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With tobacco tax revenues in decline, hunt is on to find another way to fund free preschool

Tobacco tax revenues that pay for California preschool and other early childhood services are steadily declining as users give up smoking, and a scramble is on to find another source of funding.

The tale of the shrinking funding source — now down to $350 million this year from $650 million in 1998 — starts at tobacco shops like Drive Thru Cigarettes. Tucked inside a strip mall on Huntington Drive in Duarte, the business and other nearby shops have seen sales drop to a trickle. 

Customer Eduardo Hernandez said he used to smoke a lot, but he’s down to a pack a day and looks forward to quitting — and relishing the money he could save from his Little Cesar’s Pizza server salary.

“I know smoking is bad,” he said.

But for now, Hernandez’s habit is helping fund free preschool for disadvantaged families and other early childhood programs. Eighty percent of tobacco taxes go directly to fund programs for children under five.

How it began

In 1998, California voters passed Proposition 10 to tax every pack of cigarettes 50 cents. Commissions called "First 5" were created in every county to disperse the funds. 

“Fifty cents seemed like [a] significant amount of money at the time,” said Moira Kenney, who runs the First 5 Association of California. “In 1998, we were generating $650 million a year and that spurred extraordinary innovation across the state.”

Prop 10 was ahead of its time, Kenney said. Back then, there wasn't research as there is today showing the benefits of early education and baby brain development. Nonetheless, voters approved the dedicated pot of money for children’s programs.

The funds were spent on such services as pre- and postnatal programs, nurse home visits for at-risk families, and quality improvements to preschools. From the outset, however, early education advocates knew the pot of money was not bottomless, Kenney said.

“So we were challenged to find things [to fund] that would seem so necessary, so critical for every child that there would be no question but that the state would want to pick up these programs [once the funding ran out],” she said. 

One of the initiatives, a universal preschool program called LAUP, was funded by First 5 Los Angeles. Over the past nine years, LAUP has educated 100,000 four-year-olds in a county with an acute shortage of preschools. What distinguishes LAUP’s classrooms is they must meet intensive quality requirements to get funding.

Nine other California counties also expanded access to preschools using tobacco funds, while another 28 counties used Prop 10 funds for workforce development and quality improvements to existing preschool programs.  

Funding challenge

First 5 LA has funded so many early childhood initiatives in the county that it’s spending began exceeding its revenue in 2008-2009. Coupled with the declining tobacco taxes, the overspending led to the First 5 LA Commission voting to scale back expenses for the coming years.

Kenney said by the end of the decade, tobacco taxes will only bring in $100 per child statewide. That won't be enough to fund quality preschool, early education advocates say. California currently spends $3,714 per child per year for state preschool. 

One of the First 5 LA programs that will not be refunded once its contract expires in June 2016 is LAUP. LAUP pays $4,950 per child per year to its highest quality preschool providers.

LAUP has begun planning for the possible loss of 11,000 subsidized preschool slots in the 2016 school year if other income can't be found.

Parents like Gabriela Flores, who hoped her son could attend a LAUP preschool, worries that if funding is not guaranteed, she may need to quit her job to care for him.

“I really need to work because we’re really in bad times financially in my family,” Flores told KPCC late last year.

Seeking options

So how to fund preschool and other early childhood services? Kenney said the First 5 California Commission has begun exploring new ideas.

“For the first time in 15 years, [they had] conversations about what about taxing e-cigarettes? What about legalization of marijuana? What do all of these new possible revenue sources mean?”

New sales taxes could work, but no one’s sure if they could generate anywhere close to the $650 million that cigarette taxes once did.

One model comes from the state of Georgia, which implemented universal preschool through lottery revenue. Since it is open to all children, not just the very poor, it has bipartisan support in a red state.

California has laid the groundwork for a true universal preschool program in 2012 through the implementation of transitional kindergarten. But this grade, added on to the public K-12 system, only serves children who turn 5 between September and December 1.

Last year, there was a big legislative push to expand transitional kindergarten to all 4-year-olds but that effort failed. The projected cost of the program, which would have essentially provided universal preschool to all 4-year-olds, was around $1.4 billion.

It’s a price tag that is too high, said Michael Kirst, board president of the California Board of Education and professor emeritus at the Stanford Graduate School of Education.

“At this point we do not have, in my view, enough money to subsidize all the middle and upper classes,” said Kirst. 

Money for expanding the K-12 system would have to come from the state general fund, and Kirst said there are too many other compelling demands for those funds.

“So I live here in the very wealthy Silicon Valley and I don’t see that these well-off parents ought to be the priority for the subsidies from the state,” Kirst said.  

Kirst sees state budget increases for preschool seats as the best way for the state to fund early education. Last year, Los Angeles Unified School District benefited from a funding bump and was able to open 288 new preschool slots.

It’s nowhere near enough to meet the need, according to Maureen Diekman, executive director of LAUSD’s early education programs, and her preschool programs are facing cuts next year. An early budget draft from Superintendent Ramon Cortinez proposes to delete 5,040 part-time preschool seats for a savings of $16 million.

Would private funding work?

Diekman said the solution to funding early education has to be broader. 

“I think your businesses and corporations need to understand that this ultimately improves the workforce for them,” Diekman said. “So [create] some opportunities for social impact bonds, for philanthropic gifts of a long-term nature.”

The Obama administration has begun pushing for preschool funding through corporate and private philanthropy. The campaign called Invest in US, and involves celebrities such as John Legend and Jennifer Garner. Companies like UPS and Disney are also contributing.

But Margaret Brodkin, known as the godmother of universal preschool in San Francisco, doesn’t think private donations is the way to build a comprehensive early education system. That city created a universal preschool program through a ballot initiative that earmarks 2 to 3 percent of property taxes.

Brodkin said it took years of grassroots organizing to win the funding. The first challenge was getting people in early education on board.

“It took a lot of training to get even the people in the field to understand how outrageous it was that it wasn’t just automatic that our children had the best possible beginning in life,” Brodkin said.  

“People are not used to thinking of it as a social justice issue and that is what I think we’ve done so remarkably in San Francisco.”

Their ultimate success came last November when San Francisco voters overwhelmingly reauthorized that preschool program for another 25 years.