition 10 passed.

Board of Equalization Chairman Jerome E. Horton defended the enforcement expense.

"I can say there is nothing in Proposition 10 or any subsequent legislation that prohibits enforcement efforts as part of the … administration of cigarette and tobacco product taxes. It is because of our robust enforcement efforts that evasion has fallen so much," Horton said in a statement.

State lawmakers this year ordered the board to justify its costs in a report due in early 2015.

phil.willon@latimes.com

melanie.mason@latimes.com

Twitter: @philwillon

@melmason

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