California Ass'n of Retail Tobacconists v. State (109 Cal. App. 4th 792, 2003)

Opinion

MCDONALD J.

In these appeals we consider the constitutionality of Proposition 10, an initiative adopted by the electorate in November 1998, which enacted the California Children and Families Act of 1998 (the Act). The Act increased the tobacco excise tax for the stated purposes of reducing tobacco use, particularly among teenagers, and funded early child development and antismoking programs. It created the statewide California Children and Families Commission (CCFC) and local county commissions to administer its statutory mandates, and added section 130100 et seq. to the Health and Safety Code and section 30131 et seq. to the Revenue and Taxation Code. The California Association of Retail Tobacconists, Inc., and over 20 retail tobacconists (collectively CART), and Cigarettes Cheaper! and the Customer Company (together CC) contend the Act violates the following provisions of the California Constitution: the initiative single-subject limitation (art. II, § 8, subd. (d)); the prohibition on funding private corporations (art. II, § 12); the exclusive state management and control requirement (art. XVI, § 3); the prohibition against delegating the taxing power (art. XI, § 11, subd. (a)); the separation of powers (art. Ill); and the prohibition against constitutional revision by initiative (art. XVIII, §§ 1 & 2). Additionally, CART and CC assert that if we conclude the Act is facially constitutional, then the State Board of Equalization (Board) erroneously interpreted the interrelationship of the Act with Proposition 99, resulting in an invalid “double tax” on tobacco products other than cigarettes (referred to as “other tobacco products”), which makes the Act as interpreted unconstitutional. We conclude the Act is facially constitutional. We also conclude the trial court and the Board correctly interpreted the Act’s effect on the taxation of other tobacco products without violating the single-subject limitation or equal protection of the laws and that the Act as interpreted is constitutional. We hold that following adoption of the Act the total excise tax on other tobacco products is permissibly no longer equivalent to the total excise tax on cigarettes. Accordingly, we affirm the judgment of the trial court that upheld the constitutionality of the Act.

I

Factual and Procedural Background

On November 3, 1998, the California voters adopted the Act. The Act declares a compelling need to promote, support and improve early child development, cites the relatively little amount being expended on early child development, and imposes a new excise tax on cigarettes and other tobacco products to alleviate that need. The tax revenue is tunneled from the State Treasury to a newly created state commission, the CCFC, and county commissions for expenditure on a variety of services for children under the age of five. The Act addresses the issue of childhood well-being, especially its relationship to cigarette smoking and other tobacco use by pregnant women. The tax revenue finances the creation of a system of integrated and comprehensive parenting programs and related services. (Prop. 10, § 2.) As later amended, section 130100, subdivision (a) expressed the Act’s purpose is “to facilitate the creation and implementation of an integrated, comprehensive, and collaborative system of information and services to enhance optimal early childhood development and to ensure that children are ready to enter school. This system should function as a network that promotes accessibility to all information and services from any entry point into the system. It is further the intent of this [A]ct to emphasize local decisionmaking, to provide for greater local flexibility in designing delivery systems, and to eliminate duplicate administrative systems.” The Act amended the Constitution to exempt this new tax from the prohibition against new sales taxes and to exclude its proceeds from the Proposition 98 school-funding guarantee and the Gann Act. (Arts. XIII A, § 7, XIII B, § 13.)

The Act imposes on cigarette distributors a tax of 50 cents per pack (Rev. & Tax. Code, § 30131.2, subd. (a)), in addition to the 25 cents per pack tax imposed by Proposition 99 and the 12 cents per pack tax imposed by Revenue and Taxation Code section 30101. The Act also imposes a tax on distributors of other tobacco products at a rate equivalent to the 50 cents per pack tax imposed on cigarette distributors. (Rev. & Tax. Code, § 30131.2, subd. (b).) The tax on other tobacco products is in addition to the tax imposed by Proposition 99, which requires distributors of other tobacco products to pay a tax “equivalent to the combined rate of tax imposed on cigarettes by subdivision (a) and the other provisions of this part [part 13].” (Rev. & Tax. Code, § 30123, subd. (b).) Revenue generated by taxes imposed by the Act is deposited in “The Children and Families Trust Fund” in the State Treasury to be disbursed for programs the purposes of which are authorized to be funded by the Act. (§ 130105, subd. (a); Rev. & Tax. Code, § 30131.) Twenty percent of the tax revenue is distributed to the CCFC (§ 130105, subd. (d)), and the remainder is distributed among the county commissions (in proportion to the number of births in a county to the number of births in the state) for expenditure in accordance with each county’s strategic plan (§§ 130105, subd. (d)(2), 130140). The revenue distributed to the CCFC is allocated to separate accounts for expenditure according to the following statutory formula: 6 percent for mass media communications involving early childhood development, the prevention of tobacco use by pregnant women and the detrimental effects of secondhand smoke on early child development; 5 percent for parental education training and technical assistance for the county commissions; 3 percent for child care programs; 3 percent for research and development of standards for early childhood development programs; 1 percent for administration; and the remaining 2 percent for any of the authorized purposes other than administration. (§ 130105, subd. (d)(1).)

The Act establishes the CCFC to administer the statewide program, and authorizes local commissions in all 58 counties of the state to administer county programs created under the statutory scheme. (§§ 130100, subd. (b), 130110, 130140.) The CCFC is composed of seven voting members: three (including the chairperson) appointed by the Governor, two appointed by the Speaker of the Assembly and two appointed by the Senate Rules Committee. Each member serves a fixed term, and no member may serve more than two 4-year terms. The Secretary of the California Health and Human Services Agency and the Secretary for Education, or their designees, serve as ex officio nonvoting members of the CCFC. (§§ 130110, 130115.) The CCFC is required to adopt guidelines to implement an integrated and comprehensive early childhood development program, which must address parental education and support services, child care, and child health care services, including prenatal and postnatal maternal health care services. (§ 130125, subd. (b)(1).) It must also provide technical assistance to county commissions in adopting and implementing county strategic plans for early child development, review their annual audits, and compile information about their activities in an annual report to the Governor, the Legislature and each county commission. (§§ 130125, subds. (f) & (g), 130150, subd. (b).)

The Act authorizes each county to establish a local county commission. To participate in this statewide program and to share in the tax revenue generated by the Act, the county board of supervisors must adopt an ordinance establishing a county commission consisting of five to nine members appointed by the board of supervisors. The county commission must also adopt a strategic plan consistent with the CCFC’s guidelines for supporting and improving early child development within the county. A county commission must conduct an annual audit and adopt an annual report. (§ 130140, subd. (a)(1).) A county commission may be either a legal public entity separate from the county or an agency of the county with independent authority over its strategic plan and the local trust fund established under section 130105. (§ 130140.1, subd. (a).) A county commission is authorized to employ personnel and to contract for personnel services; enter into contracts necessary to carry out the statutory mandates; acquire, possess and dispose of real or personal property; and sue or be sued. (§ 130140.1, subd. (b)(2).) The county is not responsible for the obligations of the county commission. (§ 130140.1, subd. (b)(4).)

In December 1998 the Board considered the interrelationship of the Act with Proposition 99, which was adopted by initiative effective January 1, 1989. The Board concluded that Proposition 99 set the tax rate on other tobacco products by referring to all cigarette taxes imposed under division 2, part 13 of the Revenue and Taxation Code, and because the Act is contained in part 13, the 50 cent per pack cigarette surtax of the Act is included in the calculation of the tax rate on other tobacco products under Proposition 99. Consequently, in May 1999, the Board set the 1999-2000 tax rate for other tobacco products at 66.5 percent of the wholesale cost, although the tax rate for cigarettes was 42.23 percent of the wholesale cost.

On October 27, 1999, Proposition 28 qualified for the March 7, 2000 ballot. That initiative, if adopted, would have repealed the taxes imposed by the Act and prevented the electorate from imposing an additional surtax on the distribution of cigarettes or other tobacco products. Proposition 28 was not adopted.

On January 6, 1999, CART filed a writ petition in the California Supreme Court to invalidate the Act. It argued that the initiative violated the California Constitution’s single-subject rule, prohibition against naming a private entity in an initiative, and prohibition against appropriating public funds to an institution not under the exclusive management and control of the state. The Supreme Court denied the petition.

On June 28 CART filed this tax refund action in the San Diego County Superior Court and CC filed a similar action for declaratory and injunctive relief and damages in the Sacramento County Superior Court. By their amended complaints, both CART and CC challenged the constitutionality of the Act. Each contended the Act violated the California Constitution’s single-subject rule, prohibition against naming a private entity in an initiative, prohibition against appropriating funds to an institution not under the exclusive management and control of the state, and other constitutional provisions. Each also argued the Board improperly interpreted the Act and Proposition 99 to result in a tax rate on other tobacco products impermissibly higher than the tax rate on cigarettes. On November 12, McLane/Suneast, Inc., and United States Tobacco Sales and Marketing Co., Inc. (collectively McLane), filed a tax refund suit in the Los Angeles County Superior Court. McLane argued that the Board incorrectly interpreted the tobacco tax provisions of the Act and Proposition 99 and that the Act, as interpreted, violated the equal protection clause of the state and federal Constitutions and the single-subject rule of the state Constitution. The courts permitted CCFC Chairman Rob Reiner to intervene in all actions. On March 15, 2000, the CC and McLane actions were transferred to the San Diego County Superior Court and consolidated with the CART case for all purposes.

On September 15 this consolidated action proceeded to trial, during which the trial court heard testimony from 36 witnesses and admitted numerous exhibits into evidence. On November 15 the trial concluded with the trial court’s oral and written statement of decision. On December 7, the trial court issued a 50-page final statement of decision and on January 9, 2001, entered a judgment for the defendants. The trial court concluded each of the proffered constitutional challenges was unpersuasive and the Act is constitutional. The court also concluded the Act did not impose an illegal “double tax” on other tobacco products and the Board correctly interpreted the Act’s interrelationship with Proposition 99. CART, CC, and McLane filed timely notices of appeal; however, McLane dismissed its appeal after filing its opening brief.

II

Standard of Review

These appeals present constitutional issues that are questions of law and reviewed de novo. (Redevelopment Agency v. County of Los Angeles (1999) 75 Cal.App.4th 68, 74 [89 Cal.Rptr.2d 10]; Hermosa Beach Stop Oil Coalition v. City of Hermosa Beach (2001) 86 Cal.App.4th 534, 549 [103 Cal.Rptr.2d 447].) This reviewing court therefore exercises its independent judgment, without deference to the trial court’s ruling. (California Teachers Assn. v. San Diego Community College Dist. (1981) 28 Cal.3d 692, 699 [170 Cal.Rptr. 817, 621 P.2d 856].)

We are guided by established principles for evaluating the constitutionality of initiative measures. We do not consider or weigh the economic or social wisdom or general propriety of the initiative, but rather evaluate its constitutionality in the context of established constitutional standards. (Calfarm Ins. Co. v. Deukmejian (1989) 48 Cal.3d 805, 814 [258 Cal.Rptr. 161, 771 P.2d 1247].)

“Although the legislative power under our state Constitution is vested in the Legislature, ‘the people reserve to themselves the powers of initiative and referendum.’ [Citation.] Accordingly, the initiative power must be liberally construed to promote the democratic process. [Citation.] Indeed, it is our solemn duty to jealously guard the precious initiative power, and to resolve any reasonable doubts in favor of its exercise. [Citation.] As with statutes adopted by the Legislature, all presumptions favor the validity of initiative measures and mere doubts as to validity are insufficient; such measures must be upheld unless their unconstitutionality clearly, positively, and unmistakably appears. [Citation.]” (Legislature v. Eu (1991) 54 Cal.3d 492, 500-501 [286 Cal.Rptr. 283, 816 P.2d 1309].)

Ill

The Single-subject Rule

CART and CC contend the Act violates the single-subject rule set forth in article II, section 8, subdivision (d) because: it addresses the separate subjects of early child development and tobacco consumption, which are sufficiently disparate to exceed the single-subject rule limitations; the subject of childhood development and health is excessively general; and the combination of increased tobacco taxation and child development programs consists of impermissible “logrolling” because it forces the electorate to vote for one to secure the other. The trial court concluded that all of the provisions of the Act are “reasonably germane” to the single subject of the improvement of the health of children from prenatal stage to age five and therefore the Act does not violate the single-subject rule. It noted the record includes evidence that the health of this demographic group is harmed by tobacco consumption by pregnant women and secondhand smoke. It found that the Act improves children’s health by increasing tobacco taxes, which discourages consumption and reduces the harmful effects of tobacco consumption on children, and by raising revenue to be spent on improving the health and welfare of young children. We likewise conclude that the Act is an effort to promote the healthy development of young children, and its provisions are reasonably germane to that goal and are sufficiently functionally related to one another to satisfy the single-subject rule, under current California Supreme Court single-subject rule jurisprudence.

Article II, section 8, subdivision (d) provides that “[a]n initiative measure embracing more than one subject may not be submitted to the electors or have any effect.” The single-subject rule is designed to avoid voter confusion and to prevent subversion of the electorate’s will. (Senate of the State of Cal. v. Jones (1999) 21 Cal.4th 1142, 1156 [90 Cal.Rptr.2d 810, 988 P.2d 1089].) The most recent recitation of the single-subject rule by the Supreme Court states: “ Tn articulating the proper standard to guide analysis in this context, the governing decisions establish that “ ‘ “[a]n initiative measure does not violate the single-subject requirement if, despite its varied collateral effects, all of its parts are ‘reasonably germane ’ to each other,” and to the general purpose or object of the initiative.’ ” [Citation.] As we recently have explained, “the single-subject provision does not require that each of the provisions of a measure effectively interlock in a functional relationship. [Citation.] It is enough that the various provisions are reasonably related to a common theme or purpose.” [Citation.] Accordingly, we have upheld initiative measures “ ‘which fairly disclose a reasonable and common sense relationship among their various components in furtherance of a common purposed [Citation.]” [Citation.]’ (Senate of the State of Cal. v. Jones [, supra,] 21 Cal.4th [at p.] 1157. . . .) The common purpose to which the initiative’s various provisions relate, however, cannot be ‘ “so broad that a virtually unlimited array of provisions could be considered germane thereto and joined in this proposition, essentially obliterating the constitutional requirement.” [Citation.]’ (Id. at p. 1162[, original italics].)” (Manduley v. Superior Court (2002) 27 Cal.4th 537, 575 [117 Cal.Rptr.2d 168, 41 P.3d 3].) The single-subject requirement is not construed in an unduly narrow or restrictive manner to preclude the use of the initiative process to accomplish comprehensive, broad-based reform in particular areas of public concern. (Senate of the State of Cal. v. Jones, supra, 21 Cal.4th at p. 1157.) Rather, the single-subject rule is interpreted liberally to uphold legislation that includes a matrix of reasonably germane elements. (Fair Political Practices Com. v. Superior Court (1979) 25 Cal.3d 33, 38 [157 Cal.Rptr. 855, 599 P.2d 46].)

CART relies on case precedent invalidating proposed or approved statewide initiatives for violating the single-subject rule to support its position that the Act violates that rule. CART contends the Act suffers the same constitutional infirmities as those precedents because it combines two unrelated disparate subjects without a narrow unifying theme: it combines a tax on tobacco products designed to reduce consumption with the creation of a multitude of unrelated child development spending programs “that are so loose in purpose and design as to lack any cohesion.” CART and CC assert there is no connection or reasonable relationship between the central purposes of the Act (developing, promoting and funding programs for early child development) and reducing the consumption of cigarettes and other tobacco products in California through increased taxes and educational programs. They argue that although the Act allocates and appropriates nearly all of the new taxes to a vast and virtually limitless array of early child development programs, it does not require either the CCFC or county commissions to spend any of the funds on antitobacco programs.

The electorate was advised that the primary goal of the Act is to improve the health of children from prenatal stage to age five. Uncodified section 2 of the Act advised the voters of the compelling need to create and implement an integrated system of information services to promote, support and optimize early childhood development from the prenatal stage to five years of age, and to ensure the continued availability of early childhood development programs and services. (Prop. 10, § 2, subds. (a), (b).) It advised the electorate that the well-being of California’s infants and children is endangered by cigarette smoking and the consumption of other tobacco products by pregnant women and parents with young children, and that studies established smoking accounted for an estimated 20 to 30 percent of low birth weight babies, up to 14 percent of preterm deliveries and approximately 10 percent of infant deaths. (Prop. 10, § 2, subds. (i), (j).) Further, the Act recited studies showing secondhand smoke is responsible annually for between 150,000 and 300,000 lower respiratory tract infections in infants and children under 18 months of age, resulting in approximately 7,500 to 15,000 annual hospitalizations. (Prop. 10, § 2, subd. (l).) The Act further recited it would address these issues by: facilitating the creation of a system of integrated and comprehensive programs and services with a funding base and financial accountability, establishing community-based programs to provide parental education and family support services relevant to effective child development that include education and skills training in nurturing and avoiding tobacco, drugs, and alcohol during pregnancy (Prop. 10, § 2, subd. (m)(l)); educating the public on the benefits of nurturing, health care, family support and child care (Prop. 10, § 2, subd. (m)(2)); educating the public on the dangers of smoking and other tobacco use by pregnant women to themselves and to infants and young children, and the dangers of secondhand smoke to all children (Prop. 10, § 2, subd. (m)(3)); and encouraging pregnant women and parents of young children not to smoke cigarettes or use other tobacco products (Prop. 10, § 2, subd. (m)(4)). The Act then declared that “[a] 50-cent-per-pack increase in the state surtax on cigarettes and an equivalent increase in the state surtax on [other] tobacco products to fund anti-smoking and early childhood development programs is necessary, appropriate, and in the public interest.” (Prop. 10, § 2, subd. (n).) The Act rationalized the increase in taxation by declaring that monies “spent now on well-coordinated programs that enable children to begin school healthy, ready and able to learn, and emotionally well developed will save billions of dollars in remedial programs, treatment services, social services, and our criminal justice system.” (Prop. 10, § 2, subd. (h).)

The Act requires the CCFC to allocate 6 percent of the tax revenue generated under the Act for mass media communications regarding early child development, the prevention of tobacco use by pregnant women and the detrimental effects of secondhand smoke on early childhood development. (§ 130105, subd. (d)(1)(A).) It also requires the county commissions to spend the Act’s tax revenue for the purposes authorized by the Act and consistent with their respective strategic plans. (§ 130105, subd. (d)(2)(A).) The county strategic plans must be consistent with CCFC guidelines (§ 130140, subd. (a)(l)(C)(i)), which must address parental education and support services, and provide child health care services related to tobacco avoidance (§ 130125, subd. (b)(1)(A) & (C)).

These components of the Act have a reasonable relationship to each other in furtherance of the Act’s common purpose to improve the health and development of children from the prenatal stage to the age of five years. The various provisions of the Act are reasonably germane to each other and to that purpose because there is evidence the health of that demographic group is harmed by tobacco consumption and the Act increases tobacco taxes to discourage consumption and reduce the harmful effects of that consumption on children while raising revenue to fund improvement of the health and welfare of young children. Increasing the tax on tobacco products and partially directing the increased revenues to areas in which smoking has had significant negative effects is a coherent effort to achieve the stated objective of discouraging tobacco consumption and reducing its harmful effects on young children. (See Kennedy Wholesale, Inc. v. State Bd. of Equalization (1991) 53 Cal.3d 245, 253-254 [279 Cal.Rptr. 325, 806 P.2d 1360].)

CART and CC assert the subject of childhood development and health is excessively general and permits a virtually unlimited array of programs that could be considered germane to each other, thus exceeding the constitutional limitation to a single subject. However, unlike the amorphous subjects or common themes of voter approval and public disclosure held to be excessively general in Senate of the State of Cal. v. Jones, supra, 21 Cal.4th 1142 and Chemical Specialties Manufacturers Assn., Inc. v. Deukmejian, supra, 227 Cal.App.3d 663, on which CART and CC rely (see fix. 3, ante), the purpose or subject of promoting early child development from the prenatal stage to the age of five by establishing an integrated, comprehensive and collaborative system of information services designed to enhance optimal early childhood development is sufficiently focused and specific in character. The Act is as narrowly focused as measures that have been upheld against a single-subject constitutional challenge. (See, e.g., Manduley v. Superior Court, supra, 27 Cal.4th at pp. 573-581 [Prop. 21 addressing gang-related crime, the juvenile justice system and recidivism sentencing within the context of the problem of violent crime committed by juveniles and gangs]; Legislature v. Eu, supra, 54 Cal.3d at pp. 512-514 [Prop. 140, the Political Reform Act of 1990, addressing term limits, budget limits and pension limits within the context of the subject of “incumbency reform”]; Raven v. Deukmejian (1990) 52 Cal.3d 336, 342-349 [276 Cal.Rptr. 326, 801 P.2d 1077] [Prop. 115, the Crime Victim’s Justice Reform Act, addressing postindictment preliminary hearings, independent construction of state constitutional criminal rights, speedy trials, j oinder/severance of criminal cases, hearsay testimony at preliminary hearings, discovery procedures, voir dire examination, felony-murder statute, special circumstances, torture, appointment of counsel, and trial dates and continuances within the context of a comprehensive criminal justice reform act designed to promote the rights of actual and potential crime victims]; Brosnahan v. Brown (1982) 32 Cal.3d 236, 242-253 [186 Cal.Rptr. 30, 651 P.2d 274] [Prop. 8, the Victims’ Bill of Rights, addressing restitution, safe public schools, truth-in-evidence, bail, prior convictions, criminal defenses, habitual criminals, victims’ statements, plea bargaining, sentencing to the youth authority, and mentally disordered sex offenders, again within the context of a comprehensive criminal justice reform package focused on promoting the rights of actual and potential crime victims]; Fair Political Practices Com. v. Superior Court, supra, 25 Cal.3d at pp. 37-43 [Prop. 9, the Political Reform Act of 1974, addressing elections, campaigns, lobbyists, conflicts of interest and voter pamphlets within the context of the subject of “political practices”].)

In Kennedy Wholesale, Inc. v. State Bd. of Equalization, supra, 53 Cal.3d at pages 253-255, the Supreme Court upheld the constitutionality of Proposition 99 against a single-subject challenge that it did not guarantee every expenditure of revenue generated by the increased tax on tobacco products would be related to tobacco use. Under Proposition 99, the tobacco tax revenue is deposited into a Cigarette and Tobacco Products Surtax Fund. (Rev. & Tax. Code, § 30122, subd. (a).) By statute, revenue appropriated from that fund must be used for various tobacco-related purposes, but also for: “[mjedical and hospital care and treatment of patients who cannot afford to pay for those services, and for whom payment will not be made through any private coverage or by any program funded in whole or in part by the federal govemment[; and] [programs for fire prevention; environmental conservation; protection, restoration, enhancement, and maintenance of fish, waterfowl, and wildlife habitat areas; and enhancement of state and local park and recreation purposes.” (Id., subd. (a)(3) & (4).) Consequently, tax revenue generated under Proposition 99 may be spent to assist indigent medical patients whose health problems are not related to smoking, and to improve state parks and wildlife habitat areas that have not been damaged by fire. Nevertheless, the Supreme Court held Proposition 99 did not violate the single-subject rule, reasoning that the measure’s spending provisions directed some revenues more precisely to tobacco-related problems than if the electorate had simply omitted any provisions directing expenditure of the funds. (Kennedy Wholesale, Inc. v. State Bd. of Equalization, supra, 53 Cal.3d at p. 254.) The Supreme Court simply added: “We do not believe the voters’ failure to require even greater precision invalidates the measure, since it is well established that an initiative may have ‘collateral effects’ without violating the single-subject rule. [Citations.]” (Id. at pp. 254-255.)

Comparatively, the Act and Proposition 99 impose a tax on tobacco products, consist of elements reasonably germane to each other, deposit tax revenue into specific funds and appropriate revenue for use to meet desired objectives that are largely tobacco-related. Although there appears to be no relationship between Proposition 99 tobacco tax revenue and state parks, non-smoking-related fire prevention, environmental conservation, wildlife habitat protection and non-smoking-related indigent medical care, the Act’s tobacco tax revenue can be related to every early childhood development program funded by the Act because parental smoking and secondhand smoke in general have an arguably negative impact on a child’s early development. Unlike Proposition 99, the Act requires the additional tobacco tax revenue generated be spent on a specific demographic group whose health and welfare is harmed by parental smoking and secondhand smoke. Under current Supreme Court single-subject rule jurisprudence the Act does not violate the single-subject rule.

Because we conclude that the Act does not violate the single-subject rule, there is no separate constitutional basis for the claim of logrolling, which is a factor in considering whether an initiative violates the single-subject limitation by combining disparate subjects not reasonably germane to each other. “The single-subject rule is the method by which the state Constitution guards against that hazard. Moreover, we have consistently held that the single-subject rule does not require a showing that each one of a measure’s several provisions was capable of gaining voter approval independently of the remaining provisions. [Citations.] The possibility that some voters objected to some parts of a measure, as we have previously explained, ‘is inherent in any initiative containing more than one sentence .... The enactment of laws whether by the Legislature or by the voters in the last analysis always presents the issue whether on balance the proposed act’s benefits exceed its shortcomings.’ [Citation.]” (Kennedy Wholesale, Inc. v. State Bd. of Equalization, supra, 53 Cal.3d at p. 255; see Manduley v. Superior Court, supra, 27 Cal.4th at p. 579, fn. 12.)

IV

Prohibition of State Funding of Entities Outside of the State’s Exclusive Management and Control

CART and CC contend that the CCFC and county commissions established by the Act annually receive revenue from the state treasury to spend on a limitless array of early childhood development programs, but are not under the exclusive management and control of the state in violation of article XVI, section 3. They assert that the executive and legislative controls normally exercised by the Governor and the Legislature over state agencies are “missing in action” here. They argue that the Legislature’s controls of appropriating funds and establishing spending priorities and the Governor’s executive branch budgetary and management controls do not exist under the Act’s CCFC and county commission structure. The trial court rejected this contention, concluding the CCFC and county commissions share essential characteristics with other governmental agencies and commissions that have withstood constitutional challenge, including funding from a continuous stream of appropriations, the conferral of broad discretion to determine how to accomplish goals specified by the electorate or the Legislature, and limiting membership on the commissions to elected public officials and/or their appointees. The trial court also found: the commissions are subject to various external checks, balances and controls as well as oversight by other independent state agencies; the Act imposes constraints on the commissions’ spending of revenue; the commissions are subject to annual independent financial audits as well as performance audits; and the commissions govern themselves in the same manner as other governmental agencies.

Article XVI, section 3 provides: “No money shall ever be appropriated or drawn from the State Treasury for the purpose or benefit of any corporation, association, asylum, hospital, or any other institution not under the exclusive management and control of the State as a state institution, nor shall any grant or donation of property ever be made thereto by the State . . . .” Although this constitutional prohibition was designed “to prevent the appropriation of the moneys of the state for any purpose other than that which pertains to the state” (County of Sacramento v. Chambers, supra, 33 Cal.App. at p. 146), it prohibits (qualified by only a few express exceptions) the Legislature from making appropriations for the use of institutions not under the exclusive control of the state (Board of Directors v. Nye (1908) 8 Cal.App. 527, 531 [97 P. 208]). However, it was “not intended to unduly restrict the state in the expenditure of public funds for legitimate state purposes.” (People v. Honig (1996) 48 Cal.App.4th 289, 352 [55 Cal.Rptr.2d 555].) “As with the constitutional prohibition against the gift of public funds [article XVI, section 6,] article XVI, section 3, has been construed to be inapplicable to those cases in which private parties are benefited by state appropriations only as an incident to the promotion of a public purpose. [Citations.]” (California Housing Finance Agency v. Elliott (1976) 17 Cal.3d 575, 586 [131 Cal.Rptr. 361, 551 P.2d 1193]; Daggett v. Colgan (1891) 92 Cal. 53, 56 [28 P. 51].) Article XVI, section 3 “reflects both the drafters’ recognition of the need for charitable relief and their fear of inappropriate legislative largess. Its role is best understood in conjunction with section 5, which prohibits state support of religious organizations^] section 6, which prohibits gifts of state funds for other than public purposesf;] and the later-enacted grants of charitable powers in sections 4, 11, and 13. Thus, the first sentence generally forbids the [Legislature [from appropriating] money for charitable institutions whenever that institution is not under the control of the state. Despite the apparent breadth of that prohibition, courts later excused its application [if] money was spent for a ‘public purpose.’ That phrase is modemly interpreted to allow state appropriations for a broad range of activities, thus removing many of the earlier restrictions on the types of entities that can receive state aid [citation]. As long as a private institution performs a public purpose, any benefit that it receives is merely incidental to the public benefit, and spending will be constitutional.” (Grodin et al., The Cal. State Constitution: A Reference Guide (1993) pp. 280-281.) Consequently, article XVI, section 3 has been interpreted not to prohibit legislative authorization for some degree of autonomy in a government agency or innovation in the manner in which a government agency operates, but rather to prevent the appropriation of funds from the state fisc for a purpose foreign to the interests of the state and outside of its control.

The exclusive management and control condition evinces the constitutional concern that the appropriation of funds to autonomous entities independent of state controls may not always further legitimate state purposes and interests. This interpretation is consistent with the excerpts of the debates of the California Constitutional Convention in 1879, of which the trial court took judicial notice. That material shows that the Constitutional Convention delegates were concerned that even if a legitimate public purpose existed for the expenditure of taxpayer funds, those funds should generally be expended only on programs and services for which the state retained the ability to manage and control the delivery of those programs and services. (Department of Social Services v. Superior Court (1997) 58 Cal.App.4th 721, 733 [68 Cal.Rptr.2d 239].)

Exclusive management and control of the state includes those elements of governance assigned to the executive and legislative branches. The executive power includes the power of appointment, removal, supervision and management. The legislative power includes the power to appropriate funds and to establish spending priorities. (See Board of Directors v. Nye, supra, 8 Cal.App. at pp. 532-533; People v. San Joaquin etc. Assoc. (1907) 151 Cal. 797, 802-805 [91 P. 740].) Whether an entity is under the exclusive management and control of the state is determined through a case-specific evaluation of the applicable executive and legislative controls. (Cf. Howard Jarvis Taxpayers’ Assn. v. Fresno Metropolitan Projects Authority (1995) 40 Cal.App.4th 1359, 1383-1388 [48 Cal.Rptr.2d 269] [inadequate controls—11 of 13 directors on the authority were chosen by private entities who have no public accountability; in all other respects the entity is “public,” subject to the many miscellaneous statutory requirements and features of other state agencies]; Board of Directors v. Nye, supra, 8 Cal.App. at pp. 532-533 [adequate controls—Governor appoints directors, fills all vacancies and has the power to remove a director for cause; the entity is required to keep an accounting and submit an annual verified report to the Governor and the State Board of Examiners for audit; and the appropriation of funds and their use is retained by the Legislature]; People v. San Joaquin etc. Assoc., supra, 151 Cal. at pp. 802-805 [adequate controls—Governor appoints district agricultural board members to fixed four-year terms and fills vacancies; each board member takes the oath of public office].) However, the required exclusive control permits the Legislature or the electorate to fund entities that are provided a degree of flexibility and operational independence that encourages the development of innovative practices through experimentation with the objective of satisfying the underlying state purpose. (See Wilson v. State Bd. of Education (1999) 75 Cal.App.4th 1125, 1138-1141, 1146 [89 Cal.Rptr.2d 745],) It appears that exclusive management and control by the state means the existence of sufficient controls over the commissions by the executive and legislative branches of the state government to assure that state funds are used to further state purposes without unduly inhibiting innovative programs that serve those purposes.

CART and CC contend that the executive branch controls over state agencies, including counties, normally exercised by the Governor do not exist over CCFC and the county commissions. They note the cornerstone of the Governor’s control over the operation and management of state institutions is the agency structure in which agency secretaries are empowered to generally supervise the operations of an agency and are responsible for its fiscal management. (Gov. Code, §§ 12800, 12850, 12850.6.) The Governor exercises the ultimate control over state agencies and departments through the appointment and removal power of appointed public officials. (Gov. Code, § 12801.) They also point out that the budgetary process starts and ends with the Governor. (Art. IV, § 12.) The Department of Finance prepares the Governor’s budget and each state agency must submit to it a proposed budget for the fiscal year. (Gov. Code, § 13320.) Until the enactment of the annual fiscal budget act, the Department of Finance may revise, alter or amend the budget of any state agency. (Gov. Code, § 13322.) After the Legislature has approved the final budget bill, the Governor has the power to veto, eliminate or reduce any item of appropriation for any agency program or service. (Art. IV, § 10, subds. (a), (e); see generally Tirapelle v. Davis (1993) 20 Cal.App.4th 1317, 1320-1321, fn. 5 [26 Cal.Rptr.2d 666].) CART and CC contend that the CCFC is not a department, office or unit within a state agency and thus no agency secretary has the power to generally supervise its operations or the responsibility for its fiscal management. Rather, they contend, the CCFC is authorized to establish its own procedures for conducting its business. (§ 130130.) Moreover, they assert that the budget guidelines applicable to state agencies pursuant to Government Code section 13335 and former section 13336.5 are inapplicable to the CCFC. According to CART and CC, a consequence of the Act’s mandatory appropriation is that the CCFC is not required to submit a complete and detailed budget to the Department of Finance, which has no authority to revise, alter or amend any CCFC budget. Further, the Governor has no power to veto, eliminate or reduce any item of CCFC appropriation after the Legislature’s adoption of the state budget for that fiscal year. Finally, they contend the appointed members of the CCFC are not subject to removal by the persons making the initial appointment, or by the Governor or the Legislature. (§ 130115.)

Similarly, CART and CC argue the legislative controls over state agencies are nonexistent as to the CCFC. They emphasize the cornerstone of legislative control over state agencies is the “power of the purse” (see art. IV, § 12, subd. (e)). The Legislature exercises this control by appropriating funds and establishing spending priorities annually in the state budget. (See generally Tirapelle v. Davis, supra, 20 Cal.App.4th at p. 1320.) State agencies are required to appear before budget committees to explain and justify budget requests for each fiscal year and explain their expenditures and actions during the course of a prior fiscal year. (Gov. Code, § 13337, subd. (f).) The Legislature further has the power of oversight of all state agencies (Gov. Code, § 9140 et seq.), utilizing the services of the Legislative Analyst (Gov. Code, § 9143) and the State Auditor (Gov. Code, § 8543) to review the functions and activities of a state agency and to intervene as necessary. CART and CC argue that the mandatory appropriation to the Trust Fund under the Act deprives the Legislature of its “power of the purse” and oversight role. They emphasize that the reporting requirements of the CCFC involve substantially less documentation and data than is required for other departments. The CCFC has never appeared before a legislative budget committee and its budget is not included in the budget bill addressed by the Legislature. They argue the Act contains no process for formal oversight of the actions of the CCFC by the executive or legislative branches of the government.

CART and CC contend the management and control of the state over the county commissions is even more tenuous than over the CCFC. They assert that the county commissions are managed neither by the state through the counties, nor by the CCFC. CART suggests the county commissions’ strategic plans and budgets are not subject to meaningful review by the CCFC. Rather, the CC PC’s powers over the county commissions are limited to providing nonmandatory guidelines and technical assistance and reviewing their annual audits and reports. CART further asserts that the county boards of supervisors have no authority to disapprove, revise or alter the budgets of any of the county commissions. Additionally, counties have no audit or oversight responsibility regarding the county commissions. Instead, each county commission reimburses the county 100 percent of any costs, including personnel, because the county commission pays for its own equipment, property and supplies. Simply stated, county commissions are self-sufficient. Finally, CART argues that neither the CCFC nor the county boards of supervisors have any authority to approve or reject the strategic plan or budget for a county commission. CART notes that after county commissions have adopted strategic plans, they need not seek or obtain approval from the CCFC to obtain or expend revenues received from the Trust Fund.

A detailed review of the Act and the external controls it imposes on the CCFC and county commissions persuades us that the commission structure under the Act designed to administer its tobacco tax revenue does not violate the prohibition of article XVI, section 3 against state funding of entities not under the state’s exclusive management and control. The challenged aspects of the Act providing flexibility through local control and continuous appropriation, which bypass the legislative budgetary process, are methods that have been sanctioned in the past. The Act is replete with controls, including the manner of appointment of members of both the CCFC and county commissions, the specificity regarding how tax revenues must be spent, and the annual audit and reporting requirements. Moreover, the CCFC and county commissions are subject to stringent external statutory controls imposed by the State Controller, the Department of Finance, and the Bureau of State Audits, and by a myriad of statutory requirements. Additionally, the implementation of the Act shows that the CCFC and county commissions are public entities under state control. Finally, the Act and the official voter pamphlet show the electorate intended to create the CCFC and county commissions as state agencies.

Preliminarily, we address funding the CCFC and county commissions by a continuous stream of appropriations and affording them broad discretion to accomplish the goals specified by the electorate or the Legislature. Continuous appropriation of state funds is not unusual. It reflects the Legislature’s, or in this case the electorate’s, policy decision to exercise its discretionary controls governing appropriating funds and setting spending priorities by designating continuous funding for a specific purpose. Authority to bypass the legislative budget process and to provide by statute continuous appropriation of state funds is “recognized in article IV, section 12[,] . . . authorizing] the Legislature and hence the people to provide by statute for a continuing appropriation to pay for some specified program. [Citation.]” (People’s Advocate, Inc. v. Superior Court (1986) 181 Cal.App.3d 316, 329, fn. 13 [226 Cal.Rptr. 640].) Robert Olson of the Department of Finance testified that between 200 and 400 continuous appropriations exist under state law. For example, the State Lottery Fund (Gov. Code, § 8880.61, subd. (a)), the Fair Political Practices Commission (Gov. Code, § 83122), the Export Finance Fund (Gov. Code, § 15395.2) and the Bureau of State Audits (Gov. Code, § 8544.5, subd. (a)) all receive continuous funding by statute. The State Lottery Fund and the Fair Political Practices Commission are both creations of the initiative process. CART accurately responds that the issue is not whether continuous appropriations may be valid, but whether sufficient controls are retained by the state over expenditures from these appropriations. Rather, the issues are whether, with the continuous appropriation of state funds, the Act in specifying the allocation of the Act’s tax revenue funds, the manner in which they must be spent and the auditing oversight, combined with other external controls, provide adequate state controls to permit categorizing the CCFC and county commissions to be within the exclusive management and control of the state. Similar considerations apply to the conferral of broad discretion to local agencies to accomplish the goals specified by the Legislature or the electorate. Examples include independent county health authorities (Welf. & Inst. Code, § 14087.38), charter schools (Wilson v. State Bd. of Education, supra, 75 Cal.App.4th at pp. 1129, 1146) and federal community block grant programs (see Gov. Code, § 12726 et seq.).

Reiner and the Attorney General suggest the most obvious indicator of state control over the commissions is that they were established by statute passed by the electorate, which by repeal can eliminate them whenever it chooses. They note that in March 2000 the electorate defeated Proposition 28, a statewide ballot initiative, with 72.2 percent voting against repealing the Act’s tax and abolishing the Trust Fund. They assert that there can be no greater control than the power to abolish an institution, something neither the Legislature nor the electorate can do to a private entity without violating due process. Moreover, they note that either the people by initiative or the Legislature by a two-thirds vote can amend the Act to establish different controls or tighten existing controls. Although the Legislature has already amended the Act three times, it has not established tighter state fiscal controls. Rather, both the electorate and the Legislature have treated the Act’s commissions as governmental entities subject to the full panoply of statutes governing the use of public funds, conflicts of interest, public meetings and civil service. Where, as here, the electorate or the Legislature delegates broad discretion to local agencies to accomplish goals specified in legislative enactments, it retains the ultimate control to refine, expand, reduce or abolish the statutory creatures. (See Wilson v. State Bd. of Education, supra, 75 Cal.App.4th at p. 1135.) However, we agree with CART and CC that the power to repeal or modify does not demonstrate that the commissions are under the exclusive management and control of the state. We know of no authority establishing that the electorate or the Legislature is entitled to create commissions operating outside of state management and control solely because the power to abolish them is retained. Were that the case, then article XVI, section 3 would be meaningless when applied to any institution created by the state, regardless of how that institution is controlled, because it is always the case that what the state creates it can repeal. If a statute violates the Constitution, the fact it may be amended or repealed does not make it constitutional. The “control by repeal” test to determine whether the state has retained exclusive management and control over the commissions is not helpful.

Nevertheless, the Act is replete with state controls on the commissions. Unlike a private entity, only elected officials can appoint the members of the commissions and membership of the commissions must include public officials. Consequently, the commissioners are either directly or indirectly accountable to the people. (Howard Jarvis Taxpayers’ Assn. v. Fresno Metropolitan Projects Authority, supra, 40 Cal.App.4th at p. 1388.) Of the seven members of the CCFC, the Governor appoints three (including the chairperson), the Speaker of the Assembly appoints two and the Senate Rules Committee appoints the remaining two. CCFC commissioners are limited to two 4-year terms. One of the Governor’s appointees to the CCFC must be either a county health officer or a county executive, and the Secretary of the Health and Human Services Agency and the Secretary for Education, or their designees, serve as ex officio nonvoting members. (§§ 130110, 130115.) By comparison, the members of the California Medical Assistance Commission are appointed in the same manner as the members of the CCFC, and also serve fixed terms. (Welf. & Inst. Code, § 14165.2.) Under the Act, the county board of supervisors determines the “manner of appointment, selection, or removal of members of the county commission, the duration and number of terms county commission members shall serve, and any other matters that the board of supervisors deems necessary or convenient for the conduct of the county commission’s activities,” except that compensation for commission members is limited to a reasonable per diem and reimbursement for reasonable expenses of attending meetings. (§ 130140, subd. (a)(1)(B).) County commissions must include a member of the board of supervisors and two county officers who work in health or human services. (§ 130140, subd. (a)(l)(A)(i), (ii).) The county board of supervisors appoints all the members of the county commission. (§ 130140, subd. (a)(1)(A).) Local governance and this appointment process were also modeled after statutorily established programs.

The Act mandates how the tobacco tax revenue must be spent. Twenty percent of the revenue is distributed to the CCFC, which must use it as follows: 6 percent for mass media communications regarding early child development, the prevention of tobacco use by pregnant women and the detrimental effects of secondhand smoke on early child development; 5 percent for parental education training and technical assistance for the county commissions; 3 percent for child care programs; 3 percent for research and development of standards for early child development programs; 1 percent for administration; and the remaining 2 percent for any of the authorized uses with the exception of administration. (§ 130105, subd. (d)(1).) Eighty percent of the revenue is allocated and appropriated to the county commissions in proportion to the number of births in the county to the number of births in the state. (§§ 130105, subd. (d)(2), 130140, subd. (a).) This revenue must be expended only for the purposes authorized by the Act and in accordance with the specific county strategic plan approved by the county commission. (§ 130105, subd. (d)(2)(A).) To be eligible for funds, a county commission must adopt a strategic plan consistent with and in furtherance of the purposes of the Act and the CCFC guidelines, and conduct an independent annual audit. (§ 130140, subds. (a)(l)(C)(i), (b) & (d)(2).) The CCFC guidelines must at minimum address: (1) parental education and support services related to informed and healthy parenting, including prenatal and postnatal infant and maternal nutrition, newborn and infant care, child abuse prevention, avoidance of tobacco, drugs and alcohol during pregnancy, and support services for the development and maintenance of self-sufficiency, domestic violence prevention and treatment, tobacco and other substance abuse control and treatment, and voluntary intervention for families at risk; (2) the availability and provision of high quality, accessible and affordable child care; and (3) the provision of child health care services that emphasize prevention and treatment not covered by other programs and prenatal and postnatal maternal health services that emphasize prevention and treatment, including treatment of tobacco and other substance abuse, not covered by other programs. (§ 130125, subd. (b)(1).) Accordingly, although county commissions are conferred significant independence and discretion in adopting their strategic plans and programs to promote local decision-making, the commissions cannot expend tobacco tax revenue on programs inconsistent with the CCFC’s guidelines and the purposes of the Act. This limitation on spending provides the necessary specificity to implement the electorate’s policy decision to delegate to the county commissions the responsibility of tailoring their programs to address the needs of their respective counties.

The Act further requires the CCFC and county commissions to annually conduct audits and issue written reports “on the implementation and performance [of] their respective functions during the preceding fiscal year, including, at minimum, the manner in which funds were expended, the progress toward, and the achievement of, program goals and objectives, and the measurement of specific outcomes through appropriate reliable indicators.” (§ 130150.) Each county commission is required to transmit its annual audit and report to the CCFC (id., subd. (a)), which must consolidate, analyze and comment on all the audits and reports from the county commissions, together with the audit and report of CCFC’s activities, in a consolidated written report transmitted to the Governor, the Legislature, and each county commission (id., subd. (b)). The county commissions are required to make available to the general public copies of these reports at no cost (id., subds. (c) & (d)), and to hold at least one public hearing before adopting an annual audit and one public hearing after receiving the CCFC’s written compilation of annual audits (§ 130140, subd. (a)(1)(G) & (H)). CART suggests that the CCFC conducts its own audits, and that the county commission audits are not independent financial audits conducted by an outside entity. However, the trial court correctly interpreted the requirement of annual audits as necessarily implying they are independently conducted. The purpose and scope of the audits and their required transmission to the Governor and the Legislature permit no other interpretation to be reasonably inferred. Contemporaneous administrative interpretation of law is a proper tool for interpretation. (Yamaha Corp. of America v. State Bd. of Equalization (1998) 19 Cal.4th 1, 6-7 [78 Cal.Rptr.2d 1, 960 P.2d 1031].) The record here is replete with testimony that the Department of Finance conducts the annual audit of the CCFC and that, consistent with CCFC directions, the county commissions’ annual audits are independently conducted. Moreover, this interpretation is compelled by the declarations of the Act that its objective is to facilitate “the creation of a seamless system of integrated and comprehensive programs and services, and a funding base for the system with program and financial accountability . . . .” (Prop. 10, § 2, subd. (m).) As Janet Rosman of the Department of Finance testified, an audit must be independently conducted.

The CCFC and county commissions are also subject to stringent statutory controls beyond those established by the Act, including intervention by the State Controller, the State Auditor, the Department of Finance and the State Treasurer to monitor the manner in which the Act’s tax revenues are spent by the CCFC and county commissions. For example, Government Code section 12410 authorizes the State Controller to audit any disbursement of state funds for correctness, legality and the availability of funds to support the payment. It requires the Controller to ensure adequate funds are available in the appropriate commission account to pay expenses. The Controller’s duty to audit “includes the duty to ensure that expenditures are authorized by law . . . .” (Tirapelle v. Davis, supra, 20 Cal.App.4th at p. 1335.) The Department of Finance is authorized by Government Code section 13070 to investigate all financial and business matters of the state and investigate state agencies that receive state funds. Under Government Code section 13030, it is a misdemeanor to fail or neglect to file with the Department of Finance any report required by the Government Code, to fail or neglect to follow its directions in keeping the accounts of an agency, or to refuse to permit or interfere with the examination of or access to an agency’s records and books. Finally, under Government Code section 8545.2, subdivision (a), the State Auditor is authorized “to examine and [reproduce] any and all books, accounts, reports . . . and other records, bank accounts, and money or other property, of any agency of the state, whether created by the California Constitution or otherwise, and any public entity, including any city, county, and school or