By Timothy S. Donahue

Top Takeaways:

• Arizona cigarette tax revenue funding early childhood programs has decreased from about $165 million to less than $90 million a year.
• State officials are contemplating expanding the tax to include nicotine vaping products to stabilize funding.
• Any vape tax would encounter steep legislative vote thresholds and bipartisan political resistance.

Arizona lawmakers are being encouraged to consider increasing the state’s cigarette tax to cover nicotine vaping products as falling smoking rates decrease funding for early childhood development programs.

The 80-cent-per-pack cigarette tax approved by voters in 2006 initially brought in about $165 million annually for First Things First, the state agency that funds early childhood education, childcare quality initiatives, and scholarships for families unable to afford care. That revenue has since dropped to less than $90 million per year, according to the agency, due to declining cigarette sales and the impact of inflation.

Joe Barba, vice president of First Things First, said the funding decrease has limited the agency’s ability to support childcare workforce training, curriculum development, and grants for parents who would otherwise be forced to leave the workforce due to childcare costs.

To secure funding, the agency is seeking legislative support to extend the tax to nicotine-containing vaping products. Barba estimates such a tax could generate around $100 million annually and raise retail prices by about 50%. Under the proposal, First Things First would keep roughly 60% of the revenue, with the rest going to Arizona’s general fund, according to media reports.

Advancing the proposal faces significant legal and political challenges. One option is for lawmakers to amend the original voter-approved initiative, known as Proposition 203. However, the Arizona Constitution limits legislative changes to ballot measures unless they “further the purpose” of the original law and are approved by three-fourths of both legislative chambers. That threshold requires 23 of 30 senators and 45 of 60 representatives.

Alternatively, lawmakers could implement a new tax on vaping products. That approach would still need a two-thirds supermajority vote in both chambers.

Previous efforts have failed to gain momentum. Earlier this year, a bill sponsored by Rep. Consuelo Hernandez, a Tucson Democrat, that would have imposed a vape tax was blocked in committee by House Ways and Means Chair Justin Olson, a Mesa Republican, who said he does not support tax increases.

Barba stated that the agency is now concentrating on forming a bipartisan coalition and finding a Republican sponsor, recognizing that Republicans hold control of both chambers of the Legislature.

Business groups have shown mixed opinions. The Arizona Tax Research Association, which opposed the original cigarette tax, said it is more focused on how existing funds are used rather than on expanding the tax base. The Arizona Chamber of Commerce and Industry reaffirmed its general opposition to taxes but acknowledged the need to fund essential services.

Industry opposition is likely from vaping manufacturers, many of which are owned by major tobacco companies. However, business leaders said some companies might be open to negotiations over fees or taxes to avoid being seen as contributors to public health harms.

Any legislation approved by the Legislature would need Governor Katie Hobbs’s signature. Hobbs said she supports ongoing funding for early childhood programs and mentioned that declining tobacco revenues were an expected result of successful prevention efforts. She also noted that larger budget pressures restrict alternative funding options.