Tobacco Tax Revenue Down as Californians Quit. That Means Less Money For Child Services

BY ANA B. IBARRA, CalMatters

For 25 years, some of California’s best-known early childhood services have been funded by an almost ironic source: Taxes on cigarettes and other tobacco products. 

That was the deal voters made when they passed Proposition 10 in 1998, levying a tobacco tax and dedicating the money for programs that would help families with young children.

First 5 projected it would receive $348 million from California’s cigarette taxes this budget year. After voters passed the flavored tobacco ban, updated estimates show $38 million less than that. 

The arrangement was never supposed to last forever. Advocates for youth services have known from the beginning that fewer people would smoke over time, and the funding would fall.

Now, the money for so-called First 5 California programs is starting to plummet and First 5 leaders around the state say they are beginning to trim their budgets and cut back on programs. The trend is accelerating following last year’s approval of Proposition 31 to uphold a state law banning the sale of flavored tobacco products, compelling youth programs to adjust their budget assumptions.

“We all expect revenues to go down, the question is what will be the magnitude,” said Michael Ong, chair of the state’s Tobacco Education and Research Oversight Committee.

The cuts are unfolding in different ways based on local decisions. For example, the First 5 in Stanislaus County most recently cut one of its PlanetBaby! programs, which provide support for pregnant women and moms of babies up to a year old. That comes in addition to other recent funding cuts for programs supporting foster children and dental health services.

First 5 funds a broad number of programs in partnership with nonprofits, local hospitals, clinics and county health and education offices. Services vary by county, but some of the programs they fund include: children’s mobile immunization clinics, dental services, developmental screenings, family case management, parenting classes, and home visits from a nurse for first-time mothers.

First 5 California Revenue Falling

By 2026, the First 5 Association of California expects to receive almost 30 percent less from tobacco tax compared to 2021. It came up with yearly projections based on updated tobacco tax estimates from the state’s Department of Finance. 

Last spring, First 5 projected it would receive approximately $348 million from California’s cigarette taxes this budget year. After voters passed the flavored tobacco ban, updated estimates show that First 5 expects to receive $38 million less than that. 

By 2026 that number could go down to $280 million, according to the projections. How much of that each local First 5 gets is based on a formula that takes into account a county’s birth rate.

It’s far less than First 5 received from tobacco taxes two decades ago. In 1999-2000, First 5 received about $690 million in tobacco tax revenue, the most ever, according to First 5 California. 

California tacks on $2.87 tax to each standard pack of cigarettes. From 1989 to 2019, California’s smoking rate among adults has dropped from 22 percent to 10 percent, according to UCSF research.

Experts say tobacco tax projections should be taken cautiously as revenues are difficult to forecast immediately after a major change, such as the flavored tobacco ban.

Ong, chair of the state tobacco oversight committee, said First 5s would ideally try to diversify their sources of revenue if they can. “But that’s a pretty tall order for county governments,” Ong said. 

Statewide, tobacco tax dollars make up about 73 percent of First 5’s annual budget, although this largely varies by county. For example, First 5 in Kern County relies almost entirely on tobacco taxes. Meanwhile, the First 5 in Monterey County said in its most recent annual report that almost 40 percent of its funding now comes from grants and philanthropy. 

How to Replace Tobacco Tax Money

Last month, a Kern County grand jury released a report where it determined that its local First 5 would need to find additional revenue streams, other than tobacco, “to offset this downward spiral.” One possibility, according to the report: have California and local governments increase alcohol taxes.

And while taxes aren’t an easy sell to voters, especially in a red county like Kern, it’s important to consider all options, said Amy Travis, executive director of First 5 Kern County.

“We know it (tax) works,” said Travis. “We know tobacco use is declining, so I think it’s a matter of asking what’s next? Is that alcohol, marijuana, sugary beverages?” 

Shammy Karim, executive director at First 5 Stanislaus County said any new funding stream should come at the state level to maintain some uniformity and equity in the types of services available in all 58 counties.

“I used to work in Santa Clara County, and in Santa Clara County, I could reach out to Google or Apple or other Silicon Valley organizations and say, here’s what I need. And most of the time, I would get it,” Karim said. “I don’t have the opportunity to do that here.”

In Orange County, some immediate cuts are coming in the form of less funding for nonprofits that run shelter beds for families with young children. 

“We didn’t pull the rug underneath them but we have been working on a plan to reduce our funding in the homeless services arena,” said Kim Goll, the executive director of First 5 Orange County. While First 5 is not the only funder of these shelter services, losing their share could result in less staffing, for example, Goll said.  

“Our community will feel those cuts and we’ll be a smaller organization because of the flavor ban.”

The article titled "Smokers fund California’s early childhood programs. What happens when they quit?" appeared first at CalMatters here: https://calmatters.org/health/2023/07/first-5-california-tobacco-tax-cuts/

CalMatters is a nonprofit, nonpartisan media venture explaining California policies and politics.