Nadine Mathis Basha

A five-year effort to establish a statewide program for early childhood education and health care is on the ballot this fall in the form of Proposition 203, which would raise the tobacco tax by 80 cents per pack of cigarettes to generate upwards of $150 million a year for the programs.
But a conservative tax watchdog group says the proposition has many flaws, including potentially violating a constitutional amendment approved by voters two years ago that prohibits ballot measures from affecting the state’s General Fund.
The driving force behind the proposition, known as First Things First for Arizona’s Children, is Nadine Mathis Basha and her husband, grocery store magnate Eddie Basha. The focus of the initiative, she says, is to increase Arizona’s national standing in overall child well-being — a category that includes immunization rates, infant mortality rates and other health issues — through providing healthcare and educational opportunities to children from birth until age five.
The proposition consists of three main parts: funding early education and health programs at the local and regional level; dedicating resources to detect learning disabilities and serious health problems in children; and annual audits by the Auditor General to ensure 90 percent of the money is spent on programs, not administration.
Ms. Basha says that, in recent years, “hard science” has shown that children’s brains are 90-percent developed by age three, emphasizing the need to get children off on the right foot educationally.
“All of that lays down the brain architecture for later learning,” she said.
The decision was made to pursue the issue via initiative, Ms. Basha said, because of a fear that, without a dedicated funding source, the programs could hurt the K-12 education system.
“One of the things we did not want to do was compete with education funding,” she said of the never-happened legislative effort. “There needs to be a funding stream for 0-5 [years old].”
The importance of not impacting the state education system, Ms. Basha says, is that there is a continuum of education, and early success leads to more success later on in the child’s educational career. For instance, she said, the number of vocabulary words a student has in kindergarten is an indicator of how well the student will read in 3rd grade, which itself is an indicator of high school graduation.
Language calls for 9-member task force
If it passes, the proposition would create a nine-member task force that would be appointed by the governor and approved by the Senate. Once formed, the board will divide the state into regions — probably by county, though the board would have discretion — each of which will have its own administration to determine what programs are needed in that particular area of the state.
The ballot language provides very few specifics regarding how many regions will be created or what health- or education programs the tax will fund, but Ms. Basha says that was done so deliberately, to increase flexibility at the local level. Participation in programs is also voluntary.
“We really like the aspects of local control,” she said. “What we hope to do is provide parental choice and give parents a better choice.”
McCarthy: ‘Local control’ a myth
Kevin McCarthy, president of the non-profit Arizona Tax Research Association, said the idea of “local control” the backers of the proposition espouse is unlike any other, since the board and the regional administrations are not accountable to the people who live in the regions.
“If there were something that could be the exact opposite [of local control],” he said, “this would be it. Local control is electing people to run things, not appointing them.”
Steve Roman, a spokesman for the Yes on 203 campaign, says process for selecting board members both to the statewide board and the regional boards includes guidelines to make sure all areas of the state and a variety of professional backgrounds are included.
“We believe very strongly that that’s a prime example of how something is localized,” he said.
An 80-cent per-pack tobacco tax increase would hike the taxes from $1.18 to $1.98 on each pack of cigarettes, or 68 percent, giving Arizona the sixth-highest tobacco tax rate in the nation.
According to the ballot question language, the proposition would also raise taxes on individual cigars by five cents; small cigar cases by 18 cents; and chewing tobacco by nine cents per ounce.
Existing tobacco taxes supplement the state’s general fund, the Department of Corrections, health care, health education and health research.
Mr. McCarthy says Proposition 203 is bad public policy and is poorly crafted.
“I think this is a textbook example of the dangers involved in the initiative process,” he said, “where an extraordinarily sloppy piece of legislation gets on the ballot because people have enough money to circulate petitions.”
Sen. Ron Gould, R-3, said he is concerned the costs for the programs funded by the proposition will eventually be the burden of all Arizona taxpayers as revenues from tobacco sales have historically declined.
“What you’re going to see is an expansion of government, and the cost of the programs will fall on the backs of taxpayers,” he said.
Ms. Basha said there is no doubt that cigarette- and tobacco sales will continue to decline. In fact, sales dropping so significantly that there isn’t enough revenue to fund the early childhood programs would be a victory.
“We hope it does,” she said. “It would be ruthless for us to hope people continue to smoke at a detriment to their health.”
Though smoking will continue to decline, Ms. Basha said a decrease in revenues from the tax will be offset by at least 10 years because of burgeoning population growth. By that time, she says, the program’s value will be such that the Legislature will find a way to pay for it.
Decrease in tobacco tax revenues a factor, tax group says
“If it’s an effective program, the powers that be may choose to fund it another way,” she said. “We have every reason to believe…that this will have an effect in that time.”
However, Mr. McCarthy says the decrease in tobacco-tax revenues is likely to be significant. While the Joint Legislative Budget Committee’s gloomy analysis of the proposition estimates a $13.2 million decline in tobacco-tax revenues in FY07 and $22.7 million in FY08, Mr. McCarthy said it could easily be twice that.
He said that decrease in tobacco-tax revenues puts Proposition 203 in likely violation of 2004’s Proposition 101, which requires ballot measures to provide an independent source of funding sufficient to cover the spending without affecting the general fund.
The problem, as Mr. McCarthy sees it, is that, while the two other tobacco-tax hikes approved by voters in 1994 and 2002 have included a hold-harmless provision to programs funded by previous taxes, including the state’s original tobacco tax of 18 cents — the bulk of which goes directly to the general fund — this proposal does not. That, he says, results in less money for the other health and education programs that use tobacco-tax revenues.
“Either sloppiness or greed led them to not do that at all,” Mr. McCarthy said. “As I debate this around town, the proponents seem not to mind or don’t care.”
After revenues begin to decline, Mr. McCarthy says the other programs will see a loss of revenue. Since the general fund receives money from the tax, the decrease in sales that results from this proposition’s tax hike will cause the general fund to have less money, thus placing it in violation of the voter-approved constitutional amendment.
Mr. McCarthy said he expects the decrease in sales to be seen after the first year of the program, not after the 10 years the proponents estimate. While Arizona’s population has grown by 61 percent since 1990, overall tobacco stamp sales — all tobacco products are affixed with a stamp to denote the taxes have been paid — have declined about 23 percent since 1996. Even per capita sales of tobacco products have dipped more than 42 percent since 1996, from $78 to $45 in FY05.
“In the very near future…there’s going to be holes that need to be filled,” he said. “Right off the bat, the Legislature will be faced with decreased revenue in the Tobacco Tax & Health Care Fund and the Tobacco Products Tax Fund and the General Fund.”
Mr. Roman says Proposition 203 will only spend what it raises and will not be subsidized by the general fund. Further, he says, the point of all tobacco taxes is to drive down tobacco use.
“That has always been the case in putting a tax on tobacco,” he said. “For someone to say that [makes it unconstitutional] is disingenuous.”
Though he is a non-smoker, Mr. Gould also criticized the decision to make smokers pay for these programs, as the initiative has nothing to do with smoking.
“Essentially, what this is is you’ve got children versus the evil cigarette smokers,” he said. “I think [activists] try to load things on cigarette smokers all the time.”
In June, when the campaign filed more than 200,000 signatures in order to get the proposition on the ballot, Ms. Basha, who also serves on the State Board of Education, said a tobacco tax was chosen as the primary funding source because it is the most appealing to voters.
“A tobacco tax is something that Arizona voters will support,” she said. “When you look at a campaign, it’s what is most likely to pass.”
And with $2.8 million raised as of Aug. 23 to promote the issue and no organized opposition, many political observers think Proposition 203 is a slam dunk at the polls. Mr. Roman says there is no concerted effort to oppose the ballot measure because it’s a common sense issue to voters.
“The idea itself makes sense, the plan of how you execute it makes sense and the funding source is one that’s acceptable [to voters],” he said.