Cigarette Tax Share Cut Is Burning Issue

City and county governments throughout California are finding out to their dismay that the state--without telling them--reduced their share of the cigarette tax by $7.5 million and handed the money to the State Board of Equalization.

Under the reallocation, Orange County government got about 26%, or $100,000, less than the previous fiscal year, and every city in the county except Laguna Niguel is getting less cigarette tax money as well.

Although local governments’ share of the tax represents a small portion of municipal and county budgets, officials say they are angered by the state cut, which was not announced and came at a time of budget shortfalls.

“When county government loses $100,000, it’s certainly of concern to us,” said Orange County Budget Director Ronald S. Rubino. “There is very little general-purpose revenue available to the county, and this tax is one source of such revenue. So I think losing this money is something that concerns us very much.”

In a little-noticed move last summer, the Legislature shifted the municipal and county shares of the cigarette tax to the Board of Equalization to pay for surveying and assessing work the board does for cities and counties. Such costs were formerly paid from the state general fund.

But the Legislature, in an effort to balance its budget, decided last year to transfer the cost to local government. As a result, cities and counties across the state have had unexpected decreases in their share of the cigarette tax money.

What makes local government officials most peeved about the situation, though, is the fact that the Legislature acted without consulting--or even notifying--them.

“I’m just now learning what happened to that money,” Newport Beach City Manager Robert L. Wynn said. “We thought there was less tax because people weren’t smoking as much.”

In fact, sales of cigarettes statewide were down about 10% for the just-ended fiscal year 1991 contrasted with fiscal year 1990. (State fiscal years run from July 1 to June 30.) But some cities, Newport Beach among them, are seeing a 20% decrease in cigarette-tax revenue.

The state’s basic 10-cent state tax on cigarettes brought in $194.8 million for fiscal 1991, contrasted with $216.9 million the previous year. It is the 10-cent-per-package portion of the state tax that is divided among governments.

Another 25-cent tax on cigarettes passed by a statewide proposition two years ago goes to a special fund for health-related uses. That fund was not affected by the Legislature’s action last year.

“This is the first I knew about it,” said Bill Hodge, executive director of the Orange County division of the League of California Cities. “I haven’t heard anything from cities in the county about this, and I guess that’s because they didn’t know about the change either.”

Hodge noted that the 1990 Legislature made two other last-minute changes in the state budget that drew the wrath of the cities: It authorized county governments, for the first time, to charge cities for booking jail inmates and for the administrative cost of processing property taxes for them.

“So many deals were cut on the evening that (state) budget was passed that we’re still learning about them,” Hodge said. “This whole thing is like peeling back the layers of an onion. And you get tears in your eyes each time another layer is peeled away.”

Cities and counties did not discover the cutback in cigarette tax money until recently. The money that previously went to local governments was not diverted to the Board of Equalization until this spring, when cities began wondering about “short” monthly allocations of the tax from the state.

In Orange County, Huntington Beach was among the first local governments to discover the reason for the the decrease. Huntington Beach City Administrator Michael T. Uberuaga wrote a memo to the City Council June 14, alerting them to the little-known state action.

“Revenues to all cities from cigarette taxes all but disappeared in the month of April,” Uberuaga wrote. “The reduction in revenue came as a surprise to most people.”

Ed Fong, a spokesman for the state controller’s office in Sacramento, said the basic 10-cents-per-pack tax on cigarettes previously had been divided by giving 70% to the state and 30% to local governments.

“The division to cities and counties is based on a complex formula that considers population and the amount of sales tax collected in their areas,” Fong said.

The cut in cigarette tax money to cities and counties varied from city to city and county to county because of the complex allocation formula, according to the state controller’s office.

In Orange County, the reductions ranged from less than 1% for Fountain Valley and Dana Point to 22.2% for Newport Beach.

In Los Angeles County, the county government is getting $737,689 in cigarette tax for fiscal 1991, contrasted with $851,586 the previous year. The city of Los Angeles is getting $10,038,912 for fiscal 1991, contrasted with $10,696,819 the previous year.

In San Diego, the county is getting $212,346 for fiscal 1991, contrasted with $238,493 the previous year. The city of San Diego in got $2,342,769 for fiscal 1990, but its share of the cigarette tax for fiscal 1991 was reduced to $1,962,199.

Tobacco Tax Revenue

All cities and counties are getting less money from the California tobacco tax for fiscal 1991 ended June 30 because the state is keeping more. The chart below shows the extent of the reduction for Orange County and its incorporated cities.

Fiscal Year Fiscal Year 1989-90 1990-91 % Change Orange County $401,114 $293,450 -26.8 Anaheim 655,237 531,909 -18.8 Brea 108,919 98,400 -9.7 Buena Park 182,880 149,327 -18.3 Costa Mesa 378,781 305,918 -19.2 Cypress 83,160 65,331 -21.4 Dana Point 69,351 69,200 -0.2 Fountain Valley 112,109 111,595 -0.5 Fullerton 274,364 222,174 -19.0 Garden Grove 296,998 241,398 -18.7 Huntington Beach 404,095 328,392 -18.7 Irvine 350,846 294,832 -16.0 Laguna Beach 51,763 41,823 -19.2 Laguna Niguel * 45,234 81,073 +79.2 La Habra 102,226 85,313 -16.5 La Palma 25,649 21,153 -17.5 Los Alamitos 35,297 29,152 -17.4 Mission Viejo 173,817 145,134 -16.5 Newport Beach 210,936 163,968 -22.3 Orange 355,079 280,019 -21.1 Placentia 77,208 63,847 -17.3 San Clemente 71,571 59,568 -16.8 San Juan Capistrano 60,134 53,396 -11.2 Santa Ana 599,069 485,663 -18.9 Seal Beach 43,108 35,278 -18.2 Stanton 61,212 51,456 -15.9 Tustin 135,934 120,909 -11.1 Villa Park 9,898 7,780 -21.4 Westminster 174,691 146,528 -16.1 Yorba Linda 71,366 64,282 -9.9 COUNTYWIDE TOTAL $5,622,046 $4,648,268 -17.3

* Laguna Niguel received less than one fiscal year’s share of the tobacco tax in 1989-90 because it did not become a city until late in 1989. Had it been a city for the full fiscal year, its 1989-90 share of the tax would have been greater than in 1990-91. Note: Laguna Hills and Lake Forest (El Toro) have voted to become cities, but they are not yet fully incorporated and therefore not receiving state cigarette tax money. Source: State controller’s office