Voter-approved tobacco tax doesn't apply to vapes. It's hurting Arizona's early childhood agency

In 2006, Arizona voters approved a new tax on cigarettes: 80 cents per pack, to be exact.

Voters passed the initiative and created First Things First, Arizona’s early childhood agency. They give out grants to programs around the state that help prepare kids for kindergarten an increasingly in-demand service as childcare costs have skyrocketed and families struggle to pay for them.

But that 2006 voter initiative didn’t include a big piece of the tobacco pie: vaping. It was created before vaping was a thing. But today, the popularity of vaping — often instead of smoking cigarettes — has shot up. And those are products that are not taxed to fund early childhood development in our state.

As a result, First Things First says it’s seen a massive drop in funding, and it’s hitting their bottom line. They call it a vaping loophole. They’re looking to close it but haven’t been able to get bipartisan support for it at the state Legislature.

The Show spoke with First Things First CEO Melinda Gulick more about it.

Full conversation

MELINDA GULICK: In our initial year, First Things First received about $180 million from our share of the state’s tobacco tax revenue. And in the last fiscal year, we received about $89 million.

LAUREN GILGER: Oh wow.

MELINDA GULICK: So the impact over the course of our 20-year history has been a significant drop. In the last three years, we’ve experienced the most significant drop of $32 million, which means that the programs that we fund all over the state to serve children birth to 5 are even more limited than they were before.

We never served every single child birth to 5, and there are about half a million children birth to 5 throughout Arizona. And we focus in three areas: quality early learning, children’s preventative health, and family support.

Now with other federal funding being cut, the state budget very tight and our funding dropping, those services for children and families are even more limited, creating real challenges for families throughout Arizona.

LAUREN GILGER: Right, so big implications here in terms of the money coming in. Did you see this coming? This sounds like it’s been a slow progression in terms of the drop in funding. Was it always apparent to you there at First Things First that this was because of the shift to vaping?

MELINDA GULICK: Well, we’ve had an interesting history as First Things First. The Legislature swept First Things First funding, or attempted to, during the Great Recession, and the board of First Things First took it all the way to the Supreme Court. And our, our funds, because they were approved by the citizens, are voter protected.

And so for years, we wanted to really just stay quiet, do our work, focus on children birth to 5 throughout Arizona. And when I came to the agency four years ago, it was clear then that it was time for us to really focus on the importance of early childhood and letting all of Arizona know how important that investment in children birth to 5, because of the implications, brain development happens most rapidly from birth to age five.

And our mission that every child is ready to succeed and thrive from kindergarten and beyond, we were not going to be able to meet that mission with the increasing need and demand for services if we didn’t focus on expanding our revenue beyond our current source.

LAUREN GILGER: So you felt like it was time to speak up?

First Things First

MELINDA GULICK: It was absolutely time to speak up, and we’ve had amazing support from not only the early childhood education community, but the business community, the economic development community, because the tie between access to affordable, quality childcare and labor force participation is very clear. It’s one of the top two reasons people leave a job or reduce their working hours or drop out of a postsecondary attainment program is that access to affordable childcare.

And so we’ve had wonderful partnerships throughout the state from business leaders, from local elected officials and from Chambers of Commerce, which we’re really thrilled about. And that our momentum is growing, the chorus of passionate advocates is growing, but we haven’t crossed the finish line yet.

LAUREN GILGER: I want to put this into context, as you’re kind of alluding to there, as to what early childhood education looks like in Arizona. Arizona is one of some states that, you know, doesn’t provide any state funding for preschool, for full-day kindergarten for families. If your kid gets to kindergarten, you’re still paying for half of it if you want a full day, right?

And it comes at a time in which I think a lot of families, especially on the bottom end of the economic spectrum, are already really strapped as we’re seeing gas prices shoot up and inflation, groceries, grocery prices remain high. The need is really there.

MELINDA GULICK: The need is absolutely there. And for families, if you have an infant that you’re looking to put in a childcare situation, we’re seeing it cost as much as $25,000 dollars a year. Preschool can be $14,000-16,000 dollars a year. Pre-K in the $8,000-$10,000 range.

If you think about it, when my children were born I started saving for their college education. But I certainly wasn’t prepared to pay that amount of — money mostly after tax — for childcare. And so it’s creating a real economic word problem for families: Does it make sense for us to pay this amount, for both of us to stay in the workforce? Or should one of us take time off and stay home with our kids or make potentially a less than safe or less than ideal arrangement for childcare?

So the connection again between today’s workforce, keeping people in the labor force, continuing their education, but also investing in Arizona’s future workforce by making sure that we’re stimulating that brain development, kids are showing up ready for kindergarten.

Kids that show up ready for kindergarten have higher third-grade reading scores, higher eighth-grade math scores, higher graduation rates from high school, and postsecondary attainment is much higher with those children who’ve had that quality early learning experience. So it’s an investment in our future, too.

LAUREN GILGER: Tell us about this analysis that came out of ASU they kind of did on your behalf here, looking at the impact that this could have had. If vaping had been included in that original ballot language way back in 2006, how much more would have been generated in tax revenue for a program like yours?

MELINDA GULICK: So when First Things First was on the ballot in 2006, there were not alternative nicotine products on the market. So our tax specifically calls out cigarettes, cavendish, chewing tobacco and cigars. In 2007, vaping and other alternative nicotine products entered the marketplace.

If they’d been included in 2006, we would have generated as a state $1.6 billion in revenue over the course of those years, a portion of which would have come to First Things First. We receive about 40% of the state’s tobacco tax revenue. And so our plea and our case to legislators is this is an additional revenue source that can fund not only early childhood, but can fund some other state needs.

This is our second year attempting to run a bill at the Legislature, and this year we’re really grateful for some leadership in the minority party to sign onto our bill, but we were not able to get bipartisan support. And there’s a lot of competing priorities at the Legislature, and it’s an election year.

And so we’ll keep beating this drum, we will not be dissuaded from pursuing this as an additional revenue source, but, we’ll just have to keep, keep working our elected leaders and also their constituents throughout the state who receive these services and are passionate about early childhood and the economy growth in their own communities.