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F I S C A L I M P A C T R E P O R T

SPONSOR McSorley

DATE TYPED 02/11/05 HB

SHORT TITLE Soft Drink Tax Act

SB 283

ANALYST Padilla-Jackson

APPROPRIATION

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

$25,900.0

Recurring Soft Drink

Medicaid Fund

$1,150.0

Recurring

Taxation and

Revenue De-

partment

$860.0

Recurring Department of

Health

$880.0

Recurring Public Educa-

tion Department

(Parenthesis ( ) Indicate Expenditure Decreases)

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

$25,900.0

Similar Recurring

Soft Drink Medi-

caid Fund

$1,150.0

Similar Recurring Taxation and Reve-

nue Department

$860.0

Similar Recurring

Department of

Health

$880.0

Similar Recurring

Public Education

Department

$28,800

Similar Recurring

Total

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Senate Bill 283 -- Page 2

Responses Received From

New Mexico Public Education Department (PED)

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of Bill

Senate Bill 283 would create an excise tax imposed on any wholesaler who sells soft drinks to

support various state health initiatives, including the Medicaid program. The tax would be set to

$0.03 for each twelve fluid ounces of soft drink sold in New Mexico; $1.92 per gallon of soft

drink syrup or soft drink concentrate sold in New Mexico; on the sale of a package or container

of soft drink powder or other base product, $0.32 per gallon of soft drink that may be produced

from each package. The wholesaler would not have to pay the tax on the value of soft drinks

sold and shipped out of state and exemptions are made for wholesalers of the United States

armed forces. The bill defines a soft drink as a nonalcoholic flavored beverage containing any

sweetener additive, such as corn fructose, sugar or aspartame.

The bill would also create the “Soft Drink Medicaid Fund” in the State Treasury. The fund and

income produced by the fund would be appropriated to the human services department for ex-

penditure in FY06 and subsequent fiscal years on the Medicaid program. The bill would also

support various other health-related state initiatives.

If the bill passed, the distributions of the soft drink tax would be as follows:

90% Soft Drink Medicaid Fund

4% Retained by TRD to defray the costs of adminstering the tax

3% Department of Health for state obesity prevention and awareness programs

2% Public Education Department (PED) for public school wellness education initiatives

1% PED for grants to public schools that do not permit the sale of soft drinks on campus

Soft Drink Tax Proceed Distributions

The effective date of the provisions of this bill is July 1, 2005.

Significant Issues

PED provided the following information:

•

As noted in the 2005 Dietary Guidelines for Americans, the numbers of overweight chil-

dren and adolescents of both sexes have increased, with approximately 16 percent of

children and adolescents ages six to 19 years considered to be overweight (1999-2002)

•

Based on data from the National Soft Drink Association, in New Mexico, the total con-

sumption was 90 million gallons of soft drinks

•

Eighty percent of school districts sell food that competes with school meal programs;

most of the food is low in nutrients and high in calories

Senate Bill 283 -- Page 3

PERFORMANCE IMPLICATIONS

PED notes that the availability of food and beverages sold outside of school meal programs can

decrease participation in programs that offer more nutritionally balanced foods and beverages.

This may be counterproductive to school financing as funding for school meals programs de-

clines with lower participation. And the district may lose money associated with free-and-

reduced students

FISCAL IMPLICATIONS

According to the analysis provided by TRD, the total fiscal impact in FY06 is $28,800.0. TRD

provided the following analysis:

The National Soft Drink Association reports that as of 1998, Americans consume fifty-four (54)

gallons of soft drinks per person per year. This estimate assumes more than 90 million gallons of

soft drink would be taxed at the rate of $0.32 per gallon, for total annual revenue of $28.8 mil-

lion.

Continuing Appropriations

This bill creates a new fund and provides for continuing appropriations. The LFC objects to in-

cluding continuing appropriation language in the statutory provisions for newly created funds.

Earmarking reduces the ability of the legislature to establish spending priorities.

ADMINISTRATIVE IMPLICATIONS

PED would require a 1.0 FTE, an Education Administrator with a total expected compensation of

$67.8 thousand, to monitor the PED portion of the dollars generated by the Soft Drink Medicaid

Fund for the wellness education initiative.

OPJ/lg