Health funding initiative is filed

Assembly Speaker Fabian Nunez and Gov. Arnold Schwarzenegger formally filed an initiative Friday that would finance their plan for a $14.4-billion expansion of healthcare to most Californians, in part by almost doubling the state tax on cigarettes to $1.75 a pack.

The afternoon submission to the state attorney general’s office sets the stage for what is expected to be a costly and contentious battle pitting the two state leaders and their allies against some powerful opponents. Potential adversaries include state business groups, the tobacco industry, drug companies and Blue Cross, California’s largest insurer.

“Taking on Big Tobacco and the private insurance industry is going to be a difficult challenge,” Nunez (D-Los Angeles) said in a statement. “But this is the most effective way to fund the reform we need to fix California’s broken healthcare system.”

The plan, which needs approval from the state Senate, would provide medical coverage starting in 2010 to 3.6 million people in California, including 800,000 children, who don’t have insurance now, backers say.

The proposed cigarette tax, which would be instituted in mid-2009, is one of the taxes and fees that would help pay for the plan. It is higher than the $1.50-a-pack surcharge that the state leaders had previously announced in connection with the bill, ABX 1 1, which was approved by the Assembly on Dec. 17. But it is a middle ground between the $1.50 Schwarzenegger had wanted and the $2-per-pack tax preferred by Nunez.

The state’s current cigarette tax is 87 cents a pack.

“We oppose the cigarette tax increase,” Bill Phelps, a spokesman for Virginia-based Philip Morris USA, said Friday. “In expanding programs, we don’t think it makes sense to fund it with a declining revenue source. Cigarette sales have been declining for many years.”

He said he would not speculate on whether the company would get involved in fighting the California initiative.

Organized labor is split on the plan. One of the influential unions that supports it, the Service Employees International Union, is expected to take a lead role in collecting signatures to put the initiative on next November’s ballot and in persuading voters to approve it.

A committee to raise money and to work on gathering the nearly 700,000 required signatures to get the measure on the ballot is to be announced next week. Beth Capell, a lobbyist for SEIU based in Sacramento, said that though the opposition may bring a lot of money to the initiative fight, it would not be an insurmountable obstacle.

“You don’t actually have to match the opposition in order to win,” she said. “You have to have enough to make your case to the voters.”

One complication, politically, is that the voters are being asked to approve new taxes that would do nothing to resolve the state’s projected $14-billion budget deficit for the coming fiscal year.

Senate President Pro Tem Don Perata (D-Oakland) has cited the plan’s effect on state finances as a serious concern. If the Senate passed the legislation with significant changes, that could require the initiative to be rewritten.

In addition, some observers have questioned the viability of the state proposal in light of a U.S. District Court ruling Wednesday that said a similar plan in San Francisco conflicted with federal law. An appeal of that decision is expected, and advocates of the state plan say they don’t think it will keep them from moving forward.

Besides the tobacco tax, the state plan’s other revenue sources include a fee on employers ranging from 1% to 6.5% of their payroll, depending on the size of the payroll. The money would go into a new California Health Care Trust Fund to help those who cannot afford it buy insurance. Companies that spend the required amount on healthcare for their employees would be eligible to receive credit on their taxes for the fees they pay to the state. New fees would be levied on hospitals.

The initiative specifies that the money deposited into the healthcare fund cannot be touched by the state for other purposes. It also details a process by which some of the new programs would be suspended if the revenue sources ran short and state lawmakers failed to come up with a solution.

Because the legislation may cause some children to be cut off from healthcare funded by county or city programs in a gradual transition to the state program, the initiative also stipulates that a $25-million loan will be taken from the state’s general fund to bridge the gap.

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michael.rothfeld@latimes.com