Colorado Legislative Council Staff

STATE

REVISED FISCAL IMPACT

(replaces fiscal impact dated March 30, 1999)

TITLE:            CONCERNING MEASURES TO SUPPORT THE MULTISTATE TOBACCO SETTLEMENT.

Summary of Legislation

            The reengrossed bill enacts the model statute included in the multistate tobacco settlement that would limit the reduction in the state's settlement payments due to increases in market shares by nonsettling tobacco manufacturers. It requires a tobacco manufacturer who is not a party to the master settlement agreement to either agree to the terms of the master settlement agreement or pay into an escrow account specified amounts for each product sold. The bill permits tobacco manufacturers to spend the interest on the escrow account, and stipulates the conditions under which principal in the account can be withdrawn. Lastly, the bill establishes civil penalties for a manufacturer's failure to pay the required amounts into escrow and, for a second or subsequent knowing failure, authorizes a court to prohibit a manufacturer from selling tobacco in the state for up to two years.

State Expenditures

            A requirement of the multistate tobacco agreement stipulates that the model statute be implemented by the participating states with no amendments. Although the model statute does not directly address the Departments of Law and Revenue, adoption of the model statute will place enforcement and administrative responsibilities on both departments.

            Department of Law — $27,648 in FY 1999-00 and $22,698 in FY 2000-01. The Department of Law estimates there are between 50 and 100 tobacco product manufacturers that will be required to create escrow accounts and make payments into those accounts under this bill. Of these companies, it is anticipated that between 10 and 20 percent will not comply. The fiscal note estimates that 0.5 FTE Staff Attorney at a total cost of $27,648 (including personal services and operating expenses) will be needed in year one. [It is assumed that extensive litigation over the constitutionality of the statute will not occur; should that happen, added resources would be required.]

            The Department of Law will require 0.5 FTE Staff Attorney in its General Enforcement and Appellate Sections to comply with the bill. Staff attorneys in this section are 100 percent General Fund positions. At this time, it is not anticipated that the Department of Revenue will require legal services to comply with its responsibilities under HB 99-1208.

            Department of Revenue — $140,840 in FY 1999-00 and $34,850 in FY 2000-01. The Department will incur costs in three divisions as a result of implementing the model statute.

            Taxation and Compliance Division, Special Tax Section — The division will require 1.0 FTE Tax Examiner 1. Personal services and operating costs for this position are identified at $38,105 for FY 1999-00 and $34,115 for FY 2000-01. Additional resources will be required to track all tobacco shipments for nonparticipating manufacturers: monthly and quarterly reporting; adjustments to accounts; track credits/refunds for merchandise returned to manufacturer; follow-up on distributors failing to file reports; coordinate enforcement issues; and assess penalties when appropriate.

            Cash and Document Processing Division — The division will require $735 annually to process approximately 330 accounts. Cigarette distributors will be required to report monthly and roll-your-own distributors will be required to report quarterly. Costs will be incurred for mailings, microfilm, reporting forms, and permits.

            Information Technology Division — The division will incur a one-time cost of $102,000 in FY 1999-00 for contract computer programming to develop a system to: capture and process permit applications; issue and renew permits; capture and process supplemental data; capture and maintain distributors data; correspond with distributors and manufacturers; capture and report penalized distributors; and develop an annual report for the Department of Law. This cost is based on 1,500 hours of programming at an hourly rate of $68 (1,500 x $68 = $102,000).

            Appropriation of Custodial Funds. The reengrossed bill includes an appropriation clause appropriating the necessary moneys to the Departments of Law and Revenue, but the source of the funding is not General Fund. Rather, the appropriations are made from cash funds exempt custodial funds awarded to the Department of Law to further antitrust and consumer protection purposes. Custodial funds are not subject to appropriation by the General Assembly.

            The State Controller identifies custodial funds as "funds which are given to the state that can be specifically identified and set aside, which are for a specific purpose, for which the state is to act as a custodian, and which are not available for the general use of the state. Custodial funds are federal funds, private gifts, grants or donations, and court awards.

            In 700 P.2d 508, Colorado General Assembly v. Lamm, (Colo. 1985), the Supreme Court ruled "that the governor may exercise control over funds received by the state which are "custodial" in nature — funds not generated by tax revenues which are given to the state for particular purposes and of which the state is a custodian or trustee to carry out the purposes for which the sums have been provided." The Court affirmed a lower court ruling and stated that custodial funds are not subject to the appropriation power of the General Assembly. For this reason, the fiscal note assumes the need for General Fund moneys for the Departments of Law and Revenue to enforce the model statute proposed in the bill. 

State Appropriation

            The fiscal note indicates that for FY 1999-00 the Department of Law should receive a General Fund appropriation of $27,648 and 0.5 FTE. The Department of Revenue should receive a General Fund appropriation of $140,840 and 1.0 FTE.

Departments Contacted

            Judicial

            Law

            Revenue

Treasury