Auditor Issues Report on Proposition 56 Tobacco Tax Administration
California State Auditor Elaine Howle this week released an audit report entitled, “Proposition 56 Tobacco Tax: State Agencies’ Weak Administration Reduced Revenue by Millions of Dollars and Led to the Improper Use and Inadequate Disclosure of Funds.” Auditor Howle determined that the Department of Tax and Fee Administration (CDTFA) did not ensure the accuracy of the tax rate it imposed on certain tobacco products, resulting in $6.3 million in lost revenue during fiscal year 2018-19. Specifically, CDTFA only included premium-priced cigarettes in its calculation of the wholesale cost of cigarettes and it used an unsupported and higher-than-warranted wholesale markup rate on specified products.
The report also determined that a series of state agencies that received Proposition 56 funds have not consistently used them for the intended purposes, including grant awards for activities that did not comply with funding requirements. The Department of Health Care Services (DHCS), for instance, awarded tens of millions of dollars to repay student loans for physicians and dentists who provide services through Medi-Cal but did not sufficiently prioritize physicians and dentists located in areas that are underserved. Four of the six state agencies that receive Proposition 56 funding were also found to have failed to adequately disclose the amount of funds they received or how they used those funds.
The State Auditor outlines a series of recommendations for state agencies, including DHCS and the California Department of Public Health (CDPH). DHCS is recommended to ensure that it awards funds to applicants who address the need for providers in health professional shortage areas. DHCS and CDPH are also recommended to publish online specified information relative to Proposition 56 funding and expenditures.
The full State Auditor report is available here.