Falling cigarette use burns hole in state budget
THE ORANGE COUNTY REGISTER
“Welcome to California. America’s nonsmoking section,” stated an ad from the California Tobacco Control Program. Tobacco users have listened, and so many have quit the unhealthy habit that the state budget is getting sicker.
The biggest hit could come from the money California gets from the 1998 Tobacco Master Settlement Agreement between the big tobacco companies and 46 states, including California. The deal called for $246 billion to be paid over 25 years.
An investigation published Monday by the journalists at California Watch found a big problem. “Rather than waiting for annual payments, the state and some local governments decided to borrow money against their anticipated future revenue. All told, they’ve issued $16 billion in bonds since 2001.”
Like a teenager taking a first drag on a Marlboro, California inhaled deeply – and now is coughing. “In 2007, California issued $4.4 billion in tobacco bonds,” California Watch said. “In order to pay back investors by 2047, it assumes that cigarette consumption will decline by about 1.8 percent per year, according to bond filings.” The actual rate of decline has been more than 3 percent per year, according to numbers from the California Department of Public Health
In 2010, an estimated 11.9 percent of Californians smoked, the second-lowest level among the states, after Utah’s 9.1 percent. In 1984, the California number was 25.9 percent. In 2007, it was 13.3 percent.
We have warned about such borrowing from the settlement funds, insisting that the money should be spent on a pay-as-you-go basis. Now the state is going to have to make up for the bond repayment shortfall by tapping into the general fund. The amount isn’t yet known. But Gov. Jerry Brown’s $7 billion tax increase, if voters pass it in November, could go, in part, to paying for the bond folly.
Fortunately, Orange County was not among those that raided cigarette settlement money. Supervisor John Moorlach reminded us of the battle in 2000 over county Measures G and H. Measure G would have diverted 40 percent of the tobacco settlement money to paying down the debt from the 1994 county bankruptcy. It lost, 54-46. Measure H dedicated all of the tobacco money to health care, public safety and tobacco use prevention. It passed, 65-35.
The county also gets money from 1998’s Proposition 10, which added a 50-cent tax on each pack of cigarettes to fund local programs for children up to age 5. Mr. Moorlach pointed out that Gov. Brown tried last year to seize the California First Five funds to backfill the state budget deficit, but counties sued successfully and kept the money. “That money is supposed to be used for kids 5 and under in each county,” Mr. Moorlach said.
Supervisor Bill Campbell said the First Five funds for Orange County have dropped from about $55 million a year when the program started to $27 million today and continue to fall by 4 percent to 5 percent per year, because of smoking cessation.
Finally, on the June ballot will be another proposed tax increase on cigarettes. Prop. 29 would add $1 tax to each pack to fund cancer research, supposedly raising $855 billion.
We’ve always opposed such “ballot box budgeting.” Another problem is that the Prop. 29 tax would tend to further depress cigarette use, making the bond repayment problem worse. Moreover, it would push cigarette prices for many brands above $7, a threshold that in Canada in the late 1990s produced a huge black market. If that happened, cigarette use could remain steady while tax revenue could drop.
Smokers are quitting. Cigarette-tax levels are maxed out. Time to let smokers alone.
So let’s get it started – What is your opinion on the situation?