Financing Child Care in the United States - Ewing Marion Kauffman ...

GENERATING PUBLIC REVENUE SALES AND EXCISE TAXES
• An effort to repeal Prop 10 was mounted by Ned
Roscoe, owner of a chain of discount tobacco stores.
The repeal (Prop 28) was on the March 2000 ballot; it
lost (72 percent opposed to 28 percent in favor of
repeal). The resounding defeat was interpreted as
support for Prop 10 among voters and willingness to
give it a chance to succeed.
• Tobacco was the preferred revenue source for Prop
10 because it was the one taxable item that could
reasonably be linked to children’s healthy development.
Maternal smoking affects prenatal growth and
development (e.g., low birthweight babies) and
second–hand smoke is detrimental to young children
(e.g., links to the rise in asthma).
• The amount (50¢ per pack) was determined to be
acceptable to the voting public, putting California’s
cigarette taxes at the high end, but not the top, among
states, and it was an amount calculated to raise
significant funds.
• Proponents argued that brain development in the early
childhood years is critical, yet public investment in
children did not begin until age 5 or later. Prop 10
began to address this mismatch between needs and
resources.
• Beyond general uneasiness with “sin taxes,” opposition
to Prop 10 rested on several arguments. First was the
unfairness of targeting smokers. The major activities to
be funded by the tax were not directly related to
smokers or their children. Taxes on tobacco are
regressive taxes because smokers are
disproportionately low–income individuals. A second
issue centered on how funds were distributed. Prop
10 funding is the only public revenue in California
distributed by an appointed commission; all other
revenue is subject to appropriation by the legislature
and/or the county boards of supervisors, who are
elected officials. Opponents decried the increased
bureaucracy they believed would be created at the
state level and in each county. The third opposition
argument was that Prop 10 would not help public
schools (because it was structured to generate funding
outside the reach of Prop 98, an earlier ballot initiative
that required that a specific portion of general tax
revenues be dedicated to schools). Indeed, Prop 10
was not designed to fund public schools directly, but
school readiness is one of its major goals.
• In California, and probably most other states, a
50–cent–per–pack tax on cigarettes generates a little
less revenue than a .25–cent sales tax increase on
goods (except food). A little more revenue would be
generated by adding a 1 percent surcharge to the
state income tax for the wealthiest taxpayers—
individuals with an adjusted gross of more than
$100,000 and couples with more than $200,000.
Sales and income taxes generate more money over
time; tobacco taxes generate less.
• Popular wisdom holds that allocating the bulk of funds
to counties and lodging the decision–making authority
for spending at the county level permits local flexibility
and adaptability to local needs. This is probably
achievable in smaller counties, but takes more effort to
accomplish in more populous ones.
• Prop 10 funding decisions are made by appointed
commissions that are not required to seek approval
from any state body, including the state commission.
Vesting such discretion in appointed bodies raises the
question of accountability. In contrast, North Carolina’s
Smart Start (profiled on page 151) puts decision–
making at the local level and requires approval of local
plans (as well as submission of annual audits) by the
state organization, the North Carolina Partnership for
Children.
• While the Initiative specifies that funds are to support
programs and services that supplement existing efforts
at the state and county levels, no clear maintenance of
effort requirements were included. Some (even a few
proponents of the Initiative) argued that this lack of
specificity would allow the state and counties to shift
spending to Prop 10 dollars, diluting the potential of
new funding. The only prohibition is that Prop 10 funds
cannot be used to fund a program after its state or
local funding has been reduced or eliminated.
• Some of the annual funds can be allocated to
investment by leaving them in the trust fund to grow.
This is encouraged as a way to offset the decline over
time in tobacco tax revenue. Alameda County allocated
$1.345 million to investment in its first–year plan.
• The expectation of the Initiative’s designers is that
sufficient data on the efficacy and financial benefits of
investing in young children will be available after
several years of Prop 10 and that these results will be
powerful enough to increase public investment from
general revenues.
OTHER SITES WITH SIMILAR STRATEGIES
In 24 states, citizen ballot initiatives are permitted. No
other state has advanced a ballot initiative to increase
taxes for children’s services or early childhood
development. The only other state to tax tobacco to
support child care has been Indiana (see page 26).
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