Existing law establishes the State Department of Public Health, which administers, among other things, various programs that prevent disease and promote health.

This bill would express the intent of the Legislature to establish the California Community Health Fund in the State Treasury, and would require moneys in the fund to be used to diminish the human and economic costs of diabetes, obesity, and heart and dental disease in California.

Date of Hearing: April 22, 2019

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Autumn R. Burke, Chairwoman

ABPCA Bill Id:AB 138 (

Author:Bloom) – As Amended Ver:April 11, 2019

2/3 vote. Fiscal committee.

SUBJECT: California Community Health Fund

SUMMARY: Imposes a tax on every distributor, as defined, for distributing bottled sugary drinks and concentrate in this state, at a rate of $0.02 per fluid ounce. Specifically, this bill:

1. Contains the following findings and declarations:
   1. Over 2.3 million California adults report they have been diagnosed with diabetes, representing one out of every 12 adult Californians. The vast majority of diabetes cases in California are type II, affecting 1.9 million adults.
   2. According to the State Department of Public Health, diabetes is the seventh leading cause of death in California and has been determined to be the underlying cause of death for almost 8,000 people in California each year.
   3. Adults with type II diabetes more often have other health problems. Half of adults with type II diabetes also have hypertension. This rate of occurrence is twice as high as for those without diabetes. Adults with diabetes are also twice as likely to have cardiovascular disease as adults without diabetes.
   4. Adults with diabetes are 50% more likely to have arthritis than adults without diabetes. Over 40% of new cases of kidney failure are attributed to diabetes. New cases of kidney failure declined slightly from 2001 to 2007, but began to increase again after 2007.
   5. Hispanics, African Americans, Native Americans, Alaska Natives, Asian Americans, Native Hawaiians, and Pacific Islanders have a higher prevalence of type II diabetes than non-Hispanic Whites. Hispanics and African Americans have two times higher prevalence: 7% of non-Hispanic Whites have type II diabetes, compared with 12% of Hispanics, 9% of Asian Americans, 14% of Pacific Islanders, 13% of African Americans, and 17.5% of Native American and Alaska Native populations. If trends are not reversed, it is predicted that 40% of Americans and nearly one-half of Latino and African American children born in the year 2000 will develop type II diabetes in their lifetimes.
   6. The prevalence of obesity in the United States has increased dramatically over the past 30 years. In California, obesity rates have increased even more, rising from 8.9% in 1984 to 23.8% in 2011. Although no group has escaped the epidemic, low-income populations and communities of color are disproportionately affected.
      
   7. The rate of children who are overweight has also increased dramatically in recent decades. In 2010, 38% of California children in grades 5, 7, and 9 were overweight or obese. Thirty-one of California's 58 counties experienced an increase in childhood obesity from 2005 to 2010.
      
   8. In 2006, overweight and obesity-related health costs in California were estimated at almost $21 billion.
      
   9. There is overwhelming evidence of the link between obesity, diabetes, and heart disease and with the consumption of sweetened beverages, including soft drinks, energy drinks, sweet teas, and sports drinks. California adults who drink one or more sweetened beverages per day are 27% more likely to be overweight or obese, regardless of income or ethnicity.
      
   10. According to nutritional experts, sweetened beverages such as soft drinks, energy drinks, sweet teas, and sports drinks offer little or no nutritional value, but contain massive quantities of added sugars. A 20-ounce bottle of soda contains the equivalent of approximately 16 teaspoons of sugar, yet the American Heart Association recommends that Americans consume no more than 5 to 9 teaspoons of sugar per day.
       
   11. Research shows that almost one-half of the extra calories Americans consume in their diet comes from sugar-sweetened beverages, with the average American drinking nearly 50 gallons of sugar-sweetened beverages per year, the equivalent of 39 pounds of extra sugar every year.
       
   12. Research shows that 41% of California children from 2 to 11 years of age, inclusive, and 62% of California teens from 12 to 17 years of age, inclusive, drink soda daily, and for every additional serving of sweetened beverages that a child consumes per day, the likelihood of the child becoming obese increases by 60%.
       
   13. Sugary drinks are a unique contributor to excess caloric consumption. A large body of research shows that calories from sugary drinks do not satisfy hunger the way calories from solid food or beverages containing fat or protein do, such as those containing milk and plant-based proteins. As a result, sugary beverages tend to add to the calories people consume rather than replace them.
       
   14. Dental caries, commonly referred to as tooth decay, is the most common chronic childhood disease, and affects almost two-thirds of the children in California. Children who frequently or excessively consume beverages high in sugar are at an increased risk for dental caries. Untreated dental caries can lead to pain, infection, tooth loss, and in severe cases, death.
       
   15. Studies on the taxation of sugary drinks have estimated a 55 to 1 return on investment in health care savings. Governmental entities that have implemented a sugary drink tax have not seen negative impacts on food sector employment or revenue. Data from the City of Berkeley shows a 7.2% growth in food sector employment and a 15% growth in sales tax revenue following the implementation of a sugary drink tax in the city. Mexico and Philadelphia, Pennsylvania, have also found continued growth in the beverage sector employment subsequent to the tax implementation.
       
   16. It is therefore the intent of the Legislature to establish the California Community Health Fund (Fund), and upon appropriation by the Legislature, moneys in the Fund shall be used to diminish the human and economic costs of diabetes, obesity, heart disease, and dental disease in California. The Fund is intended to support health, education, and wellness programs designed to prevent and treat obesity, diabetes, and heart and dental disease and to reduce the burden of attendant health conditions that result from the overconsumption of sugar-sweetened beverages.
2. Imposes a fee on every "distributor" for distributing bottled "sugary drinks" and concentrate in the state. The fees shall be calculated as follows:
   1. The fee on "sugary drinks" and concentrate shall be calculated at a rate of $0.02 per ounce that is sold or offered to a retailer for sale in the state to a consumer; and,
   2. The fee on syrups and powders sold or offered to a retailer for sale in the state to a consumer, either as syrup or powder or as a "sugary drink" derived from that syrup or powder shall be calculated at a rate of $0.02 per ounce of "sugary drink" produced from that syrup or powder.
3. Defines a "distributor" as any person, including a manufacturer or wholesale dealer, who distributes "sugary drinks" or concentrates for sale to retailers that operate business in the state, regardless of whether the person sells those products to consumers.
4. Defines "distribution" or "distribute" to mean to supply to a distributor or retailer, deliver to a retailer, acquisition by a retailer, or to transport into the state for the purpose of selling any "sugary drink" product in the state, or any combination of these activities. "Distribution" or "distribute" do not mean the retail sale to a consumer.
5. Defines a "sugary drink" as either of the following:
   1. A nonalcoholic beverage intended for human consumption that contains any added "caloric sweetener"; or,
   2. A concentrate, whether in liquid, gel, powder, frozen, or solid form with a mixture of ingredients, which meets 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 above.
6. Defines "caloric sweetener" as any substance or combination of substances that contains calories, is suitable for human consumption, and that humans perceive as sweet. Caloric sweetener includes, but is not limited to, sugar, sucrose, dextrose, fructose, glucose, monosaccharide and disaccharide, corn syrup or high-fructose corn syrup, or honey.
7. Excludes the following liquid or concentrate products from the definition of a sugary drink:
   1. A beverage that includes, as a primary ingredient, milk, soy, rice, or a similar plant-based milk substitute;
   2. The original liquid is either the result from the pressing of fruit or vegetables or from the reconstitution of pure fruit or vegetable juice concentrate;
   3. The liquid is the result from the restoration of water to dehydrated fruit or vegetable juice;
   4. Infant formula;
   5. A beverage for medical use suitable for human consumption and manufactured for use as an oral nutritional therapy for persons who cannot absorb or metabolize dietary nutrients from food or beverages, as specified;
   6. Any beverage designed as supplemental, meal replacement, or sole-source nutrition that includes proteins, carbohydrates, and multiple vitamins and minerals;
   7. An oral electrolyte solution for infants and children formulated to prevent dehydration due to illness; and,
   8. A sugary drink product with fewer than 25 calories per 12 fluid ounces.
8. Provides that for purposes of calculating the fee, the volume of sugary drink produced from syrups or powders shall be the greater of either the largest volume resulting from use of the syrups or powders according to any manufacturer's instructions, or the volume actually produced by the retailer, as reasonably determined by the California Department of Tax and Fee Administration (CDTFA).
9. Provides that the distributor shall be liable for the fee imposed. The fee shall be paid upon the first nonexempt distribution of a sugary drink product in the state. However, if a distributor or retailer receives taxable products on which the fee has not been paid, the distributor or retailer shall be liable for the fee.
10. Requires CDTFA to adjust the fees, as described above, for inflation every other year.
11. Provides that the distribution of sugary drinks or concentrate by a distributor to either of the following persons shall be exempt from the fee:
    1. A person to whom the bottled sugary drink or concentrate is contractually obligated to be shipped, and is shipped, to a point outside of California by the distributor, by means of either of the following:
       1. Delivery to a facility operated by the distributor; or,
       2. Delivery by the distributor to a carrier, customs broker, or forwarding agent, regardless of whether the distributor was hired by the purchaser, for shipment to the out-of-state point.
    2. A person who is otherwise exempt from the fee of that sale, use, or consumption pursuant to the United States Constitution, federal law or regulation, or the California Constitution.
12. Establishes the Fund in the State Treasury.
13. Provides that Fund revenues shall be distributed to the State Department of Social Services, the State Department of Public Health, the State Department of Health Care Services, the State Department of Education, the Department of Food and Agriculture, and the State Water Resources Control Board to promote health equity, to reduce health disparities, to improve oral health, and to prevent the leading causes of illness, injury, and premature death, especially those caused by sugar-sweetened beverage consumption. Illnesses include obesity and diseases exacerbated by obesity, such as diabetes, heart disease, and cancer, which are caused by sugar-sweetened beverage consumption.
14. Provides that the State Department of Social Services may prioritize Fund revenues that it receives to fund the Safe Drinking Water Supplemental Benefit Pilot Program, as described in Welfare and Institutions Code Section 18901.25.
15. Provides that a state department receiving Fund moneys may administer grants or allocations to local organizations. If a department administers grant programs, funds shall be distributed in communities or institutions serving those with the highest rates of health inequities with a particular focus on all of the following target populations:
    1. African American, Hispanic, Native American and Alaska Native, Asian American, and Native Hawaiian and Pacific Islanders;
    2. Residents living below 150% of the federal poverty limit;
    3. Communities identified as underserved with regard to dental health services or that have high rates of dental disease; and,
    4. Communities identified with other marked health disparities to be addressed.
16. Provides that state departments receiving Fund moneys shall use the most current data available to target moneys in the Fund to address the needs of the identified priority populations and to reach the greatest number of residents in the identified priority groups.
17. Requires most community-level investments to be targeted. However, funds may be employed by recipients to pursue media campaigns that benefit all residents of a community or jurisdiction.
18. Requires media campaigns to support health, education, and wellness programs designed to prevent and treat obesity, diabetes, and heart and dental disease and to reduce the burden of attendant health conditions that result from the overconsumption of sugar-sweetened beverages.
19. Requires grantees to employ culturally and linguistically competent approaches appropriate to their communities.
20. Requires the state entity responsible for administering a competitive grant program to conduct biennial financial audits to ensure that the annual allocation to grantees is awarded by the Fund consistent with the requirements of this bill.
21. Provides that revenues deposited in the Fund that are unexpended at the end of a fiscal year (FY) shall remain in the Fund and shall not revert to the General Fund.
22. Provides that, upon appropriation by the Legislature, all moneys in the Fund shall be expended only for the purposes expressed in this bill and shall be used only to supplement existing levels of service. Moneys in the Fund shall not supplant any federal, state, or local funding for existing levels of service.
23. Provides that the Fund shall consist of all fees, interest, penalties, and other amounts collected pursuant to this bill. Refunds and reimbursements for expenses incurred in the administration and collection of the fees and required allocations to other agencies shall be payable from the Fund, upon appropriation by the Legislature.
24. Requires CDTFA to administer and collect the charges imposed pursuant to the Fee Collection Procedures Law.
25. Provides that the fees are due and payable to CDTFA on or before the last day of the first month following each calendar quarter.
26. Provides that on or before the last day of the first month following each calendar quarter, a return for the preceding calendar quarter shall be filed, using electronic media, with CDTFA.
27. Contains additional provisions regarding CDTFA's administration of this fee.
28. Provides that CDTFA may use no more than 3% of the revenues generated to cover its administrative costs in collecting the fees imposed by this bill.
29. Authorizes CDTFA to promulgate and enforce regulations relating to the administration and enforcement of this new fee, including matters regarding collections, reporting, refunds, and appeals.
30. Authorizes CDTFA to adopt emergency regulations to implement this bill, as specified.
31. Requires CDTFA to develop an internet website and post materials to inform distributors, retailers, and the general public about the fee and its scope and operation at least two months prior to the effective date.
32. Modifies and expands the existing Safe Drinking Water Supplemental Benefit Pilot Program. Specifically, these modifications:
    1. Require the State Department of Social Services to coordinate with the State Water Resources Control Board for purposes of conducting any authorized activities that are funded by the Fund. Such activities shall support increased access to safe and affordable drinking water to ensure all Californians have access to safe and affordable alternatives to sweetened and sugary beverages; and,
    2. Extend the pilot program's sunset date from July 1, 2020, to July 1, 2025.
33. Provides that no reimbursement is required by this bill pursuant to Section 6 of Article XIIIB of the California Constitution for specified reasons.

EXISTING LAW:

1. Imposes various taxes, including taxes for the privilege of engaging in certain activities.
2. Imposes a sales tax on retailers for the privilege of selling tangible personal property (TPP), absent a specific exemption. The tax is based upon the retailer's gross receipts from TPP sales in this state.
   
3. Imposes a complimentary use tax on the storage, use, or other consumption of TPP purchased out-of-state and brought into California. The use tax is imposed on the purchaser; and unless the purchaser pays the use tax to an out-of-state retailer registered to collect California's use tax, the purchaser remains liable for the tax. The use tax is set at the same rate as the state's sales tax and must generally be remitted to the CDTFA.
4. Provides a sales and use tax (SUT) exemption for food products for human consumption. Food products include, in part, all fruit juices, vegetable juices, and other beverages, including bottled water, but do not include carbonated beverages.
5. Provides, under the Fee Collection Procedures Law, procedures for the collection of certain fees and surcharges and establishes criminal penalties for specified acts, including making it a misdemeanor to knowingly or willfully file a false return and making it a felony to willfully evade or attempt to evade or defeat the payment of a fee.
6. Provides for various programs that prevent disease and promote health, including the Safe Drinking Water Supplemental Benefit Pilot Program that provides, until July 1, 2020, additional benefits to residents of prioritized disadvantaged communities to purchase safe drinking water.

FISCAL EFFECT: This bill would generate estimated revenues of $2.1 billion in FY 2019-20 and $4.2 billion in FY 2020-21.

COMMENTS:

1. The author has provided the following statement in support of this bill:

California is facing a chronic disease and public health crisis. Diabetes and obesity rates have skyrocketed over the last several decades and the state now faces immense health and economic impacts as a result. Diabetes is the seventh leading cause of death in California and significantly increases an individual's risk of heart disease, stroke, and kidney failure. Individuals with diabetes are more likely to end up in the hospital and [account] for one out of every three hospitalizations, and have personal healthcare costs that are, on average, twice as high as for non-diabetics. Sugary drinks are the single largest source of added sugar in the American diet and are a major contributor to the increasing rates of type 2 diabetes, obesity, and heart disease. Increased sugary drink consumption, particularly among low income communities and communities of color, has not been a coincidence but rather the result of the beverage industry's targeted efforts to profit at the expense of consumer health. If this health crisis is left unaddressed, we can expect one in three Californians, and one out of every two Latino and African American children, to have type 2 diabetes by 2050. AB 138 will forcefully confront this issue by creating a dedicated revenue source for public health and prevention efforts, with a focus on equity. Similar sugary drink levies implemented around the U.S. and world have already proved effective, lowering consumption of sugary drinks while raising significant funding for community health programs.

1. This bill is co-sponsored by the American Heart Association, which notes the following:

This bill establishes the California Community Health Fund and will equip the state with dedicated resources to promote health equity and prevent the human and economic costs of the leading causes of illness and premature death, especially those caused by sugary drink consumption.

Every year, 40,000 people living in the United States die from heart problems as a result of consuming too many sugary drinks. Research demonstrating the direct link between sugary drinks and diabetes is incontrovertible; the links to obesity are even more established. We also know that the consumption of sugary drinks is a significant driver of fatty liver disease, heart disease, stroke, dental caries, kidney disease and is associated with some cancers.

In our state almost 3 million residents have now been diagnosed with diabetes. This epidemic cost California over $39 billion in 2017: $27 billion in healthcare costs, the majority paid for by government, and $12 billion in indirect costs, including lost productivity and absenteeism from illness, disability, early death and caregiving.

1. This bill is opposed by the Howard Jarvis Taxpayers Association, which notes the following:

AB 138 imposes a two cent per fluid ounce tax on sugar sweetened beverages at the distributor level, generating over $3 billion a year in new costs to citizen taxpayers. Raising taxes on soda will also unfairly harm the beverage industry, a major employer in California.

'Sin taxes' are premised on the belief that increased taxes will result in better health outcomes. Some people may well stop smoking, or drinking soda, if taxes are dramatically increased. But the efficacy of this theory remains in doubt. Typically, sin taxes most impact low-income Californians who may not have the knowledge (or the ability) to purchase healthier beverages. According to recent Gallup polls, 49 percent of respondents who make more than $75,000 a year don't drink soda. That number drops to 36 percent for those making less than $30,000 annually. That's an expensive regressive tax for those that can least afford it.

1. Committee Staff Comments:
   1. What does this bill do? This bill imposes a new tax on distributors for the privilege of distributing bottled sugary drinks and concentrate in this state. The tax (referred to throughout this bill as a "fee") would be imposed at the rate of $0.02 per ounce. CDTFA, however, would be charged with adjusting the tax for inflation every other year.

Revenues from the tax would be deposited into a newly established California Community Health Fund. Moneys in this Fund, in turn, would be distributed to the State Department of Social Services, the State Department of Public Health, the State Department of Health Care Services, the State Department of Education, the Department of Food and Agriculture, and the State Water Resources Control Board to promote health equity, to reduce health disparities, to improve oral health, and to prevent the leading causes of illness, injury, and premature death, especially those caused by sugar-sweetened beverage consumption.

• 1. The arguments in support: As set forth in this bill's statement of findings, the author notes that sweetened beverages such as soft drinks, energy drinks, and sweet teas offer little or no nutritional value, but contain massive quantities of added sugar. Moreover, there is considerable evidence linking sweetened beverage consumption to the epidemics of obesity, diabetes, and heart disease. Beyond the human costs involved, the financial costs associated with these diseases are staggering. Specifically, the author notes that in 2006, weight and obesity-related health costs in California were estimated at nearly $21 billion. By imposing a tax on sweetened beverages, this bill seeks to create a funding source for programs that address the human and economic costs of diabetes, obesity, heart disease, and dental disease in California. In this way, this bill would require the beverage industry, and its consumers, to pay for some of the well-documented negative externalities caused by the consumption of sweetened beverages.
  2. The arguments in opposition: Opponents of this bill argue that imposing a tax on sweetened beverages will not make people healthier. Instead, they argue in favor of educating consumers about the importance of a balanced diet. Moreover, critics contend that the epidemics of obesity and diabetes are multi-factored and that it does not make sense to lay the blame at the feet of one particular product or industry. Critics also contend that taxing sweetened beverages will have a negative impact on the economy.
  3. The Legislative Analyst’s report: On November 26, 2018, the Legislative Analyst's Office issued a report on the taxation of sugary drinks. Among other things, this report noted:
     1. Excise taxes on sugary drinks have become increasingly common in recent years. In June 2018, however, the Legislature passed a law prohibiting local governments from levying such taxes. As such, the Legislature is faced with two decisions: (i) should the state levy an excise tax on sugary drinks; and, (ii) if so, how should the tax be structured?
     2. Proponents of taxation tend to advance two main arguments: a fiscal goal of raising revenue and a policy goal of improving health.
     3. Sugary drink taxes are one of many options available to policymakers who want to raise revenue. However, sugary drink taxes – and excise taxes more generally – are not an ideal way to achieve this goal as these taxes impose undue burdens on narrowly defined groups.
     4. A statewide sugary drink tax likely would reduce sugary drink consumption, potentially leading to health improvements – such as reduced rates of heart disease and diabetes. At the same time, consumer responses to a sugary drink tax could be complex; the net health effects are difficult to ascertain.
  4. Administrative considerations: Staff has identified the following administrative concerns and is available to work with the author to address these and any other issues that may be identified as this bill progresses through the legislative process:
     1. Delaying the operative date: To implement this bill effectively, CDTFA will need to notify and register feepayers, develop appropriate computer programs, hire and train key staff, create necessary forms and returns, and answer feepayer inquiries. These functions, in turn, must all take place before the fee becomes effective. Under this bill, however, the fee becomes effective January 1, 2020. This leaves CDTFA precious little lead-time to successfully implement a new fee program. In addition, this bill provides little time for distributors to prepare for fee collection. Staff estimates that it would likely take from six to eight months to implement a new program of this magnitude. As such, the Committee may wish to consider amendments delaying the fee's operative date to the first day of the first calendar quarter commencing more than 180 days after this bill is enacted.
     2. Providing administrative startup costs: As currently drafted, this bill provides no upfront funds to cover CDTFA's administrative implementation costs. Because it is not anticipated that such costs will be covered in the FY 2019-20 Budget, the author may wish to consider including an adequate appropriation to cover these costs.
     3. Adopting necessary amendments: In its current form, this bill requires a number of amendments for effective administration and collection. These include:
        1. Defining key terms: This bill currently lacks definitions for several key terms, including “concentrate”, “sale”, “retailer”, “retail sale”, and “powder”;
        2. Providing for exemption certificates: This bill allows for specified exemptions, but does not require the purchasing distributor to issue an exemption certificate to the selling distributor;
        3. Requiring online registration: Committee staff suggests requiring online registration consistent with other CDTFA-administered tax and fee programs;
        4. Striking duplicative language: This bill provides an exemption for the distribution of sugary drinks or concentrate by a distributor to either a person located out-of-state, as specified, or a person who is otherwise exempt under applicable federal or state law. These provisions, however, currently appear twice in this bill.
        5. Relocating provisions to the Revenue and Taxation Code: Despite being called a fee, this bill imposes a new tax administered by CDTFA. Statutory provisions for administering CDTFA tax programs are more appropriately placed in the Revenue and Taxation Code.
  5. The Safe Drinking Water Supplemental Benefit Pilot Program: This program is a state-funded initiative designed to provide additional CalFresh benefits for interim assistance to purchase safe drinking water in areas where it is necessary. Specifically, the State Department of Social Services is currently required to use program moneys to provide time-limited additional state-funded nutritional benefits to residents of prioritized disadvantaged communities that are served by public water systems that consistently fail to meet primary drinking water standards, as defined. The State Department of Social Services is authorized to use its own existing databases and databases from the State Water Resources Control Board to determine which CalFresh households are eligible to receive program benefits.

This bill, in turn, modifies the existing program in the following ways:

• • 1. First, this bill authorizes, but does not require, the State Department of Social Services to prioritize Fund revenues received to fund the existing Safe Drinking Water Supplemental Benefit Pilot Program;
    2. Second, this bill requires the State Department of Social Services to coordinate with the State Water Resources Control Board for purposes of conducting any activities authorized under the program that are funded by the Fund. Such activities shall support increased access to safe and affordable drinking water to ensure all Californians have access to safe and affordable alternatives to sweetened and sugary beverages; and,
    3. Lastly, this bill extends the program's sunset date from July 1, 2020, to July 1, 2025.
  1. Double referral: This bill was double- referred to the Assembly Committee on Health, which voted this bill out by a vote of 8-to-6 on April 9, 2019. For a more detailed discussion of this bill's health-related aspects, please refer to that committee's analysis.
  2. Prior legislation:
     1. AB 1003 (Bloom), of the 2017-18 Legislative Session, would have imposed a tax, except as specified, on the sale or transfer of any sugar-sweetened beverage product, as defined, by the distributor of the product equal to $0.02 per fluid ounce. AB 1003 was held by the Assembly Committee on Health.
     2. AB 2782 (Bloom), of the 2015-16 Legislative Session, would have imposed a fee on every distributor, as defined, for the privilege of distributing in this state bottled sweetened beverages, at a rate of $0.02 per fluid ounce, as specified. AB 2782 was never heard by the Assembly Committee on Health.
     3. AB 1357 (Bloom), of the 2015-16 Legislative Session, would have imposed a fee on every distributor, as defined, for the privilege of distributing in this state bottled sweetened beverages, at a rate of $0.02 per fluid ounce, as specified. AB 1357 failed passage in the Assembly Committee on Health.
     4. SB 203 (Monning), of the 2015-16 Legislative Session, would have established the Sugar-Sweetened Beverages Safety Warning Act to prohibit a person from distributing, selling, or offering for sale a sugar-sweetened beverage without a safety warning, as prescribed. SB 203 failed passage in the Senate Committee on Health.
     5. SB 1000 (Monning), of the 2013-14 Legislative Session, would have established the Sugar-Sweetened Beverages Safety Warning Act to prohibit a person from distributing, selling, or offering for sale a sugar-sweetened beverage without a specified safety warning. SB 1000 failed passage in the Assembly Committee on Health.
     6. SB 622 (Monning), of the 2013-14 Legislative Session, would have imposed a tax on every distributor, as defined, for the privilege of distributing in this state bottled sweetened beverages, at a rate of $0.01 per fluid ounce, as specified. SB 622 was held on the Senate Appropriations Committee's Suspense File.
     7. AB 669 (Monning), of the 2011-12 Legislative Session, would have imposed a tax on every distributor, as defined, for the privilege of distributing in this state bottled sweetened beverages at a rate of $0.01 per fluid ounce, as specified. AB 669 was held on this Committee's Suspense File.
  3. Suggested technical amendments:
     1. On page 7, line 6, insert "beverage" after "nonalcoholic"; and,
     2. On page 8, line 22, strike "power" and insert "powder";

REGISTERED SUPPORT / OPPOSITION:

Support

American Academy of Pediatrics, California (Co-Sponsor)

American Heart Association (Co-Sponsor)

Public Health Institute (Co-Sponsor)

American Cancer Society Cancer Action Network

American Diabetes Association

Association of California Healthcare Districts

Berkeley Media Studies Group

California Dental Association

California Dental Hygienists’ Association

CaliforniaHealth+ Advocates

California Healthcare Districts

California Medical Association

California Orthopaedic Association

California Pan-Ethnic Health Network

California School-Based Health Alliance

California School Nurses Organization

Center for Science in the Public Interest

Ceres Community Project

Community Alliance with Family Farmers

Community Health Councils

County of Santa Barbara

County of Santa Clara

Harder & Company Community Research

Health Access California

Healthy Food America

Interfaith Sustainable Food Collaborative

Institute for Public Strategies

Latino Coalition for a Healthy California

Los Angeles Food Policy Council

Los Angeles Trust for Children's Health

MAAC Child Development Program

Marin Food Policy Council

Nutritional and Fitness Collaborative of the Central Coast

Pajaro Valley Community Health Trust

Real Food Media

Roots of Change

Visión y Compromiso

YES Nature to Neighborhoods

One individual

Opposition

American Beverage Association

CalAsian Chamber of Commerce

California Attractions and Parks Association

California Automatic Vendors Council

California Business Roundtable

California Chamber of Commerce

California Food Producers

California Fuels & Convenience Alliance

California Grocers Association

California Hispanic Chambers of Commerce

California Manufacturers & Technology Association

California Restaurant Association

California Retailers Association

California Teamsters

Can Manufacturers Institute

Howard Jarvis Taxpayers Association

Los Angeles Area Chamber of Commerce

National Automatic Merchandising Association

National Coalition of Associations of 7-Eleven Franchisees

Orange County Business Council

San Gabriel Valley Economic Partnership

Silicon Valley Organization

Southwest California Legislative Council

Valley Industry and Commerce Association

Analysis Prepared by: M. David Ruff / REV. & TAX. / (916) 319-2098

Date of Hearing: April 9, 2019

ASSEMBLY COMMITTEE ON HEALTH

Jim Wood, Chair

ABPCA Bill Id:AB 138

Author:(Bloom) – As Amended Ver:March 25, 2019

SUBJECT: California Community Health Fund.

SUMMARY: Imposes a fee on every distributor for distributing bottled sugary drinks and concentrate. Establishes a mechanism for calculating the fees to be administered by the California Department of Tax and Fee Administration (CDTFA); establishes the California Community Health Fund (Fund) to consist of fees or penalties collected; and, allocates funds raised for specified entities which may administer grants or allocations to local organizations to achieve specified objectives, including promoting health equity, reducing health disparities, improving oral health, and preventing the leading causes of illness, injury, and premature death especially those caused by sugar-sweetened beverage (SSB) consumption. Specifically, this bill:

1. Defines various terms, including the following:
   
   1. Caloric sweetener to mean any substance or combination of substances that contains calories, is suitable for human consumption, and that humans perceive as sweet. Includes in this definition sugar, sucrose, dextrose, fructose, glucose, monosaccharide and disaccharide, corn syrup or high-fructose corn syrup, or honey.
   2. Distributor to mean any person, including a manufacturer or wholesale dealer, who distributes sugary drinks or concentrates for sale to retailers that operate business in the state, regardless of whether the person sells those products to consumers.
   3. Distribution or distribute to mean to supply to a distributor or retailer, deliver to a retailer, acquisition by a retailer, or to transport into the state for the purpose of selling any sugary drink product in the state, or any combination of these activities. Excludes from this definition retail sale to a consumer.
   4. Sugary drink to mean either of the following:
      1. A nonalcoholic beverage intended for human consumption which contains any added caloric sweetener. A nonalcoholic means any beverage that is not subject to tax under part 14 of Division 2 of the Revenue and Taxation Code, as specified; or,
      2. A concentrate, whether in liquid, gel, powder, frozen, or solid form with a mixture of ingredients, which meets 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 subparagraph i) above.
   5. Excludes the following liquid or concentrate product from the definition of sugary drink:
      1. A beverage that includes, as a primary ingredient, milk, soy, rice, or a similar plant-based milk substitute;
      2. The original liquid is either the result from the pressing of fruit or vegetables or from the reconstitution of pure fruit or vegetable juice concentrate;
      3. The liquid is the result from the restoration of water to dehydrated fruit or vegetable juice;
      4. Infant formula;
      5. A beverage for medical use suitable for human consumption and manufactured for use as an oral nutritional therapy for persons who cannot absorb or metabolize dietary nutrients from food or beverages. Includes in this definition medical food, as defined. Excludes from this definition drinks commonly referred to as sports drinks or any other common names;
      6. Any beverage designed as supplemental, meal replacement, or sole-source nutrition that includes proteins, carbohydrates, and multiple vitamins and minerals;
      7. An oral electrolyte solution for infants and children formulated to prevent dehydration due to illness; and,
      8. A sugary drink product with fewer than 25 calories per 12 fluid ounces.
         
2. Establishes the Fund to consist of all fees, interest, penalties, and other amounts collected pursuant to this bill. Requires that refunds and reimbursements for expenses incurred in the administration and collection of the fees and required allocations to other agencies to be payable from the Fund, upon appropriation by the Legislature.
   
3. Imposes a fee on every distributor for distributing bottled sugary drinks and concentrate in the state for deposit into the Fund.
   
4. Requires the fees to be calculated as follows:
   1. For sugary drinks and concentrate, at a rate of two cents ($0.02) per ounce that is sold or offered to a retailer for sale in the state to a consumer;
   2. For syrups and powders sold or offered to a retailer for sale in the state to a consumer, either as syrup or powder or as a sugary drink derived from that syrup or powder, at a rate of two cents ($0.02) per ounce of sugary drink produced from that syrup or powder; and,
   3. For purposes of calculating the fee, the volume of sugary drink produced from syrups or powders to be the greater of either the largest volume resulting from use of the syrups or powders according to any manufacturer’s instructions, or the volume actually produced by the retailer, as reasonably determined by CDTFA.
      
5. Makes the distributor liable for the fee imposed under this bill. Requires the fee to be paid upon the first nonexempt distribution of a sugary drink product in the state. States that the distributor or retailer is not liable for the fee, if a distributor or a retailer receives taxable products on which the fee has not been paid.
   
6. Requires the CDTFA to adjust the fees for inflation every other year.
   
7. Prohibits imposing a fee on a distributor for a sugary drink product if the fee has already been paid.
   
8. Provides that if a sugary drink product is either manufactured or produced by including one or more other sugary drink products, a fee to not be imposed on a caloric sweetener contained in the resulting sugary drink product if a fee was previously imposed on that caloric sweetener.
   
9. Provides that a retailer is liable for the fee on a sugary drink product only if the fee has not been previously paid by the distributor.
   
10. Exempts from the fee the distribution of sugary drinks or concentrate by a distributor to either of the following persons:
    
    1. A person to whom the bottled sugary drink or concentrate is contractually obligated to be shipped, and is shipped, to a point outside of California by the distributor, by means of either of the following:
       1. Delivery to a facility operated by the distributor; or,
       2. Delivery by the distributor to a carrier, customs broker, or forwarding agent, regardless of whether the distributor was hired by the purchaser, for shipment to the out-of-state point.
    2. A person who is otherwise exempt from the fee of that sale, use, or consumption pursuant to the United States Constitution, federal law or regulation, or the California Constitution.
       
11. Requires the Fund to be distributed to the Department of Public Health (DPH), the Department of Health Care Services, Department of Education, the Department of Food and Agriculture, and the State Water Resources Control Board to promote health equity to reduce health disparities, improve oral health, and prevent the leading causes of illness, injury, and premature death, especially those caused by SSB consumption.
    
12. Requires the departments specified in 11) above, to administer grants or allocation to local organizations to achieve the objectives specified in 11) above. Requires these departments if they administer grant programs, to distribute the funds in communities or institutions serving those with the highest rates of health inequities with a particular focus on specified target populations:
    1. African American, Hispanic, Native American and Alaska Native, Asian American, and Native Hawaiian and Pacific Islanders;
    2. Residents living below 150% of the federal poverty limit;
    3. Communities identified as underserved with regard to dental health services or that have high rates of dental disease; and,
    4. Communities identified with other marked health disparities to be addressed.
       
13. Requires the departments specified in 11) above that receive funding to use the most current data available to target moneys in the Fund to address the needs of the identified priority populations and to reach the greatest number of residents in the identified priority groups.
    
14. Requires most community-level investments to be targeted; and allows funds to pursue media campaigns that may benefit all residents of a community or jurisdiction.
    
15. Requires media campaigns to:
    1. Support health, education, and wellness programs designed to prevent and treat obesity, diabetes, and heart and dental disease and to reduce the burden of attendant health conditions that result from the overconsumption of SSBs; and,
    2. Be reviewed and approved by the state entity that is directly administering the competitive grant program.
       
16. Requires grantees to employ culturally and linguistically competent approaches appropriate to their communities.
    
17. Requires the state entity that is responsible for administering the competitive grant program to conduct biennial financial audits to ensure that the annual allocation to grantees is awarded by the Fund consistent with the requirements of this bill.
    
18. Requires the CDTFA to administer and collect the charges imposed by this bill pursuant to the Fee Collection Procedures Law.
    
19. Requires CDTFA to use no more than 3% of the revenues generated to cover its administrative costs in collecting the fees.
    
20. Allows CDTFA to promulgate and enforce regulations relating to the administration and enforcement of this bill, including matters regarding collections, reporting, refunds, and appeals. Allows CDTFA to adopt emergency regulations to implement this bill.
    
21. Requires CDTFA to develop an internet website and post materials to inform distributors, retailers, and the general public about the fee and its scope and operation at least two months prior to the effective date.
    
22. Requires the fees to be due and payable to CDTFA on or before the last day of the first month following each calendar quarter.
    
23. Requires a tax return to be filed with the CDTFA, using electronic media, on or before the last day of the first month following each calendar quarter, a return for the preceding calendar quarter shall be filed, using electronic media, with CDTFA.
    
24. Authorizes CDTFA to prescribe forms and reporting requirements as are necessary to implement the fees, including information regarding the total amount of sugary drinks and concentrate sold and the amount due.
    
25. Requires a distributor who is required to pay the fees under this bill to register with the CDTFA, on a form prescribed by CDTFA.
    
26. Exempts the distribution of sugary drinks or concentrate by a distributor to either of the following persons:
    1. A person who is located out-of-state, and pursuant to a sales contract, receives a shipment of a sugary drink or concentrate from either a facility operated by the distributor or a carrier, customs broker, or forwarding agent, whether hired by the purchaser or not, for shipment to a location out-of-state; or,
    2. A person who is otherwise exempt from the taxation of that sale, use, or consumption under the United States Constitution, federal law or regulation, or the California Constitution.
       
27. Allows a distributor who has paid a fee, either directly to the state or to another distributor registered under this bill, and makes a subsequent distribution of sugary drinks or concentrate may claim a credit on the distributor’s return for the period when a subsequent sale or distribution occurs.
    
28. Makes various findings and declarations on health impacts associated with the consumption of SSB.
    

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, as well as the U.S. as a whole, is facing an obesity and diabetes epidemic. From 1980 to 2010, the national obesity rate more than doubled and today, 69% of American adults are considered overweight or obese (36% are obese). The prevalence of obesity in children has more than tripled from 1971 to 2011. These alarming rates are even more pronounced among low-income and minority communities. Hispanics and African Americans, for example, have double the prevalence of Type 2 diabetes. A study by the UCLA Center for Health Policy Research indicates that approximately 2.5 million California adults (about 9% of the population) have been diagnosed with diabetes. An even higher number of Californians, approximately 13 million, have prediabetes, and up to 70% of these individuals will develop diabetes within their lifetime. Diabetes and obesity not only affect the health and quality of life for this state’s residents, but also come with a tremendous financial burden. Diabetes alone costs the state approximately $27 billion a year and obesity costs the state approximately an additional $21 billion a year.
   
   Despite these staggering numbers, California spends little to nothing on prevention. Currently, DPH is responsible for administering the State’s diabetes prevention programs. DPH’s diabetes prevention efforts are funded through grants from the federal Centers for Disease Control and Prevention (CDC). Although the number of Californians with diabetes has increased significantly over the past decade, DPH received 22% less federal funding for diabetes prevention in fiscal year 2013-14. A report by the State Auditor found that, at a funding level of $.03 per capita, California had the lowest per capita funding for diabetes prevention in the nation. This bill seeks to tackle the diabetes and obesity epidemics, particularly among children, by creating a dedicated revenue source for diabetes prevention as well as oral health programs and increased access to drinking water and physical activity in schools. In the short-term, this bill will help meet the state’s funding needs for important prevention programs. In the long-run, the positive outcomes from the bill will help turn the tide of obesity and diabetes in this state, resulting not only in positive health outcomes but also tremendous cost savings.
2. BACKGROUND. According to the CDC, SSBs are any liquids that are sweetened with various forms of added sugars like brown sugar, corn sweetener, corn syrup, dextrose, fructose, glucose, high-fructose corn syrup, honey, lactose, malt syrup, maltose, molasses, raw sugar, and sucrose. Examples of SSBs include, but are not limited to, regular soda (not sugar-free), fruit drinks, sports drinks, energy drinks, sweetened waters, and coffee and tea beverages with added sugars. The CDC states that the average American gets 270 calories of added sugars each day or 17 teaspoons of sugar. A 12-ounce can of regular Coke contains 39 grams of total sugar, which is more than nine teaspoons of sugar.
   
   1. Obesity, Diabetes, and Other Chronic Diseases. According to the CDC, obesity affected about 93.3 million of U.S. adults in 2015-16. Hispanics (47.0%) and non-Hispanic blacks (46.8%) had the highest age-adjusted prevalence of obesity, followed by non-Hispanic whites (37.9%) and non-Hispanic Asians (12.7%). The prevalence of obesity was 35.7% among young adults aged 20 to 39 years, 42.8% among middle-aged adults aged 40 to 59 years, and 41.0% among older adults aged 60 and older.
      
      Among children and adolescents aged two to 19 years, the prevalence of obesity was 18.5% and affected about 13.7 million children and adolescents. Obesity prevalence was 13.9% among two- to five-year-olds, 18.4% among six- to 11-year-olds, and 20.6% among 12- to 19-year-olds. Similar to adult obesity, childhood obesity is also more common among certain populations: Hispanics (25.8%) and non-Hispanic blacks (22.0%) had higher obesity prevalence than non-Hispanic whites (14.1%). Non-Hispanic Asians (11.0%) had lower obesity prevalence than non-Hispanic blacks and Hispanics.
      
      Obesity-related conditions include heart disease, stroke, type 2 diabetes and certain types of cancer that are some of the leading causes of preventable, premature death. 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. Overall health care spending on obesity continues to significantly burden the nation. According to the CDC, the estimated annual medical cost of obesity in the United States was $147 billion in 2008 U.S. dollars; the medical cost for people who have obesity was $1,429 higher than those of normal weight. 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.
      
      According to a 2018 research published by the American Diabetes Association, the estimated total costs of diagnosed diabetes have arisen to $327 billion in 2017 from $245 billion in 2012, when the cost was last examined. This is a 265% increase over a five-year period. The largest components of medical expenditures are: hospital inpatient (30% of the total medical cost); prescription drugs to treat complications of diabetes (30%); anti-diabetic agents and diabetes supplies (15%); and, physician office visits (13%). The average medical expenditures for people diagnosed with diabetes is $16,752 per year, of which about $9,601 is attributed to diabetes. The report also points out that most of the cost of diabetes care is provided by government insurance (67.3% of Medicare, Medicaid, and military), private insurance (30.7%), or by the uninsured (2%).
      
      According to an article in the December 2018 issue of Obesity Journal, the economic burden of obesity-related comorbidities has prompted federal, state, and organizational policymakers to incorporate obesity screening and management into health plan policies. For example, Section 2713 of the Patient Protection and Affordable Care Act mandates that all nongrandfathered private and nonfederal governmental group health plans (state employee plans) cover clinical preventive services recommended by the U.S. Preventive Services Task Force without cost sharing, including referrals to intensive behavioral interventions and health diet counseling for adults with obesity and other cardiovascular disease risk factors. However, these plans are not required to cover obesity-related preventive services.
      
   3. 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 report by the Institute of Medicine (IOM) identified sugary drinks as the single largest contributor of calories and added sugars to the U.S. diet. One of the recommendations on the IOM report is for governments to consider excise taxes on SSBs with the revenues being dedicated to obesity prevention programs.
      
      Additionally, according to the “2015-2020 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, the two main sources of added sugars in U.S. diets are SSBs and snacks and sweets; and recommends limiting added sugar consumption to less than 10% calories per day. 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.
      
   4. 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.
      
   5. 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 of Philadelphia enacted a SSB tax which became effective January, 1, 2017. Other jurisdictions with tax on sugary drinks include the states of West Virginia and Arkansas; cities like Boulder, Seattle, and Philadelphia; and, countries like Norway, South Africa, Sri Lanka, United Kingdom, Ireland, and the Philippines all have sugary drink taxes that are currently in effect.
   6. Prohibition on Imposition of Taxes. AB 1838 (Committee on Budget), Chapter 61, Statutes of 2018, prohibits until January 1, 2031, the imposition, increase, levy and collection or enforcement by a local agency of any tax, fee or other assessment on groceries (defined to include SSB). Local governments can continue to levy and collect taxes on groceries if the tax was imposed on or before January 1, 2018. AB 1838 also makes inoperative on the effective date of this bill any tax, fee, or other assessment on groceries imposed by a local agency after January 1, 2018.
      
      For purposes of SSB, except for the four cities that passed a soda tax prior to the passage of AB 1838, any local entity cannot impose any tax on SSB until January 1, 2031.
   7. Mexico’s beverage tax. In 2012, the overweight and obesity rate in Mexico among adults was 73% and 36% among children. At that time, about 15% of adults were estimated to have Type 2 diabetes. In 2013, then President Enrique Pena Nieto proposed a 10% tax (one peso) on all soft drinks, especially carbonated drinks. The tax took effect on January 1, 2014. Since the adoption of the tax, there have been studies on the impact of these taxes on consumption or purchase. According to a March 2017 Health Affairs study/article entitled “In Mexico, Evidence of Sustained Consumer Response Two Years After Implementing A Sugar-Sweetened Beverage Tax,” results on the changes in beverage purchases for 2014 and 2015 were published. The study indicates that purchases of taxed beverages decreased 5.5% in 2014 and 9.7 % in 2015 or an average reduction of 7.6% over the study period. The study also pointed out that households at the lowest socioeconomic level had the largest decreases in purchases of taxed beverages in both years. These reductions, the study pointed out, could have positive impacts on health outcomes and reductions in health care expenses in Mexico.
   8. Legislative Analyst Office (LAO) Report. The LAO published a report on November 2018 entitled “Taxation of Sugary Drinks” to provide the Legislature information and perspectives on this issue. The LAO report states that sugary drink proponents tend to emphasize two goals: a fiscal goal of raising revenue; and, a policy goal of improving health. On the policy purpose, the report points out that a statewide sugary drink tax would reduce sugary drink consumption (for example a two cent per ounce tax likely would reduce consumption by 15% to 35%), potentially leading to improvements in health, such as reduced rates of heart disease and diabetes. However, consumer responses to a sugary drink tax would be complex, so the net health effects of such a tax are uncertain.
3. DOUBLE-REFERRAL. This bill is double referred; upon passage in this Committee, it will be referred to the Assembly Revenue and Taxation Committee.
4. SUPPORT. According to a cosponsor, the Public Health Institute, this bill will allow the state to invest in communities, working to lift the burden of diseases related to the consumption of sugary drinks and to address the unacceptable disparities in health that affect California residents. The dedicated revenue source created by this bill is needed to offset the health impacts that disproportionately impact many communities.
   
   Health Access California writes in support that evidence overwhelmingly shows there is a link between obesity and the consumption of sweetened beverages, such as soft drinks, energy drinks, sweet teas, and sports drinks. In California, 60% of adults are overweight or obese and nearly 40% of children are overweight or obese. The Latino Coalition for a Healthy California, also in support, states that millions of Americans suffer from high rates of diabetes, obesity, and other oral health diseases. These chronic diseases disproportionately affect communities of color and face greater neighborhood disparities including access to healthy food options. Over the last 30 years, diabetes rates have increased by 35% since 2001, making California the leading state in diabetes diagnosis. Diabetes is one of the leading causes of death for Latinos, African Americans, Native Americans, and Asian Pacific Islanders in California. If we do nothing, it has already been predicted that 50% of Latino and African American children born since the year 2000 will develop type 2 diabetes during their lifetime. When one considers that the economic consequences of diabetes in California have been estimated at over $24 billion it makes sense to place a fee on the biggest driver of this disease with the intent of investing these resources for prevention in the ZIP codes that exhibit the highest rates of disease.
5. OPPOSITION. The Howard Jarvis Taxpayers Association writes in opposition that ‘sin taxes’ are premised on the belief that increased taxes will result in better health outcomes. Some people may well stop smoking, or drinking soda, if taxes are dramatically increased. But the efficacy of this theory remains in doubt. Typically, sin taxes mostly impact low-income Californians who may not have the knowledge (or the ability) to purchase healthier beverages.
   
   A coalition of organizations opposed to this bill, including the American Beverage Association, California Food Producers, the California Chamber of Commerce, and the California Restaurant Association, write that beverage taxes don't make people healthier, but education about balance can. It does not make sense to pin the blame for complex health issues on SSBs. Consumption of sugar from beverages has been declining over the past decade, while rates of obesity and diabetes increase. The numbers don’t add up. According to the opposition, local municipal taxes have demonstrated an increase in prices without positive health outcomes. California has struggled over the past several years with budget cuts and revenue loss, and the creation of additional state programs that may ultimately rely upon General Fund revenue in order to survive is a concern. If SSB taxes deter consumers from purchasing sweetened beverages, as intended, then the tax is a decreasing revenue source and would result in a need for additional taxes to replace lost revenue. The opposition cites the case of a beverage tax in Philadelphia that has demonstrated beverage taxes are not only discriminatory but hurt the local economy. The tax has effectively made a 12-pack of sports drinks more expensive than a 12-pack of beer. Retailers have shed jobs, cut hours, and have seen sales plummet as consumers headed outside of Philadelphia to shop not just for beverages but other items that draw them to stores as well.
6. RELATED LEGISLATION.
   1. AB 764 (Bonta) prohibits a beverage company, manufacturer, distributor, from giving or offering a distributor or retailer a nonsale distribution incentive for a SSB or SSB product. AB 764 is pending in the Assembly Health Committee.
   2. AB 765 (Wicks) establishes the California Healthy Checkout Aisles for Healthy Families Act, which prohibits making available SSB in the checkout areas. AB 765 is pending in the Assembly Health Committee.
   3. AB 766 (Chiu) prohibits a retailer from selling an unsealed beverage container that is able to contain more than 16 fluid ounces. AB 766 is pending in the Assembly Health Committee.
   4. SB 347 (Monning) establishes the Sugar-Sweetened Beverages Safety Warning Act, to be administered by the Department of Public Health, and requires a safety warning on all sealed SSB containers, as specified. SB 347 is pending in the Senate Appropriations Committee.
7. PREVIOUS LEGISLATION.
   1. AB 1003 (Bloom) of 2017, AB 2782 (Bloom) of 2016, and AB 1357 (Bloom) of 2015 were all substantially similar to this bill. AB 1003 was held in the Assembly Health Committee, and the subject matter was referred to the Committee on Rules for assignment to the proper committee for study. AB 2782 was not heard in the Assembly Health Committee. AB 1357 failed passage in the Assembly Health Committee.
      
   2. SB 300 (Monning) of 2017, SB 203 (Monning) of 2015, SB 1000 (Monning) of 2014, and AB 1335 (Bonta) of 2018 would have required a safety warning on all sealed SSB containers. SB 300 was not heard in this Committee. SB 203 failed passage in this Committee. SB 1000 failed passage in the Assembly Health Committee. AB 1335 was held on the Senate Appropriations Committee suspense file.
      
   3. SCR 34 (Monning), Chapter 99, Statutes of 2015 proclaims the month of September 2015, and each year thereafter, as Childhood Obesity Awareness Month, and expresses the Legislature’s support of various programs that work to reduce obesity among children, including those that increase access to affordable healthful foods and beverages and provide less access to high-calorie foods and SSBs.
      
   4. SB 622 (Monning) of 2013, AB 669 (Monning of 2011, SB 1210 (Florez) of 2010, and AB 2100 (Coto) of 2010 would have imposed a $0.01 per fluid ounce tax on any beverage that adds caloric sweeteners, such as sodas, energy drinks, sweet teas, and sports drinks. SB 622 would have required funds generated by the tax to be directed to the newly created Children’s Health Promotion Fund and allocated to statewide childhood obesity prevention activities and programs. SB 622 was held on the Senate Appropriations Committee suspense file. AB 669 was held on the Assembly Revenue and Taxation Committee suspense file. SB 1210 was held on the Senate Revenue and Taxation Committee suspense file. AB 2100 was not heard in the Assembly Revenue and Taxation Committee.
      
   5. AB 1746 (Williams) of 2012 would have, commencing July 1, 2013, restricted the sale of electrolyte replacement beverages in middle schools and high schools to specified times before and after school. AB 1746 was held on the Assembly Appropriations Committee suspense file.

REGISTERED SUPPORT / OPPOSITION:

Support

American Academy of Pediatrics, California (cosponsor)

American Heart Association (cosponsor)

Public Health Institute (cosponsor)

American Cancer Society Cancer Action Network Inc.

American Diabetes Association

Berkeley Media Studies Group

California Dental Association

California Medical Association

California Orthopedic Association

California Pan-Ethnic Health Network

California School Nurses Organization

California School-Based Health Alliance

Californiahealth+ Advocates

Center for Science in the Public Interest

Ceres Community Project

Harder & Company Community Research

Health Access California

Healthy Food America

Institute for Public Strategies

Latino Coalition for a Healthy California

MAAC Child Development Program

Nutrition and Fitness Collaborative of the Central Coast

Pajaro Valley Community Health Trust

Real Food Media

Roots of Change

The Los Angeles Trust for Children’s Health

YES Nature to Neighbors

Opposition

American Beverage Association

CalAsian Chamber of Commerce

California Attractions and Parks Association

California Automatic Vendors Council

California Business Roundtable

California Chamber Of Commerce

California Food Producers

California Fuels & Convenience Alliance

California Grocers Association

California Manufacturers & Technology Association

California Restaurant Association

California Retailers Association

Can Manufacturers Institute

Howard Jarvis Taxpayers Association

Los Angeles Area Chamber of Commerce

National Automatic Merchandising Association

National Coalition of Associations of 7-Eleven Franchisees

Orange County Business Council

San Gabriel Valley Economic Partnership

Valley Industry and Commerce Association

Analysis Prepared by: Rosielyn Pulmano / HEALTH / (916) 319-2097