Existing law provides for various programs that prevent disease and promote health.

This bill would establish the Healthy California Community Health Fund in the State Treasury, and would require moneys in the fund to be used, upon appropriation by the Legislature, to diminish the human and economic costs of diabetes, obesity, heart disease, and dental disease disease, and to reduce inequitable disparities in health between population groups, in California.

Existing law expresses the Legislatures findings and declarations that smoking is the single most important source of preventable disease and premature death in California. Existing law declares the intent of the Legislature to require the State Department of Public Health, local lead agencies, and the State Department of Education to cooperatively and individually conduct activities directed at the prevention of tobacco use and tobacco-related diseases.

This bill would make technical, nonsubstantive changes to that provision.

Date of Hearing: April 25, 2017

ASSEMBLY COMMITTEE ON HEALTH

Jim Wood, Chair

ABPCA Bill Id:AB 1003

Author:(Bloom) – As Amended Ver:April 19, 2017

SUBJECT: California Community Health Fund.

SUMMARY: Imposes a $0.02 per fluid ounce tax on sugar sweetened beverages (SSB) and requires moneys collected to be deposited in the California Community Health Fund (CCHF) and to be used to diminish the human and economic costs of diabetes, obesity, heart disease, and dental disease and to reduce inequitable disparities in health between population groups in California. Specifically, this bill:

1. Imposes a tax on the sale or transfer of any SSB product by the distributor of the beverage at the rate of two cents ($0.02) per fluid ounce. Specifies how the volume of the beverage is to be calculated.
   
2. Provides specified exemptions from the tax including to avoid double taxation and for other purposes.
   
3. Establishes CCHF in the State Treasury. Requires CCHF to be used to support culturally and linguistically appropriate programs and interventions that use environmental, policy, and systems change, education and other public health approaches to improve access to, and consumption of, healthy and affordable foods, water, and other beverages, reduce consumption of calorie-dense and nutrient-poor foods and beverages, facilitate physical activity and decrease sedentary behavior, improve oral health literacy and oral health, improve access to primary care, address other determinants of health disparities in California communities, and evaluate these efforts.
   
4. Requires the majority of resources in CCHF to be allocated to activities in communities that demonstrate significant health disparities, including, but not limited to, diabetes mortality.
   
5. Requires the Department of Public Health (DPH) to create an advisory committee representing a range of sectors and expertise, including public health, relevant nonprofits, and most affected communities, to advise the state on the allocation of revenue and other issues related to this tax.
   
6. Defines SSB as either of the following:
   
   1. A liquid intended for human consumption which contains a caloric sweetener; or,
      
   2. A concentrate in liquid, gel, powder, frozen, or solid form with a mixture of ingredients, which meet both of the following criteria:
      
      1. It contains a caloric sweetener; and,
         
      2. It is intended for use as an ingredient in a liquid described in a) above.
         
7. Excludes from the definition of SSB all of the following:
   
   1. A liquid or concentrate the primary ingredients of which are milk or soy, rice, or similar plant-based milk substitute;
      
   2. Any liquid or concentrate composed entirely of one or more of the following:
      
      1. The original liquid resulting from the pressing of fruit or vegetables;
         
      2. The liquid resulting from the reconstitution of pure fruit or vegetable juice concentrate; and,
         
      3. The liquid resulting from the restoration of water to dehydrated fruit or vegetable juice;
         
   3. Infant formula;
      
   4. Any liquid or concentrate products manufactured for use as any of the following:
      
      1. An oral nutritional therapy for persons who cannot absorb or metabolize dietary nutrients from food or beverages;
         
      2. A source of necessary nutrition used due to a medical condition; or,
         
      3. An oral electrolyte solution for infants and children formulated to prevent dehydration due to illness.
         
8. Defines “caloric sweetener” to mean monosaccharides, disaccharides, and high-fructose corn syrup.
   

EXISTING LAW:

1. Establishes DPH to protect and improve the health of communities through education, promotion of healthy lifestyles, and research for disease and injury prevention.
   
2. Establishes restrictions on the sale of certain beverages in schools, including restrictions on the types of beverages allowed to be sold in elementary, middle, and junior high schools and high schools.
   
3. Imposes sales tax on the retail sale of tangible personal property. Imposes use tax on the storage, use, or other consumption of tangible personal property from any retailer. Requires the sale or use tax to be computed on the retailer's gross receipts or sales price, respectively, unless the law provides a specific exemption or exclusion. Provides an exemption for the sale of, and the storage, use, or other consumption of, food products for human consumption including, in part, all fruit juices, vegetable juices, and other beverages, including bottled water, but not to include carbonated beverages.
   

FISCAL EFFECT: This bill has not yet been analyzed by a fiscal committee.

COMMENTS:

1. PURPOSE OF THIS BILL. According to the author, California is facing a diabetes and obesity epidemic, yet spends less than any other state on prevention. There are approximately 2.5 million Californians, about 9% of the state’s population, living with diabetes today. An estimated 13 million Californians, about 46% of the state’s population, have pre-diabetes and up to 70% of these individuals will go on to develop type 2 diabetes in their lifetime. From 1980 to 2010, the national obesity rate more than doubled among adults and tripled among children. These rates are even higher in low-income communities and communities of color and unless current trends are reversed, one out of every three Americans will have diabetes.

The author states that soda and other sugary drinks are the number one source of added sugar in the American diet, and are linked to increased risk of diabetes, heart and liver disease, stroke, obesity, and tooth decay. This bill will create a dedicated revenue source to address the harmful effects of overconsumption of SSBs. The revenues from the fee will go to diabetes prevention programs, as well as oral health programs, programs to increase access to clean drinking water in schools, and physical education programs. This bill will not only help improve public health outcomes, but will also save taxpayers billions of dollars every year on healthcare costs in the long run.

1. BACKGROUND.
   
   1. Obesity, Diabetes, and Other Chronic Diseases. According to the Centers for Disease Control and Prevention, more than one-third of U.S. adults are obese, and approximately 12.5 million children and adolescents ages two to 19 years are obese. Research indicates a tripling in the youth obesity rate over the past three decades. While this increase has stabilized between the years 2005 and 2010, in 2010, 38% of public school children were overweight and obese. Overweight youth face increased risks for many serious detrimental health conditions that do not commonly occur during childhood, including high cholesterol and type 2 diabetes. Additionally, more than 80% of obese adolescents remain obese as adults. Obese children and teenagers also remain at greater risk for developing serious chronic diseases including type 2 diabetes, heart disease, high blood pressure, cancer and other health conditions including asthma, sleep apnea, and psychosocial effects such as decreased self-esteem. In one large study, 61% of overweight five to 10 year-olds already had at least one risk factor for heart disease, and 26% had two or more risk factors. An overweight adolescent has a 70% chance of being overweight or obese as an adult.
      
      According to the September 2014 “Burden of Diabetes in California” report by DPH, over 2.3 million California adults report having been diagnosed with diabetes, representing one out of every 12 adult Californians. The vast majority of diabetes cases in California are type 2, representing 1.9 million adults. The prevalence increases with age—one out of every six adult Californians aged 65 and above have type 2 diabetes—and is higher among ethnic/racial minorities and Californians with low education attainment and/or family income. Compared with non-Hispanic whites, Hispanics and African Americans have twice the prevalence of type 2 diabetes and are twice as likely to die from their disease. Diabetes is the seventh leading cause of death in California, and determined to be the underlying cause of death in almost 8,000 people each year. As diabetes is a contributing factor to many deaths from heart disease and stroke, diabetes may be under-represented as a contributing cause of death.
      
   2. The Economic Burden. The last decade has witnessed a 32% rise in diabetes prevalence, affecting some 3.9 million people and costing upwards of $24 billion per year. Overall health care spending on obesity continues to significantly burden the nation, however, and the most recent research data available estimate obesity-related health care costs at nearly $150 billion annually. According to the National Conference on State Legislatures, taxpayers fund about half of these costs, at approximately $60 billion, through Medicare and Medicaid. Recent research indicates that if obesity rates are reduced by as little as 5%, health care savings could exceed $29 billion. Childhood obesity also poses a national security challenge, as obesity has become one of the most common disqualifiers for military service; affecting 25% of those who apply to serve.
      
      The medical costs and associated costs of diabetes jumped to $245 billion in 2012, meaning that the diabetes toll on the economy has increased by more than 40% since 2007, according to a recent report from the American Diabetes Association. The 2007 figures were $116 billion for diabetes and the indirect costs (disability, work loss, premature mortality) were $58 billion. According to the California Diabetes Program, total health care and related costs for the treatment of diabetes in California are about $24.5 billion each year. Direct medical costs (e.g., hospitalizations, medical care, treatment, supplies) account for about $18.7 billion, with the other $5.8 billion including indirect costs such as disability payments, time lost from work, and premature death. The average annual treatment cost per case for diagnosed diabetes in the U.S. was nearly $10,000 in 2007. The economic burden of diabetes and prediabetes on the average person is estimated to be over $700 for every man, woman, and child, representing a hidden ‘tax’ paid by all through higher insurance premiums.
      
   3. Cause, Correlation, and Risk. It is very difficult to scientifically prove a direct causal relationship between diet and disease in humans. In laboratory animal studies, a single variable can be changed while all others are held constant to determine a direct cause-and-effect relationship. It is nearly impossible to exert the same level of control in human dietary studies. However, while it may be impossible to completely eliminate alternate hypotheses, a causal relationship between the intake of added sugar and obesity is supported by strong epidemiological evidence. A meta-analysis published in the American Journal of Clinical Nutrition looked at 30 studies of sugary drink consumption published from 1966 to 2005 and found that sugary drink consumption was associated with weight gain and obesity. Another study concluded that sugary drinks are likely to account for at least 20% of the weight gained by Americans between 1977 and 2007. Numerous studies indicate that higher consumption of sugary drinks is associated with higher risk of weight gain and also with higher risk of developing type 2 diabetes.
      
   4. Efforts to Reduce Calorie Consumption. Along with increasing physical activity and providing nutritious food, reducing calories from all sources is a necessary component to reduce obesity and associated chronic health conditions. Research shows that people generally underestimate the number of calories in the foods they consume. A recent study asking participants to estimate the caloric content of nine restaurant entrées found that 90% underestimated the caloric content of less healthy items by an average of more than 600 calories. Controlling the intake of added sugars represents an important component of lifestyle management for weight control and maintenance. A recent report by the Institute of Medicine identified sugary drinks as the single largest contributor of calories and added sugars to the U.S. diet. The “2010 Dietary Guidelines for Americans,” published every five years jointly by the U.S. Department of Health and Human Services and the U.S. Department of Agriculture, admonished individuals to reduce consumption of SSBs, recommended that adult Americans should eat a maximum of 10% of their daily calories from added sugars. In March 2015, the World Health Organization’s (WHO) new “Guideline: Sugars Intake for Adults and Children” recommends reduced intake of sugar throughout the life course. In both adults and children, the intake of sugar should be reduced to less than 10% of total energy intake. For a person who consumes 2,000 calories per day that means intake of added sugars should be limited to less than 30 grams (or two tablespoons). WHO found that a further reduction to below 5% of total energy intake would provide additional health benefits.
      
   5. Policy Interventions and Unhealthy Products. Mounting evidence suggests that effectively curbing the obesity epidemic and reversing the upward trend will require comprehensive approaches across sectors involving public and private stakeholders at the local, state, and federal level. Many believe that the comprehensive approach must be similar to policy efforts previously employed to improve motor vehicle safety or curb usage of alcohol or tobacco. After passage of the California Tobacco Tax and Health Promotion Act of 1988 (Proposition 99), the state created the California Tobacco Control Program (CTCP), implemented a variety of grassroots efforts to educate consumers about the harmful effects of tobacco use, and passed several anti-tobacco laws, such as local and statewide policies to limit smoking in public places, prohibit the incidence of tobacco sales to minors, and restrictions on tobacco advertising; all designed to address smoking prevalence. California's early efforts have shaped best practices for comprehensive tobacco control efforts throughout the nation and the world. According to CTCP, these efforts have so far saved more than one million lives and over $86 billion in health care costs. While tobacco use continues to be pervasive and costly, California has been successful at significantly curbing the burden of tobacco use on California families, our health care system and our economy.
      
      Since the early 1980s, a growing number of economists have examined the impact of the price of alcoholic beverages on alcohol consumption. Studies investigating such a relationship found that alcohol prices were one factor influencing alcohol consumption among youth and young adults. Other studies determined that increases in the total price of alcohol can reduce drinking and driving and its consequences among all age groups; lower the frequency of diseases, injuries, and deaths related to alcohol use and abuse; and, reduce alcohol-related violence and other crime. A large body of research supports the view that increases in the monetary prices of alcoholic beverages, which can be achieved by raising federal, state, and local alcohol taxes, significantly reduce alcohol consumption.
      
   6. Potential Effect of SSB Fee. Over the past decade, states and localities have begun to consider taxing SSBs in order to generate revenue, reduce consumption of unhealthy beverages, and promote public health. According to a 2009 issue brief by the Robert Wood Johnson Foundation, emerging studies suggest that small taxes on SSBs are unlikely to affect obesity rates, but they can generate revenue that states can invest in improving public health. In addition, while there is only limited research on the impact of taxes on SSB consumption rates and related weight outcomes, existing research on the impact of prices on food-purchasing behaviors in general suggest that substantive taxes on SSBs could significantly affect consumption patterns and thereby have an impact on overweight and obesity rates.
      
      In October 2013, Mexican President Enrique Peña Nieto approved a one peso (about $0.07) tax per liter of SSB, which national health experts saw as one antidote to Mexico’s alarming diabetes rates. The measure took effect January 1, 2014. As reported in March 2017 in the journal Health Affairs, purchases of taxed SSBs decreased 5.5% in 2014 and 9.7% in 2015, or an average of 7.6% over the two year period studied. Households in the lowest socioeconomic level had the largest decreases in purchases of SSBs. Purchases of untaxed beverages increased 2.1% during the two year period.
   7. Recent Local Efforts. In November 2014, Berkeley, California became the first city in the nation to adopt a soda tax after 30 other cities and states around the country failed. Its Measure D levied a penny-per-ounce tax on SSBs. Its revenues were not dedicated to any particular purpose, therefore needing only a simple majority vote to pass. It won the support of 75% of voters. After being in place for two years, Berkeley’s soda tax has generated $2.5 million, the sale of SSBs has dropped more than 9%, the sale of water has increased by more than 15% and the sale of juices, teas and other substitute beverages has also increased. As a comparison, the sale of SSBs in nearby communities rose almost 7% in the same period. In November 2016, three California cities, San Francisco, Oakland and Albany, all passed similar SSB taxes. Earlier in 2016, the city Philadelphia enacted a SSB tax which became effective January, 1, 2017.
2. SUPPORT. The Coalition for a Healthy California and its constituent organizations, the sponsor of this bill, states that this bill would establish the California Community Health Fund that will equip the state with dedicated resources to invest in communities that are disproportionately impacted by type 2 diabetes, dental disease, heart disease and stroke and related sugary drink consumption diseases. Supporters state that strides have been made in education and awareness to promote healthier eating and increasing physical activity, however, a dedicated revenue source to fully address this epidemic and the environmental and physical conditions that take away from our communities’ qualify of life and life expectancy is needed. The Coalition further states that when one considers that the economic consequences of diabetes in California have been estimated at over $37.1 billion, that the economic burden of diabetes and prediabetes on the average person is estimated to be over $700 for every man, woman and child, and that this amount represents a hidden “tax”” paid by all through higher insurance premiums, it makes sense to place a fee on these sugar loaded products.
3. OPPOSITION. Opponents argue that in addition to sodas, this bill places a misguided tax on juice drinks, sports drinks, iced teas, and even enhanced waters. According to opponents, increased prices on so many common grocery items will impact those who can afford it least: middle- and lower-income California residents. Singling out one group of products is also discriminatory. Opponents argue that this bill will not reduce obesity or diabetes. Obesity and diabetes are complex health issues that have myriad contributing factors including genetics, physical activity, and calorie intake from all sources - not just beverages. As a result, it is unfair and inaccurate to portray SSBs as the main culprit. Opponents also state that consumption of SSBs has steadily declined over the past decade while rates of obesity and diabetes have increased. Finally, opponents state that this bill endangers good jobs in California. The beverage industry directly supports tens of thousands of well-paying jobs with benefits including bottling, distribution and retail jobs. Business owners and employees of restaurants, theaters, grocery stores and more rely on beverage sales, in part, for their livelihood. In this economy, the focus should be on protecting and creating jobs, not putting them in jeopardy with another tax.
4. RELATED LEGISLATION. AB 1532 (Bloom) requires DPH to establish a grant specialist to identify and apply for grants, including, but not limited to, federal grants, related to the prevention and management of diabetes. AB 1532 passed the Assembly Health Committee and is pending before the Assembly Appropriations Committee.
5. PREVIOUS LEGISLATION.
   1. AB 2696 (Gaines), Chapter 108, Statutes of 2016, requires DPH to submit a report to the Legislature on or before January 1, 2019, that includes a summary of recommendations on diabetes prevention and management from certain sources, including the University of California and the federal Centers for Disease Control and Prevention. AB 2696 also requires DPH to annually post on its Internet Web site a summary of the amount and source of any funding directed to, and expenditures by, DPH for programs and activities aimed at preventing or managing diabetes.
   2. AB 2782 (Bloom) of 2016 was largely similar to this bill. AB 2782 was pulled from its Assembly Health Committee hearing at the request of the author.
   3. AB 1357 (Bloom) of 2015, also similar to this bill, failed passage in the Assembly Health Committee.

REGISTERED SUPPORT / OPPOSITION:

Support

American Diabetes Association (cosponsor)

American Heart Association (cosponsor)

Asian Pacific Partners for Empowerment, Advocacy & Leadership (cosponsor)

California Black Health Network (cosponsor)

California Dental Association (cosponsor)

California Primary Care Association (cosponsor)

California Rural Indian Health Board (cosponsor)

California School-Based Health Alliance (cosponsor)

Latino Coalition for a Healthy California (cosponsor)

Public Health Institute (cosponsor)

Roots of Change (cosponsor)

Public Health Advocates (cosponsor)

Opposition

American Beverage Association

CalAsian Chamber of Commerce

California Automatic Vendors Council

CalChamber

California Grocers Association

California Hispanic Chamber of Commerce

California Hotel & Lodging Association

California independent Oil Marketers Association

California League of Food Processors

California Manufacturers & Technology Association

California Restaurant Association

California Retailers Association

Can Manufacturers Institute

Grocery Manufacturers Association

International Franchise Association

Juice Products Association

Los Angeles Area Chamber of Commerce

Los Angeles County Business Federation

National Federation of Independent Business

San Gabriel Valley Economic Partnership

Valley Industry & Commerce Association

Analysis Prepared by: John Gilman / HEALTH / (916) 319-2097