An Initiative Measure

Healthy Children, Healthy Families Act

AN ACT REPEALING SECTIONS 36-275, 36-771, 36-773, 36-774, 36-775, 36-2907.07, 36-2921, 42-3251, 42-3252, ARIZONA REVISED STATUTES; AMENDING TITLE 11, CHAPTER 2, ARTICLE 1, BY ADDING SECTION 11-201.01; AMENDING TITLE 36, CHAPTER 6, ARTICLE 8, ARIZONA REVISED STATUTES, BY ADDING SECTIONS 36-771, 36-774 AND 36-775; AMENDING TITLE 36, CHAPTER 6, ARIZONA REVISED STATUTES, BY ADDING ARTICLE 9, SECTIONS 36-776, 36-777, 36-778 AND 36-779; AMENDING TITLE 36, ARIZONA REVISED STATUTES, BY ADDING CHAPTER 10, SECTIONS 36-781, 36-782, 36-783; AMENDING TITLE 36, CHAPTER 29, ARTICLE 1, ARIZONA REVISED STATUTES, BY ADDING SECTIONS 36-2921.01 AND 36-2901.02; AMENDING SECTIONS 36-2988 AND 36-2989, ARIZONA REVISED STATUTES; AMENDING TITLE 41, CHAPTER 7, ARTICLE 10.1, ARIZONA REVISED STATUTES, BY ADDING SECTION 41-1279.09; AMENDING TITLE 42, CHAPTER 3, ARTICLE 6, ARIZONA REVISED STATUTES, BY ADDING SECTION 42-3251; AMENDING TITLE 44, ARIZONA REVISED STATUTES, BY ADDING CHAPTER 26, ARTICLE 1, SECTION 44-7101; MAKING AN APPROPRIATION; RELATING TO TOBACCO.

Be it enacted by the People of the State of Arizona:

The following enactments for the promotion of the health and well-being of the people of Arizona are proposed to become valid when approved by a majority of the qualified electors voting thereon and on proclamation of the Governor:

Section 1. Declaration of policy

The people of Arizona find that the money from the 1998 Master Settlement Agreement settling Arizona’s lawsuit against tobacco product manufacturers should be used to promote the health and well-being of its citizens by providing health insurance for uninsured working parents; strengthening Arizona’s children’s health insurance program; helping children start school ready to learn through prenatal support, child abuse prevention, parenting and pre-school education programs; investing in prevention and early detection of cancer, cardiovascular and pulmonary disease and strokes; assisting older Arizonans with their health care needs and protecting Arizona’s existing programs for prevention and reduction of tobacco use and disease research.

Section 2. Section 36-275, Arizona Revised Statutes, is repealed.

Section 3. Section 36-771, Arizona Revised Statutes, is repealed.

Section 4. Sections 36-773, 36-774 and 36-775, Arizona Revised Statutes are repealed.

Section 5. Sections 42-3251 and 42-3252, Arizona Revised Statutes, are repealed.

Section 6. Title 36, chapter 6, article 8, Arizona Revised Statutes, is amended by adding section 36-771 to read:

36-771. Payment and transfer of tobacco litigation settlement funds to Healthy Children, Healthy Families Fund

A. ALL MONEY PAID TO THE STATE OF ARIZONA PURSUANT TO THE 1998 MASTER SETTLEMENT AGREEMENT BETWEEN UNITED STATES TOBACCO PRODUCT MANUFACTURERS AND THE STATE, INCLUDING MONEY PAID PRIOR TO THE EFFECTIVE DATE OF THIS LAW AND INTEREST EARNED THEREON, SHALL, UPON RECEIPT BY THE STATE, BE DEPOSITED IN THE HEALTHY CHILDREN, HEALTHY FAMILIES FUND ESTABLISHED PURSUANT TO SECTION 36-774 AND SHALL BE APPROPRIATED AND USED SOLELY FOR THE PURPOSES AND IN THE AMOUNTS SPECIFIED IN THE HEALTHY CHILDREN, HEALTHY FAMILIES ACT.

B. ANY MONEY PAID TO THE STATE BY A TOBACCO PRODUCT MANUFACTURER IN SATISFACTION OF A JUDGMENT ON OR IN SETTLEMENT OF A CLAIM OR CLAIMS FOR RECOVERY OF THE COSTS OF PROVIDING MEDICAL OR OTHER ASSISTANCE TO PERSONS WITH HEALTH CONDITIONS ASSOCIATED WITH TOBACCO USE, INCLUDING FUNDS RELEASED FROM ANY ESCROW ACCOUNT ESTABLISHED BY THE STATE TO PAY A JUDGMENT OR SETTLEMENT ON ANY RELEASED CLAIM, SHALL BE DEPOSITED IN THE HEALTHY CHILDREN, HEALTHY FAMILIES FUND.

C. THE STATE TREASURER SHALL DEPOSIT ALL MONEY RECEIVED UNDER SECTIONS 42-3251 AND 42-3302, AND ANY INTEREST THEREON, INTO THE HEALTHY CHILDREN, HEALTHY FAMILIES FUND. HOWEVER, BEFORE SUCH DEPOSIT, THE STATE TREASURER SHALL:

1. DEPOSIT TWO CENTS OF EACH DOLLAR INTO AN ADJUSTMENT ACCOUNT FOR TRANSFER OF APPROPRIATE AMOUNTS TO THE CORRECTIONS FUND ESTABLISHED BY SECTION 41-1641 TO COMPENSATE FOR DECREASES IN THE CORRECTIONS FUND RESULTING FROM LOWER TOBACCO TAX REVENUES AVAILABLE UNDER SECTION 42-3104 AS A RESULT OF THE LEVY OF LUXURY TAXES PURSUANT TO SECTIONS 42-3251 AND 42-3302. ANY MONEY IN THE ADJUSTMENT ACCOUNT IN EXCESS OF THE AMOUNT NEEDED FOR THE ADJUSTMENT REVERTS TO THE HEALTHY CHILDREN, HEALTHY FAMILIES FUND. THE DEPARTMENT OF REVENUE SHALL ADMINISTER THE ADJUSTMENT ACCOUNT.

2. DEPOSIT AN AMOUNT EQUAL TO TWENTY-THREE CENTS OF EACH DOLLAR IN THE HEALTH EDUCATION ACCOUNT ESTABLISHED PURSUANT TO SECTION 36-772.

3. DEPOSIT FIVE CENTS OF EACH DOLLAR IN THE DISEASE CONTROL RESEARCH FUND ESTABLISHED PURSUANT TO SECTION 36-274, SUBSECTION A, TO BE USED FOR DISEASE AND HEALTH CARE RESEARCH INCLUDING RESEARCH FOR THE CURE, PREVENTION AND EARLY DETECTION OF CANCER, CARDIOVASCULAR AND PULMONARY DISEASES, RESPIRATORY ILLNESSES, STROKES, DISEASES RELATED TO AGING AND CHILDHOOD DISEASES. THE FUND SHALL BE ADMINISTERED BY THE DISEASE CONTROL RESEARCH COMMISSION PURSUANT TO CHAPTER 2, ARTICLE 4 OF THIS TITLE.

D. MONEY IN THE DISEASE CONTROL RESEARCH FUND AND THE HEALTH EDUCATION ACCOUNT ARE EXEMPT FROM THE PROVISIONS OF SECTION 35-190 AND ANY OTHER LAW RELATING TO THE LAPSING OF APPROPRIATIONS AND NO MONEY IN THE DISEASE CONTROL RESEARCH FUND OR THE HEALTH EDUCATION ACCOUNT, INCLUDING ANY INTEREST AND EARNINGS ON THE MONEY, SHALL BE SUBJECT TO FURTHER APPROPRIATION BY THE LEGISLATURE. ANY MONEY IN THE DISEASE CONTROL RESEARCH FUND AND HEALTH EDUCATION ACCOUNT REMAINING AT THE END OF A FISCAL YEAR SHALL REMAIN IN THE RESPECTIVE FUND OR ACCOUNT.

E. EXCEPT WHERE OTHERWISE PROVIDED IN THE HEALTHY CHILDREN, HEALTHY FAMILIES ACT, THE STATE TREASURER SHALL INVEST AND DIVEST MONEY, AS PROVIDED IN TITLE 35, CHAPTER 2, IN THE HEALTHY CHILDREN, HEALTHY FAMILIES FUND AND ALL ITS ACCOUNTS, SUBACCOUNTS AND FUNDS, AND SHALL CREDIT MONEY EARNED FROM THESE INVESTMENTS TO THIS FUND AND ITS ACCOUNTS, SUBACCOUNTS AND FUNDS.

Section 7. Title 36, chapter 6, article 8 is amended by adding section 36-774 to read:

36-774. Healthy children, healthy families fund; purposes; administration; distribution

A. THE HEALTHY CHILDREN, HEALTHY FAMILIES FUND IS ESTABLISHED CONSISTING OF ALL MONEY THAT THIS STATE RECEIVES PURSUANT TO THE TOBACCO LITIGATION MASTER SETTLEMENT AGREEMENT ENTERED INTO ON NOVEMBER 23, 1998, AND ALL MONEY DEPOSITED IN THE FUND PURSUANT TO SECTIONS 42-3251 AND 42-3302, AND INTEREST PAID THEREON.

B. MONEY IN THE HEALTHY CHILDREN, HEALTHY FAMILIES FUND SHALL BE DEPOSITED IN THE FOLLOWING ACCOUNTS:

1. INVEST IN PREVENTION ACCOUNT. 3.5 CENTS OF EACH DOLLAR OF THE HEALTHY CHILDREN, HEALTHY FAMILIES FUND, BUT NOT TO EXCEED FIVE MILLION DOLLARS IN ANY FISCAL YEAR, SHALL BE DEPOSITED IN THE INVEST IN PREVENTION ACCOUNT. THE ACCOUNT SHALL BE ADMINISTERED AND USED AS SET FORTH IN SECTION 36-775.

2. SMART BEGINNINGS PREVENTION ACCOUNT. TWENTY-ONE CENTS OF EACH DOLLAR OF THE HEALTHY CHILDREN, HEALTHY FAMILIES FUND, BUT NOT TO EXCEED THIRTY-FIVE MILLION DOLLARS IN ANY FISCAL YEAR, SHALL BE DEPOSITED IN THE SMART BEGINNINGS PREVENTION ACCOUNT. THE ACCOUNT SHALL BE ADMINISTERED AND USED AS SET FORTH IN TITLE 36, CHAPTER 6, ARTICLE 9.

3. OVERSIGHT AND ENFORCEMENT ACCOUNT. ON THE EFFECTIVE DATE OF THE HEALTHY CHILDREN, HEALTHY FAMILIES ACT AND THEREAFTER ON JULY 1 OF EACH FISCAL YEAR, $350,000 SHALL BE DEPOSITED FROM THE HEALTHY CHILDREN, HEALTHY FAMILIES FUND INTO THE OVERSIGHT AND ENFORCEMENT ACCOUNT, WHICH SHALL BE ADMINISTERED AND USED BY THE ATTORNEY GENERAL AS SET FORTH IN SECTIONS 36-781, 36-782 AND 36-783.

4. AUDITOR GENERAL ACCOUNT. ON THE EFFECTIVE DATE OF THE HEALTHY CHILDREN, HEALTHY FAMILIES ACT AND THEREAFTER ON JULY 1 OF EACH FISCAL YEAR, $350,000 SHALL BE DEPOSITED FROM THE HEALTHY CHILDREN, HEALTHY FAMILIES FUND INTO THE AUDITOR GENERAL ACCOUNT, WHICH SHALL BE ADMINISTERED AND USED BY THE AUDITOR GENERAL AS SET FORTH IN SECTION 41-1279.09.

5. HEALTH CARE COVERAGE ACCOUNT. ALL MONEY REMAINING IN THE HEALTHY CHILDREN, HEALTHY FAMILIES FUND AFTER THE ALLOCATIONS PROVIDED IN PARAGRAPHS 1 THROUGH 4 OF THIS SUBSECTION, SHALL BE DEPOSITED IN THE HEALTH CARE COVERAGE ACCOUNT. THE ACCOUNT SHALL BE ADMINISTERED AND USED AS SET FORTH IN SECTION 36-2921.01.

C. ANY STATUTE TO THE CONTRARY NOTWITHSTANDING, MONEY IN THE HEALTHY CHILDREN, HEALTHY FAMILIES FUND OR ITS ACCOUNTS, SUBACCOUNTS OR FUNDS SHALL NOT REVERT TO THE STATE GENERAL FUND. MONEY IN THE HEALTHY CHILDREN, HEALTHY FAMILIES FUND, ITS ACCOUNTS, SUBACCOUNTS AND FUND ARE EXEMPT FROM THE PROVISIONS OF SECTION 35-190 AND ANY OTHER LAW RELATING TO LAPSING OF APPROPRIATIONS. ANY MONEY REMAINING IN ANY ACCOUNT, SUBACCOUNT OR FUND AT THE END OF ANY FISCAL YEAR, SHALL REMAIN IN THAT ACCOUNT, SUBACCOUNT OR FUND EXCEPT AS OTHERWISE PROVIDED IN THE HEALTHY CHILDREN, HEALTHY FAMILIES ACT.

Section 8. Title 36, chapter 6, article 8, Arizona Revised Statutes, is amended by adding section 36-775 to read:

36-775. Invest in prevention account

MONEY IN THE INVEST IN PREVENTION ACCOUNT ESTABLISHED PURSUANT TO 36-774 SHALL BE USED SOLELY FOR PROGRAMS FOR PREVENTION AND EARLY DETECTION OF CANCER, CARDIOVASCULAR AND PULMONARY DISEASE AND STROKES. THE DEPARTMENT OF HEALTH SERVICES SHALL ADMINISTER THIS ACCOUNT AND SHALL ALLOCATE MONEY IN THE ACCOUNT FOR EFFECTIVE PREVENTION AND EARLY DETECTION PROGRAMS, TAKING INTO CONSIDERATION THE RELATIVE IMPACT EACH DISEASE HAS UPON MORTALITY RATES IN ARIZONA AS DETERMINED BY THE CENTERS FOR DISEASE CONTROL. THE DEPARTMENT SHALL ADOPT RULES TO IMPLEMENT THIS SECTION. MONEY IN THIS ACCOUNT SHALL SUPPLEMENT EXISTING STATE FUNDING OF PREVENTION AND EARLY DETECTION PROGRAMS.

Section 9. Title 36, chapter 6, Arizona Revised Statutes, is amended by adding article 9 to read:

Article 9. Smart beginnings

36-776. Smart beginnings prevention account

A. THE SMART BEGINNINGS PREVENTION ACCOUNT ESTABLISHED PURSUANT TO SECTION 36-774 MAY INCLUDE ADDITIONAL STATE AND FEDERAL FUNDS AND PRIVATE DONATIONS, GRANTS, GIFTS OR BEQUESTS. THE SMART BEGINNINGS COMMISSION ESTABLISHED PURSUANT TO SECTION 36-778 SHALL ADMINISTER THE ACCOUNT. ANY INTEREST EARNED ON MONEY IN THE ACCOUNT SHALL BE CREDITED BACK TO THE ACCOUNT. ANY MONEY DEPOSITED INTO THE SMART BEGINNINGS PREVENTION ACCOUNT THAT IS UNSPENT AT THE CLOSE OF A FISCAL YEAR, AND ANY INTEREST THEREON, SHALL REMAIN IN THE SMART BEGINNINGS PREVENTION ACCOUNT.

B. THE COMMISSION SHALL USE MONEY IN THE ACCOUNT TO ESTABLISH, EXPAND, ENHANCE, PLAN, OVERSEE AND FUND COORDINATED PREVENTION AND FAMILY SUPPORT SERVICES FOR FAMILIES AND CHILDREN. FAMILIES’ PARTICIPATION IN THESE SERVICES SHALL BE VOLUNTARY. SERVICES SHALL BE PROVIDED TO PREGNANT WOMEN AND FAMILIES WHOSE YOUNGEST CHILD IS UNDER SIX YEARS OF AGE. SERVICES SHALL BE PROVIDED BASED UPON RISK FACTORS OR NEED.

C. SERVICES SUPPORTED BY FUNDING FROM THE SMART BEGINNINGS PREVENTION ACCOUNT MAY INCLUDE, BUT ARE NOT LIMITED TO, PARENTING EDUCATION, PRENATAL OUTREACH, FAMILY MENTORING AND PRESCHOOL. SERVICES SHALL BE DESIGNED TO INCREASE THE USE OF PRENATAL CARE, PREVENT CHILD ABUSE AND NEGLECT, PROMOTE THE HEALTHY DEVELOPMENT OF CHILDREN AND PREPARE CHILDREN TO START SCHOOL READY TO LEARN. SERVICES SUPPORTED WITH THIS FUNDING SHALL FOLLOW MODELS SHOWN BY INDEPENDENT RESEARCH TO BE EFFECTIVE IN ACHIEVING THE PURPOSES OF THIS SECTION.

D. THE COMMISSION SHALL ALLOCATE FUNDS FROM THE SMART BEGINNINGS PREVENTION ACCOUNT ON A COMPETITIVE BASIS TO PERSONS OR ENTITIES, AND SHALL FACILITATE AND ENCOURAGE FUND RECIPIENTS TO FORM COLLABORATIVE EFFORTS.

E. THE SMART BEGINNINGS COMMISSION SHALL NOT SPEND OR ALLOCATE MORE THAN THE FOLLOWING AMOUNTS FROM THE SMART BEGINNINGS PREVENTION ACCOUNT:

1. IN THE FIRST FISCAL YEAR THE HEALTHY CHILDREN, HEALTHY FAMILIES ACT IS IN EFFECT, ONE MILLION DOLLARS;

2. IN THE SECOND FISCAL YEAR THE HEALTHY CHILDREN, HEALTHY FAMILIES ACT IS IN EFFECT, SEVEN MILLION DOLLARS;

3. IN THE THIRD FISCAL YEAR THE HEALTHY CHILDREN, HEALTHY FAMILIES ACT IS IN EFFECT, FOURTEEN MILLION DOLLARS;

4. IN THE FOURTH FISCAL YEAR THE HEALTHY CHILDREN, HEALTHY FAMILIES ACT IS IN EFFECT, TWENTY-EIGHT MILLION DOLLARS;

5. IN THE FIFTH FISCAL YEAR THE HEALTHY CHILDREN, HEALTHY FAMILIES ACT IS IN EFFECT AND IN ANY FISCAL YEAR THEREAFTER, THIRTY-FIVE MILLION DOLLARS.

F. MONEY IN THE SMART BEGINNINGS PREVENTION ACCOUNT SHALL BE USED TO SUPPLEMENT EXISTING STATE FUNDING OF THE HEALTHY FAMILIES PROGRAM ESTABLISHED PURSUANT TO SECTION 8-701 AND THE HEALTH START PROGRAM ESTABLISHED PURSUANT TO SECTION 36-697. THE STATE MAY TRANSFER ANY MONEY FOR THESE PROGRAMS INTO THE SMART BEGINNINGS PREVENTION ACCOUNT AND MAY TRANSFER THE ADMINISTRATION OF THE HEALTHY FAMILIES AND HEALTH START PROGRAMS TO THE SMART BEGINNINGS COMMISSION ESTABLISHED PURSUANT TO SECTION 36-778.

G. THE COMMISSION MAY WITHDRAW ANNUALLY FROM THE SMART BEGINNINGS PREVENTION ACCOUNT AN AMOUNT NECESSARY TO PAY FOR SALARIES FOR AN EXECUTIVE DIRECTOR AND STAFF, CONSULTANTS, ADMINISTRATIVE SUPPORT, AND OTHER EXPENSES ASSOCIATED WITH ADMINISTRATION OF THIS ARTICLE, EXCEPT THAT THE AMOUNT WITHDRAWN SHALL NOT EXCEED FIVE PERCENT OF THE ANNUAL DEPOSIT INTO THE SMART BEGINNINGS PREVENTION ACCOUNT.

36-777. Smart beginnings trust fund

A. THERE SHALL BE ESTABLISHED A SMART BEGINNINGS TRUST FUND WHICH SHALL CONSIST OF MONEY DEPOSITED FROM THE SMART BEGINNINGS PREVENTION ACCOUNT ESTABLISHED PURSUANT TO SECTION 36-774 AND ANY ADDITIONAL STATE AND FEDERAL FUNDS, PRIVATE DONATIONS, GRANTS, GIFTS OR BEQUESTS.

B. IN THE FIRST FOUR FISCAL YEARS AFTER THE HEALTHY CHILDREN, HEALTHY FAMILIES ACT BECOMES EFFECTIVE, THE COMMISSION SHALL DEPOSIT INTO THE SMART BEGINNINGS TRUST FUND ALL MONEY IN THE SMART BEGINNINGS PREVENTION ACCOUNT IN EXCESS OF THE AMOUNTS SPECIFIED IN SECTION 36-776, SUBSECTION E. THE COMMISSION MAY DEPOSIT ADDITIONAL UNALLOCATED MONEY FROM THE SMART BEGINNINGS PREVENTION ACCOUNT INTO THE SMART BEGINNINGS TRUST FUND. THE STATE TREASURER SHALL INVEST AND DIVEST MONEY IN THE SMART BEGINNINGS TRUST FUND AS PROVIDED IN TITLE 35, CHAPTER 2 AND SHALL CREDIT MONEY EARNED FROM THESE INVESTMENTS TO THE SMART BEGINNINGS TRUST FUND.

C. THE COMMISSION MAY USE MONEY IN THE SMART BEGINNINGS TRUST FUND FOR THE PURPOSES AND USES DESCRIBED IN SECTION 36-776 ONLY UNDER THE FOLLOWING CONDITIONS:

1. IF, IN ANY FISCAL YEAR, THE TOTAL AMOUNT OF MONEY DEPOSITED FROM THE HEALTHY CHILDREN, HEALTHY FAMILIES FUND INTO THE SMART BEGINNINGS PREVENTION ACCOUNT IS LESS THAN THIRTY-FIVE MILLION DOLLARS, THE COMMISSION MAY USE THE INTEREST EARNED ON THE SMART BEGINNINGS TRUST FUND DURING THAT YEAR; OR

2. IF, IN ANY FISCAL YEAR, THE TOTAL AMOUNT OF MONEY DEPOSITED FROM THE HEALTHY CHILDREN, HEALTHY FAMILIES FUND TO THE SMART BEGINNINGS PREVENTION ACCOUNT IS LESS THAN TWENTY-MILLION DOLLARS, THE COMMISSION MAY USE ANY MONEY IN THE SMART BEGINNINGS TRUST FUND; OR

3. IF, IN ANY FISCAL YEAR, THE INTEREST EARNED ON THE SMART BEGINNINGS TRUST FUND EXCEEDS SIX MILLION DOLLARS, THE COMMISSION MAY USE THAT INTEREST.

36-778. Smart beginnings commission members; terms; compensation; executive director

A. THE SMART BEGINNINGS COMMISSION IS ESTABLISHED TO ADMINISTER THE SMART BEGINNINGS PREVENTION ACCOUNT AND SMART BEGINNINGS TRUST FUND. THE COMMISSION CONSISTS OF THE FOLLOWING MEMBERS APPOINTED BY THE GOVERNOR:

1. TWO MEMBERS OF THE EXECUTIVE BRANCH WHOSE OFFICIAL RESPONSIBILITIES RELATE TO PROMOTING THE HEALTHY DEVELOPMENT OF YOUNG CHILDREN.

2. TWO PUBLIC MEMBERS WHO REPRESENT ENTITIES WITH EXPERTISE IN THE HEALTHY DEVELOPMENT OF YOUNG CHILDREN.

3. TWO PUBLIC MEMBERS WHO REPRESENT THE BUSINESS COMMUNITY IN THIS STATE.

4. ONE PUBLIC MEMBER WHO IS A PARENT WITH A YOUNG CHILD.

B. PUBLIC MEMBERS SHALL SERVE FIVE-YEAR TERMS.

C. A MAJORITY OF THE MEMBERS CONSTITUTES A QUORUM FOR THE TRANSACTION OF BUSINESS.

D. THE COMMISSION SHALL APPOINT A CHAIR FROM ITS PUBLIC MEMBERS AT ITS FIRST MEETING OF THE CALENDAR YEAR. THE COMMISSION SHALL MEET AT LEAST ONCE EVERY QUARTER AND AT THE CALL OF THE COMMISSION CHAIR.

E. COMMISSION MEMBERS SHALL SERVE WITHOUT COMPENSATION, EXCEPT THAT PUBLIC MEMBERS ARE ELIGIBLE FOR REIMBURSEMENT FOR EXPENSES PURSUANT TO TITLE 38, CHAPTER 4, ARTICLE 2.

F. THE GOVERNOR MAY, AFTER PUBLIC HEARING, REMOVE A COMMISSION MEMBER FOR NEGLECT OF DUTY, MISCONDUCT IN OFFICE OR UNLAWFUL ACTIVITY.

G. THE GOVERNOR SHALL APPOINT A FULL-TIME EXECUTIVE DIRECTOR WHO SHALL:

1. NOT BE A MEMBER OF THE COMMISSION;

2. HAVE AT LEAST A MASTER’S DEGREE AND THREE YEARS OF EXPERIENCE ADMINISTERING HUMAN SERVICE OR PUBLIC HEALTH PROGRAMS;

3. BE ELIGIBLE TO RECEIVE COMPENSATION AS DETERMINED PURSUANT TO SECTION 38-611; AND

4. HAVE THE POWER TO EMPLOY, DETERMINE THE CONDITIONS OF EMPLOYMENT, SPECIFY THE DUTIES OF AND TERMINATE STAFF.

H. THE EXECUTIVE DIRECTOR SHALL SERVE FOR A TERM OF FIVE YEARS, EXCEPT THAT THE GOVERNOR MAY REMOVE THE EXECUTIVE DIRECTOR FOR NEGLECT OF DUTY, MISCONDUCT IN OFFICE, INCOMPETENCE OR UNLAWFUL ACTIVITY.

36-779. Commission powers and duties; staffing

A. THE COMMISSION SHALL EXERCISE SUCH POWERS AND DUTIES NECESSARY TO CARRY OUT FULLY THE PROVISIONS OF THIS ARTICLE AND IN GENERAL EXERCISE POWERS AND DUTIES THAT RELATE TO ADOPTING AND CARRYING OUT THE POLICIES OF THE COMMISSION AND CONTROLLING ITS FINANCIAL AFFAIRS. THESE POWERS INCLUDE, BUT ARE NOT LIMITED TO:

1. ADOPTING RULES AND ESTABLISHING PROCEDURES IT DEEMS NECESSARY TO CARRY OUT THE PROVISIONS AND PURPOSES OF THIS SECTION, INCLUDING POLICIES, REQUIREMENTS, PRIORITIES, GUIDELINES, QUALITATIVE STANDARDS AND NEEDS ASSESSMENTS FOR SERVICES FUNDED THROUGH THE SMART BEGINNINGS PREVENTION ACCOUNT AND THE SMART BEGINNINGS TRUST FUND.

2. ENTERING INTO CONTRACTS FOR THE PURPOSE OF PROVIDING SERVICES AUTHORIZED PURSUANT TO THIS ARTICLE.

3. PROVIDING TECHNICAL ASSISTANCE TO FURTHER THE PURPOSES OF THIS ARTICLE.

4. TRACKING BENCHMARKS AND MEASURING OUTCOMES.

5. DEVELOPING AND PROVIDING INFORMATION AND EDUCATIONAL MATERIALS CONCERNING SMART BEGINNINGS TO THE PUBLIC.

6. MAKING RECOMMENDATIONS TO THE GOVERNOR AND LEGISLATURE TO COORDINATE AND CONSOLIDATE FEDERAL, STATE AND LOCAL PROGRAMS AND FUNDS RELATING TO THE PURPOSE OF THIS ARTICLE.

B. THE COMMISSION IS EXEMPT FROM THE PROVISIONS OF TITLE 41, CHAPTER 23.

Section 10. Initial terms of members of smart beginnings commission

A. Notwithstanding section 36-778, Arizona Revised Statutes, as added by the Healthy Children, Healthy Families Act, the initial terms of the public members of the Smart Beginnings Commission are:

1. One term ending in January 2003.

2. Two terms ending in January 2004.

3. Two terms ending in January 2005.

B. The governor shall make all subsequent appointments as prescribed by section 36-778, Arizona Revised Statutes.

Section 11. Exemption from rule making

The Smart Beginnings Commission established by section 36-778 of this Act is exempt from the rulemaking provisions of title 41, chapter 6, Arizona Revised Statutes, for eighteen months from the effective date of this Act. The Commission shall make available, upon request, all proposed rules at least thirty days prior to the date the rules are scheduled to be adopted by the Commission.

Section 12. Section 36-2921, Arizona Revised Statutes, is repealed.

Section 13. Title 36, chapter 29, article 1 is amended by adding section 36-2921.01 to read:

36-2921.01. Health care coverage account

THE MONEY IN THE HEALTH CARE COVERAGE ACCOUNT ESTABLISHED PURSUANT TO SECTION 36-774 SHALL BE USED ONLY AS FOLLOWS:

1. STATE MEDICAL LABORATORY SUBACCOUNT. IN THE FIRST AND SECOND FISCAL YEARS AFTER THE HEALTHY CHILDREN, HEALTHY FAMILIES ACT IS IN EFFECT, THE STATE TREASURER SHALL DEPOSIT FIFTEEN MILLION DOLLARS ANNUALLY FROM THE HEALTH CARE COVERAGE ACCOUNT INTO A STATE MEDICAL LABORATORY SUBACCOUNT. THE STATE MAY APPROPRIATE MONEY IN THE STATE LABORATORY SUBACCOUNT ONLY FOR CONSTRUCTION OF A STATE MEDICAL LABORATORY. ANY MONEY REMAINING IN THIS SUBACCOUNT AT THE END OF THE THIRD FISCAL YEAR AFTER THE EFFECTIVE DATE OF THIS ACT SHALL REVERT TO THE HEALTHY CHILDREN, HEALTHY FAMILIES FUND ESTABLISHED PURSUANT TO SECTION 36-774.

2. MENTAL HEALTH FACILITIES AND SERVICES SUBACCOUNT. IN THE FIRST FISCAL YEAR AFTER THE HEALTHY CHILDREN, HEALTHY FAMILIES ACT IS IN EFFECT, THE STATE TREASURER SHALL DEPOSIT FIFTEEN MILLION DOLLARS FROM THE HEALTH CARE COVERAGE ACCOUNT INTO A MENTAL HEALTH FACILITIES AND SERVICES SUBACCOUNT. IN THE SECOND AND THIRD FISCAL YEARS AFTER THE HEALTHY CHILDREN, HEALTHY FAMILIES ACT IS IN EFFECT, THE STATE TREASURER SHALL DEPOSIT EACH YEAR FROM THE HEALTH CARE COVERAGE ACCOUNT THIRTY MILLION DOLLARS INTO THE STATE MENTAL HEALTH FACILITIES AND SERVICES SUBACCOUNT. THE STATE MAY APPROPRIATE MONEY IN THE MENTAL HEALTH FACILITIES AND SERVICES SUBACCOUNT ONLY FOR THE CONSTRUCTION OR RENOVATION OF A MENTAL HEALTH FACILITY OR FACILITIES AND THE PROVISION OF MENTAL HEALTH SERVICES. ANY MONEY REMAINING IN THIS SUBACCOUNT AT THE END OF THE FOURTH FISCAL YEAR AFTER THE EFFECTIVE DATE OF THIS ACT SHALL REVERT TO THE HEALTHY CHILDREN, HEALTHY FAMILIES FUND ESTABLISHED PURSUANT TO SECTION 36-774.

3. BEHAVIORAL HEALTH SUBACCOUNT. THE STATE TREASURER SHALL DEPOSIT NINE CENTS OF EACH DOLLAR IN THE HEALTH CARE COVERAGE ACCOUNT, BUT NOT TO EXCEED $11,000,000 IN ANY FISCAL YEAR, INTO THE BEHAVIORAL HEALTH SUBACCOUNT. THIS SUBACCOUNT SHALL BE ADMINISTERED BY THE DEPARTMENT OF HEALTH SERVICES. SEVENTY-FIVE PERCENT OF THE MONEY IN THE BEHAVIORAL HEALTH SUBACCOUNT SHALL BE USED TO PROVIDE PSYCHOTROPIC MEDICATIONS FOR PERSONS WITH SERIOUS MENTAL ILLNESSES AND WHO ARE NOT ELIGIBLE TO RECEIVE SERVICES PURSUANT TO TITLE XIX OF THE SOCIAL SECURITY ACT. TWENTY-FIVE PERCENT OF THE MONEY IN THE BEHAVIORAL HEALTH SUBACCOUNT SHALL BE USED FOR REGIONAL BEHAVIORAL HEALTH AUTHORITIES OR ANY SUCCESSOR OF A REGIONAL BEHAVIORAL HEALTH AUTHORITY TO PROVIDE CRISIS STABILIZATION AND RESIDENTIAL TREATMENT SERVICES TO CHILDREN WHO HAVE SIGNIFICANT AND SERIOUS PSYCHIATRIC IMPAIRMENTS THAT POSE A THREAT TO THEMSELVES, THEIR FAMILIES OR THE COMMUNITY. THE DEPARTMENT OF HEALTH SERVICES SHALL HAVE AUTHORITY TO PROMULGATE RULES TO IMPLEMENT THE PROVISIONS OF THIS PARAGRAPH INCLUDING ESTABLISHING ELIGIBILITY CRITERIA.

4. OLDER ARIZONANS SUBACCOUNT. THE STATE TREASURER SHALL DEPOSIT THREE CENTS OF EACH DOLLAR IN THE HEALTH CARE COVERAGE ACCOUNT, BUT NOT TO EXCEED $3,500,000 IN ANY FISCAL YEAR, INTO AN OLDER ARIZONANS SUBACCOUNT. EIGHTY-FIVE PERCENT OF THE MONEY IN THIS ACCOUNT SHALL BE USED TO PROVIDE CARE, INCLUDING CUSTODIAL AND SUPPORTIVE SERVICES, FOR OLDER ARIZONANS SUFFERING FROM CHRONIC DISEASES INCLUDING CANCER, CARDIOVASCULAR AND PULMONARY DISEASES, RESPIRATORY ILLNESSES, STROKES, ALZHEIMER’S DISEASE AND OTHER DISEASES OF AGING, AND WHO CANNOT OTHERWISE SECURE SUCH SERVICES PRIVATELY OR THROUGH PROGRAMS ESTABLISHED PURSUANT TO THIS CHAPTER OR TITLE XVIII OF THE SOCIAL SECURITY ACT. THIS PORTION OF THE OLDER ARIZONANS FUND SHALL BE ADMINISTERED BY THE ADMINISTRATION AND SERVICES SHALL BE DELIVERED BY PERSONS OR ENTITIES QUALIFIED TO PROVIDE SUCH SERVICES AND SELECTED THROUGH A COMPETITIVE BIDDING PROCESS. THE ADMINISTRATION SHALL ADOPT RULES TO IMPLEMENT THIS PROGRAM INCLUDING, BUT NOT LIMITED TO PROGRAM ELIGIBILITY CRITERIA, PROVIDER QUALIFICATION, SERVICE COVERAGE, AND FUNDING PROCESS. FIFTEEN PERCENT OF MONEY IN THE OLDER ARIZONANS SUBACCOUNT SHALL BE USED TO FUND NONMEDICAL HOME AND COMMUNITY-BASED CARE PROGRAMS ESTABLISHED PURSUANT TO SECTION 46-192 SUBSECTION A, PARAGRAPH 4. THIS PORTION OF THE OLDER ARIZONANS SUBACCOUNT SHALL BE ADMINISTERED BY THE DEPARTMENT OF ECONOMIC SECURITY.

5. HEALTH CRISIS FUND. THE STATE TREASURER SHALL DEPOSIT SUFFICIENT MONEY FROM THE HEALTH CARE COVERAGE ACCOUNT INTO THE HEALTH CRISIS FUND, ESTABLISHED PURSUANT TO SECTION 36-797, TO ENSURE THAT THIS FUND MAINTAINS A BALANCE OF ONE MILLION DOLLARS, EXCEPT THAT NO MORE THAN ONE MILLION DOLLARS OF THE HEALTH CARE COVERAGE ACCOUNT SHALL BE DEPOSITED IN THE HEALTH CRISIS FUND IN ANY FISCAL YEAR. EXPENDITURES OF MONEY FROM THE HEALTH CRISIS FUND SHALL NOT BE SUBJECT TO TITLE 41, CHAPTER 23.

6. PRIMARY CARE AND COMMUNITY HEALTH CENTERS SUBACCOUNT. THE STATE TREASURER SHALL DEPOSIT NINE CENTS OF EACH DOLLAR OF THE HEALTH CARE COVERAGE ACCOUNT, BUT NOT TO EXCEED $11,000,000 IN ANY FISCAL YEAR INTO A PRIMARY CARE AND COMMUNITY HEALTH CENTERS SUBACCOUNT. THE STATE MAY APPROPRIATE MONEY FROM THIS SUBACCOUNT TO FUND THE PRIMARY CARE AND COMMUNITY HEALTH CENTER SERVICES PROVIDED PURSUANT TO SECTIONS 36-2907.05 AND 36-2907.06 OR SIMILAR PROGRAMS HEREAFTER ESTABLISHED BY THE LEGISLATURE SERVING THE SAME POPULATIONS.

7. ANNUAL HEALTH SUBACCOUNT. THE STATE TREASURER SHALL DEPOSIT FIFTEEN CENTS OF EACH DOLLAR OF THE HEALTH CARE COVERAGE ACCOUNT, BUT NOT TO EXCEED $20,500,000 IN ANY FISCAL YEAR, INTO AN ANNUAL HEALTH SUBACCOUNT. THE LEGISLATURE MAY APPROPRIATE MONEY FROM THE ANNUAL HEALTH SUBACCOUNT ONLY TO PROVIDE FUNDING FOR HEALTH CARE, INCLUDING BEHAVIORAL HEALTH CARE, FOR INDIVIDUALS WHO CANNOT OTHERWISE AFFORD OR OBTAIN SUCH SERVICES OR TO PROVIDE FUNDING FOR INNOVATIVE HEALTH CARE PROGRAMS.

8. CHILDREN’S HEALTH INSURANCE AND WORKING UNINSURED SUBACCOUNT. IN EACH OF THE FIRST TWO FISCAL YEARS AFTER THE HEALTHY CHILDREN, HEALTHY FAMILIES ACT BECOMES EFFECTIVE, THE STATE TREASURER SHALL DEPOSIT AT LEAST THIRTY-FOUR CENTS OF EACH DOLLAR OF THE HEALTH CARE COVERAGE ACCOUNT INTO A CHILDREN’S HEALTH INSURANCE AND WORKING UNINSURED SUBACCOUNT. THEREAFTER, IN EACH FISCAL YEAR THE STATE TREASURER SHALL DEPOSIT AT LEAST FIFTY CENTS OF EACH DOLLAR OF THE HEALTH CARE COVERAGE ACCOUNT INTO THE CHILDREN’S HEALTH INSURANCE AND WORKING UNINSURED SUBACCOUNT. IN ADDITION, THE STATE TREASURER SHALL DEPOSIT THE BALANCE OF FUNDS REMAINING IN THE HEALTH CARE COVERAGE ACCOUNT FOLLOWING THE ALLOCATIONS SET FORTH IN PARAGRAPHS 1 THROUGH 7 OF THIS SECTION INTO THE CHILDREN’S HEALTH INSURANCE AND WORKING UNINSURED SUBACCOUNT. THE ADMINISTRATION SHALL ALLOCATE THE MONEY IN THE CHILDREN’S HEALTH INSURANCE AND WORKING UNINSURED SUBACCOUNT IN THE FOLLOWING ORDER OF PRIORITY:

a. THE ADMINISTRATION SHALL WITHDRAW ALL AMOUNTS NECESSARY FOR DEPOSIT IN THE CHILDREN’S HEALTH INSURANCE PROGRAM FUND ESTABLISHED BY SECTION 36-2995 TO PAY THE FEDERALLY REQUIRED STATE SHARE OF THE CHILDREN’S HEALTH INSURANCE PROGRAM AND TO ENSURE THAT THE MAXIMUM NUMBER OF ELIGIBLE CHILDREN ARE SERVED, SUBJECT TO THE AVAILABILITY OF FEDERAL MATCHING DOLLARS.

b. THE ADMINISTRATION SHALL WITHDRAW THE AMOUNT NECESSARY TO PAY THE COST OF ORGAN TRANSPLANTS AUTHORIZED BY SECTION 36-2907 SUBSECTION A, PARAGRAPH (11), SUBDIVISIONS (b), (d) AND (e).

c. THE ADMINISTRATION SHALL WITHDRAW THE AMOUNT NECESSARY TO PAY THE COST OF HIV/AIDS DRUG TREATMENT, INCLUDING BUT NOT LIMITED TO PROTEASE INHIBITORS, AND THE MEDICAL COSTS ASSOCIATED WITH THE ADMINISTRATION AND MONITORING OF THE TREATMENT; EXCEPT THAT THE ADMINISTRATION MAY NOT WITHDRAW IN EXCESS OF $1,230,000 FOR SUCH TREATMENT IN ANY FISCAL YEAR.

d. THE ADMINISTRATION SHALL WITHDRAW THE AMOUNT NECESSARY TO PAY THE FEDERALLY REQUIRED STATE SHARE OF COSTS FOR PROVIDING HEALTH CARE SERVICES TO PERSONS DETERMINED ELIGIBLE PURSUANT TO SECTION 36-2901.02.

e. THE ADMINISTRATION MAY WITHDRAW AN AMOUNT NECESSARY TO PAY FOR ADMINISTRATIVE COSTS ASSOCIATED WITH PROVIDING COVERAGE TO PERSONS DETERMINED ELIGIBLE PURSUANT TO SECTION 36-2901.02, EXCEPT THAT THE AMOUNT WITHDRAWN SHALL NOT EXCEED FOUR PER CENT OF THE TOTAL AMOUNT WITHDRAWN FROM THE CHILDREN’S HEALTH INSURANCE AND WORKING UNINSURED SUBACCOUNT IN ANY FISCAL YEAR FOR THE PURPOSE OF SUBDIVISION (d) OF THIS PARAGRAPH.

f. THE DIRECTOR MAY WITHDRAW UP TO ONE MILLION DOLLARS ANNUALLY FOR OUTREACH PROGRAMS DEDICATED TO INFORMING ELIGIBLE OR POTENTIALLY ELIGIBLE PERSONS ABOUT BENEFITS AVAILABLE PURSUANT TO THIS CHAPTER. TO THE EXTENT POSSIBLE, EXPENDITURES FOR SUCH OUTREACH PROGRAMS SHALL BE USED AS A MATCH TO DRAW DOWN FEDERAL FUNDS FOR SUCH PROGRAMS.

Section 14. Section 36-2988, Arizona Revised Statutes, is amended to read:

36-2988. Children’s health insurance program outreach

A. To the extent possible, the administration shall use contractors that have a contract with the administration pursuant to article 1 of this chapter or qualifying plans to provide services to members who qualify for the program.

B. The administration has full authority to amend existing contracts awarded pursuant to article 1 of this chapter.

C. As determined by the director, reinsurance may be provided against expenses in excess of a specified amount on behalf of any member for covered emergency services, inpatient services or outpatient services in the same manner as reinsurance provided under article 1 of this chapter. Subject to the approval of the director, reinsurance may be obtained against expenses in excess of a specified amount on behalf of any member.

D. Notwithstanding any other law, the administration may procure, provide or coordinate covered services by interagency agreement with authorized agencies of this state for distinct groups of members, including persons eligible for children’s rehabilitative services through the department of health services and members eligible for comprehensive medical and dental benefits through the department of economic security.

E. After contracts are awarded pursuant to this section, the director may negotiate with any successful bidder for the expansion or contraction of services or service areas.

F. Payments to contractors shall be made monthly and may be subject to contract provisions requiring the retention of a specified percentage of the payment by the director, a reserve fund or any other contract provisions by which adjustments to the payments are made based on utilization efficiency, including incentives for maintaining quality care and minimizing inpatient services. Reserve money withheld from contractors shall be distributed to providers who meet performance standards established by the director. Any reserve fund established pursuant to this subsection shall be established as a separate account within the Arizona health care cost containment system.

G. The director may negotiate at any time with a hospital on behalf of a contractor for inpatient hospital services and outpatient hospital services provided pursuant to the requirements specified in § 36-2904.

H. A contractor may require that subcontracting providers or noncontracting providers be paid for covered services, other than hospital services, according to the capped fee-for-service schedule adopted by the administration or at lower rates as may be negotiated by the contractor.

I. The Administration AND ITS CONTRACTORS MAY CONTRACT WITH OR COORDINATE WITH and contractors shall not contract for any services or functions related to this article with a school district including contracting for the delivery of services, screening, outreach or information that involves the use of school staff and facilities SCHOOLS OR SCHOOL DISTRICTS TO PERFORM OUTREACH AS SPECIFIED IN SECTION 36-2986 SUBSECTION A, PARAGRAPH 7.

J. The administration is exempt from the procurement code pursuant to § 41-2501.

Section 15. Section 36-2989, Arizona Revised Statutes, is amended to read:

36-2989. Covered health and medical services; modifications; related delivery of service requirements

A. Except as provided in this section, the director shall establish a specific health benefits coverage package that is as nearly as practicable the same as the least expensive health benefits coverage plan or plans that are offered through a health care services organization available to state employees under § 38-651. The package shall include the following covered services:

1. Inpatient hospital services that are ordinarily furnished by a hospital for the care and treatment of inpatients, that are medically necessary and that are provided under the direction of a physician or a primary care practitioner. For the purposes of this paragraph, inpatient hospital services exclude services in an institution for tuberculosis or mental diseases unless authorized by federal law.

2. Outpatient health services that are medically necessary and ordinarily provided in hospitals, clinics, offices and other health care facilities by licensed health care providers. For the purposes of this paragraph, "outpatient health services" includes services provided by or under the direction of a physician or a primary care practitioner.

3. Other laboratory and X-ray services ordered by a physician or a primary care practitioner.

4. Medications that are medically necessary and ordered on prescription by a physician, a primary care practitioner or a dentist licensed pursuant to title 32, chapter 11.

5. Medical supplies, equipment and prosthetic devices.

6. Treatment of medical conditions of the eye including one eye examination each year for prescriptive lenses and the provision of one set of prescriptive lenses each year for members.

7. Medically necessary dental services.

8. Well child, immunizations and prevention services.

9. Family planning services that do not include abortion or abortion counseling. If a contractor elects not to provide family planning services, this election does not disqualify the contractor from delivering all other covered health and medical services under this article. In that event, the administration may contract directly with another contractor, including an outpatient surgical center or a noncontracting provider, to deliver family planning services to a member who is enrolled with a contractor who elects not to provide family planning services.

10. Podiatry services that are performed by a podiatrist licensed pursuant to title 32, chapter 7 and that are ordered by a primary care physician or primary care practitioner.

11. Medically necessary pancreas, heart, liver, kidney, cornea, lung and heart lung transplants and autologous and allogeneic bone marrow transplants and immunosuppressant medications for these transplants ordered on prescription by a physician licensed pursuant to title 32, chapter 13 or 17.

12. Medically necessary emergency transportation.

13. Inpatient and outpatient behavioral health services. Inpatient behavioral health services are limited to not more than thirty days for each twelve month period from the date of initial enrollment or the redetermination of eligibility. Outpatient behavioral services are limited to not more than thirty visits for each twelve month period from the date of initial enrollment or the redetermination of eligibility.

A. THE DIRECTOR SHALL ESTABLISH A HEALTH BENEFITS COVERAGE PACKAGE THAT IS IDENTICAL TO THE HEALTH BENEFITS PROVIDED PURSUANT TO SECTION 36-2907 TO CHILDREN WHO HAVE BEEN DETERMINED ELIGIBLE UNDER TITLE XIX OF THE SOCIAL SECURITY ACT.

B. The administration shall pay noncontracting providers only for health and medical services as prescribed in subsection A of this section.

C. To the extent possible and practicable, the administration and contractors shall provide for the prior approval of medically necessary services provided pursuant to this article.

D. The director shall make available home health services in lieu of hospitalization pursuant to contracts awarded under this article.

E. Except for members who are eighteen years of age and who are not seriously mentally ill, behavioral health services shall be provided to members through the administration’s intergovernmental agreement with the division of behavioral health in the department of health services. The division of behavioral health in the department of health services shall use its established diagnostic and evaluation program for referrals of children who are not already enrolled pursuant to this article and who may be in need of behavioral health services. In addition to an evaluation, the division of behavioral health shall also identify children who may be eligible under § 36-2901, paragraph 4, subdivision (b) or § 36-2931, paragraph 5 and shall refer the children to the appropriate agency responsible for making the final eligibility determination. Members who are eighteen years of age and who are not seriously mentally ill shall be referred to the contractors for behavioral health services.

F. The director shall adopt rules for the provision of transportation services for members. Prior authorization is not required for medically necessary ambulance transportation services rendered to members initiated by dialing telephone number 911 or other designated emergency response systems.

G. The director may adopt rules to allow the administration to use a second opinion procedure under which surgery may not be eligible for coverage pursuant to this article without documentation as to need by at least two physicians or primary care practitioners.

H. All health and medical services provided under this article shall be provided in the county or residence of the member, except:

1. Emergency services and specialty services.

2. The director may permit the delivery of health and medical services in other than the county of residence in this state or in an adjoining state if it is determined that medical practice patterns justify the delivery of services in other than the county of residence or a net reduction in transportation costs can reasonably be expected. Notwithstanding § 36-2981, paragraph 7 or 12, if services are procured from a physician or primary care practitioner in an adjoining state, the physician or primary care practitioner shall be licensed to practice in that state pursuant to licensing statutes in that state that are similar to title 32, chapter 13, 15, 17 or 25.

I. Covered outpatient services shall be subcontracted by a primary care physician or primary care practitioner to other licensed health care providers to the extent practicable for purposes of making health care services available to underserved areas, reducing costs of providing medical care and reducing transportation costs.

J. The director shall adopt rules that prescribe the coordination of medical care for members and that include a mechanism to transfer members and medical records and initiate medical care.

K. The director shall adopt rules for the reimbursement of specialty services provided to the member if authorized by the member’s primary care physician or primary care practitioner.

Section 16. Title 36, chapter 29, article 1, Arizona Revised Statutes, is amended by adding section 36-2901.02 to read:

36-2901.02. Additional eligibility group

A. FOR THE PURPOSES OF SECTION 36-2901, BEGINNING OCTOBER 1, 2001, "ELIGIBLE PERSON" INCLUDES ANY PARENT AND RELATIVE CARETAKER WHO IS DEFINED AS ELIGIBLE PURSUANT TO SECTION 1931 OF TITLE XIX OF THE SOCIAL SECURITY ACT BASED ON FAMILY INCOME THAT DOES NOT EXCEED ONE HUNDRED PERCENT OF THE FEDERAL POVERTY GUIDELINES AS PUBLISHED BY THE UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES. THE DIRECTOR SHALL AMEND THE TITLE XIX STATE PLAN TO PROVIDE COVERAGE THROUGH EXPANDED INCOME DISREGARDS OR OTHER METHODOLOGY TO PERSONS DEFINED AS ELIGIBLE PURSUANT TO THIS SUBSECTION.

B. IN SUBSEQUENT YEARS, THE DIRECTOR HAS THE AUTHORITY TO ADJUST THE APPLICANT INCOME LIMIT FOR PARENTS AND RELATIVE CARETAKERS WHO ARE DEFINED AS ELIGIBLE PURSUANT TO SUBSECTION A. THE DIRECTOR SHALL AMEND THE TITLE XIX STATE PLAN TO LOWER THE APPLICANT INCOME LIMIT BELOW ONE HUNDRED PERCENT OF THE FEDERAL POVERTY GUIDELINES ONLY IF THE ADMINISTRATION’S ENROLLMENT PROJECTIONS SHOW THAT THE COST OF PROVIDING SERVICES WILL EXCEED THE MONEY THAT IS AVAILABLE PURSUANT TO SECTION 36-2921.01, PARAGRAPH 8, SUBDIVISION (d). TO ENSURE FULL ENROLLMENT, THE DIRECTOR SHALL ADJUST THE APPLICANT INCOME LIMIT UPWARD IF THE DIRECTOR DETERMINES THAT FUNDING IS SUFFICIENT PROVIDED THAT THE APPLICANT INCOME LIMIT DOES NOT EXCEED ONE HUNDRED PERCENT OF THE FEDERAL POVERTY GUIDELINES.

C. THE DIRECTOR SHALL PERFORM ELIGIBILITY DETERMINATIONS AND REDETERMINATIONS FOR PERSONS APPLYING FOR ELIGIBILITY OR CONTINUED ELIGIBILITY PURSUANT TO THIS SECTION. THE DIRECTOR MAY ENTER INTO AN INTER-AGENCY AGREEMENT WITH ANOTHER STATE AGENCY TO PERFORM THESE RESPONSIBILITIES.

Section 17. AHCCCS exemption from rule making

In implementing Sections 13 and 16 of this act, the Arizona health care cost containment system administration is exempt from the rule making requirement of title 41, chapter 6, Arizona Revised Statutes. The administration shall hold hearings to give the public an opportunity to comment on the proposed rules. The administration shall hold at least one of these hearings in a county with a population of less than five hundred thousand persons according to the most recent United States decennial census.

Section 18. Section 36-2907.07, Arizona Revised Statutes, is repealed.

Section 19. Title 36, Arizona Revised Statutes, is amended by adding chapter 10 to read:

36-781. Healthy children, healthy families oversight and enforcement account; administration; costs and attorney fees

A. THE ATTORNEY GENERAL SHALL HAVE THE AUTHORITY TO USE AND DISBURSE MONEY IN THE OVERSIGHT AND ENFORCEMENT ACCOUNT ESTABLISHED PURSUANT TO SECTION 36-774 FOR ENFORCEMENT OF THE 1998 MASTER SETTLEMENT AGREEMENT BETWEEN TOBACCO PRODUCT MANUFACTURERS AND THE STATE OF ARIZONA AND TO CARRY OUT THE PURPOSES OF THE HEALTHY CHILDREN, HEALTHY FAMILIES ACT.

B. IN ANY ACTION BROUGHT BY THE ATTORNEY GENERAL REGARDING ILLEGAL PAYMENT OR USE OF MONEY FROM THE HEALTHY CHILDREN, HEALTHY FAMILIES FUND OR ANY OF ITS ACCOUNTS, SUBACCOUNTS OR FUNDS, IF THE ATTORNEY GENERAL PREVAILS, THE COURT SHALL AWARD COSTS AND REASONABLE ATTORNEY FEES TO THE ATTORNEY GENERAL AND SUCH COSTS AND FEES SHALL BE DEPOSITED INTO THE OVERSIGHT AND ENFORCEMENT ACCOUNT.

36-782. Attorney general; enforcement authority

A. THE ATTORNEY GENERAL HAS THE AUTHORITY TO ENFORCE THE PROVISIONS OF THE HEALTHY CHILDREN, HEALTHY FAMILIES ACT, AS PROVIDED BY LAW. IN ADDITION TO THESE POWERS, THE ATTORNEY GENERAL MAY BRING AN ACTION IN THE NAME OF THE STATE TO ENJOIN ILLEGAL PAYMENT OF ANY MONEY FROM THE HEALTHY CHILDREN, HEALTHY FAMILIES FUND OR TO RECOVER SUCH MONEY IF ALREADY PAID. TO CARRY OUT THAT AUTHORITY, THE ATTORNEY GENERAL OR DESIGNEE MAY ALSO:

1. ISSUE WRITTEN INVESTIGATIVE DEMANDS TO ANY PERSON.

2. ADMINISTER AN OATH OR AFFIRMATION TO ANY PERSON FOR TESTIMONY.

B. THE WRITTEN INVESTIGATIVE DEMAND SHALL BE SERVED ON THE PERSON IN THE MANNER REQUIRED FOR SERVICE OF PROCESS IN THE STATE OR BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED; DESCRIBE THE CLASS OR CLASSES OF DOCUMENTS OR OBJECTS WITH SUFFICIENT DEFINITENESS TO PERMIT THEM TO BE FAIRLY IDENTIFIED; PRESCRIBE A REASONABLE TIME AT WHICH THE PERSON MUST APPEAR TO TESTIFY AND WITHIN WHICH THE DOCUMENT OR OBJECT MUST BE PRODUCED; AND ADVISE THE PERSON THAT OBJECTIONS TO OR REASONS FOR NOT COMPLYING WITH THE DEMAND MAY BE FILED WITH THE ATTORNEY GENERAL ON OR BEFORE THAT TIME.

C. IF A PERSON OBJECTS TO OR OTHERWISE FAILS TO COMPLY WITH THE WRITTEN INVESTIGATIVE DEMAND SERVED, THE ATTORNEY GENERAL MAY FILE AN ACTION IN SUPERIOR COURT IN THE COUNTY IN WHICH THE ALLEGED VIOLATION OCCURRED FOR AN ORDER TO ENFORCE THE DEMAND. NOTICE OF HEARING ON THE ACTION TO ENFORCE THE DEMAND AND A COPY OF THE ACTION SHALL BE SERVED ON THE PERSON IN THE SAME MANNER AS THAT PRESCRIBED IN THE ARIZONA RULES OF CIVIL PROCEDURE. IF THE COURT FINDS THAT THE DEMAND IS PROPER, THAT THERE IS REASONABLE CAUSE TO BELIEVE THAT THERE MAY HAVE BEEN AN ILLEGAL PAYMENT OF MONEY, THE COURT SHALL ORDER THE PERSON TO COMPLY WITH THE DEMAND, SUBJECT TO MODIFICATIONS THE COURT MAY PRESCRIBE. IF THE PERSON FAILS TO COMPLY WITH THE COURT’S ORDER, THE COURT MAY ADJUDGE THE PERSON IN CONTEMPT OF COURT, GRANT INJUNCTIVE RELIEF TO RESTRAIN THE CONDUCT THAT IS THE SUBJECT OF THE INVESTIGATION, OR GRANT OTHER RELIEF THE COURT DEEMS PROPER.

D. ALL INFORMATION OR EVIDENCE PROVIDED TO THE ATTORNEY GENERAL SHALL BE CONFIDENTIAL AND SHALL NOT BE MADE PUBLIC UNLESS IN THE JUDGMENT OF THE ATTORNEY GENERAL THE ENDS OF JUSTICE AND PUBLIC INTEREST WILL BE SERVED BY THE PUBLICATION THEREOF, EXCEPT THAT THE NAMES OF THE INTERESTED PARTIES SHALL NOT BE MADE PUBLIC.

36-783. Private enforcement action

A. IF WITHIN SIXTY DAYS AFTER A PERSON OR ENTITY MAKES A WRITTEN REQUEST TO THE ATTORNEY GENERAL TO INSTITUTE AN ACTION AS PROVIDED IN SECTION 36-782, THE ATTORNEY GENERAL FAILS TO INSTITUTE SUCH AN ACTION, THAT PERSON OR ENTITY MAY INSTITUTE THE ACTION IN HIS OWN NAME AND AT HIS OWN COST WITH THE SAME EFFECT AS IF BROUGHT BY THE ATTORNEY GENERAL.

B. IF THE PERSON OR ENTITY PREVAILS IN THE ACTION, THE COURT SHALL AWARD HIM COSTS AND REASONABLE ATTORNEY FEES.

Section 20. Title 41, chapter 7, article 10.1, Arizona Revised Statutes, is amended by adding section 41-1279.09 to read:

      1. Healthy children, healthy families fund audits

A. THE AUDITOR GENERAL SHALL HAVE THE AUTHORITY TO USE AND DISBURSE MONEY FROM THE AUDITOR GENERAL ACCOUNT ESTABLISHED PURSUANT TO SECTION 36-774 TO PERFORM THE AUDITS AND EVALUATIONS AUTHORIZED PURSUANT TO THIS SECTION.

B. EVERY FISCAL YEAR, THE AUDITOR GENERAL SHALL CONDUCT FINANCIAL AUDITS OF THE USE OF MONEY FROM THE HEALTHY CHILDREN, HEALTHY FAMILIES FUND AND ITS ACCOUNTS, SUBACCOUNTS OR FUNDS. AT LEAST ONCE EVERY FIVE YEARS THE AUDITOR GENERAL SHALL CONDUCT PERFORMANCE AUDITS OF THE PROGRAMS FUNDED BY THE HEALTHY CHILDREN, HEALTHY FAMILIES FUND OR ANY OF ITS ACCOUNTS, SUBACCOUNTS OR FUNDS. THE AUDITOR GENERAL MAY ALSO CONDUCT SUCH OTHER PROGRAMMATIC EVALUATIONS OF THE PROGRAMS FUNDED BY THE HEALTHY CHILDREN, HEALTHY FAMILIES FUND OR ANY OF ITS ACCOUNTS, SUBACCOUNTS OR FUNDS AS THE AUDITOR GENERAL DEEMS NECESSARY OR THE AGENCY, COMMISSION OR DEPARTMENT RESPONSIBLE FOR THE PROGRAM MAY REQUEST. THE AUDITOR GENERAL MAY COMBINE AUDITS AND EVALUATIONS PERFORMED UNDER THIS SECTION WITH OTHER AUDITS AND EVALUATIONS OF THE AGENCY, COMMISSION OR DEPARTMENT RESPONSIBLE FOR THE PROGRAM FUNDED BY THE HEALTHY CHILDREN, HEALTHY FAMILIES FUND THAT IS THE SUBJECT OF THE AUDIT. UPON COMPLETION OF AN AUDIT OR EVALUATION, THE AUDITOR GENERAL SHALL REPORT THE RESULTS OF AN AUDIT OR EVALUATION TO THE GOVERNOR, THE ATTORNEY GENERAL, THE DIRECTOR OR EXECUTIVE DIRECTOR OF THE RELEVANT AGENCY, COMMISSION OR DEPARTMENT RESPONSIBLE FOR THE HEALTHY CHILDREN, HEALTHY FAMILIES PROGRAM THAT IS THE SUBJECT OF THE AUDIT, THE JOINT LEGISLATIVE AUDIT COMMITTEE AND THE PUBLIC.

Section 21. General fund expenditures

Beginning immediately, expenditures for the following shall be made and funded from appropriations from the state general fund and shall not be funded from the Healthy Children, Healthy Families Fund, or any of its related accounts, subaccounts or funds:

1. Increases in the cost of providing levels of service to persons determined eligible pursuant to section 36-2901, paragraph 4, subdivision (b), Arizona Revised Statutes, if the increase results from a decrease in federal funding for levels of service including a decrease in the federal match rate for levels of service provided to persons eligible pursuant to that subdivision.

2. As a result of the phase-out of the quick-pay discount required by Laws 1992, chapter 302 section 14, as amended by Laws 1993, second special session, chapter 6, section 27 and Laws 1995, first special session, chapter 5, section 6, increases in the costs of reimbursing hospitals for inpatient hospital and outpatient hospital services provided to members who are eligible pursuant to section 36-2901, paragraph 4, subdivisions (a), (c), (h), and (j) and section 36-2905.03, Arizona Revised Statutes.

3. Discontinuation of the annual ten million dollar discount on private hospital reimbursement for inpatient hospital and outpatient hospital services required by Laws 1993, second special session, chapter 6, section 39, as amended by Laws 1995, first special session, chapter 5, section 10, provided to members who are eligible pursuant to section 36-2901, paragraph 4, subdivisions (a), (c), (h) and (j), Arizona Revised Statutes.

4. Increases due to economic inflation in the costs of providing levels of services established pursuant to title 36, chapter 29, article 1, Arizona Revised Statutes, to eligible persons as defined under section 36-2901, paragraph 4, Arizona Revised Statutes, inflationary increases in the costs of any expansion of such levels of services or inflationary increases in the costs of any successor program established by the legislature providing levels of services substantially equivalent to, or expanding those provided, pursuant to title 36, chapter 29, article 1 to such eligible persons.

Section 22. Maintenance of effort

A. In order to provide necessary services for individuals determined eligible under section 36-2901, paragraph 4, subdivisions (a), (b), (c), (h), and (j), section 36-2905.03 and section 36-2983, Arizona Revised Statutes, the State shall not, before fiscal year 2003-2004, reduce the level of service established pursuant to title 36, chapter 29, articles 1 and 4, Arizona Revised Statutes, or any successor program providing substantially equivalent levels of service.

B. For the purpose of this section, "level of service" means the eligibility criteria, covered health and medical services and provider payment rates and methodology established pursuant to title 36, chapter 29, articles 1 and 4, Arizona Revised Statutes, in effect on November 1, 1999.

Section 23. Title 42, chapter 3, article 6, Arizona Revised Statutes, is amended by adding section 42-3251 to read:

42-3251. Levy and collection of tobacco tax

A. IN ADDITION TO ALL OTHER TAXES, AND IN ADDITION TO THE TAX LEVIED AND IMPOSED BY ARTICLE 2 OF THIS CHAPTER, THERE IS LEVIED AND SHALL BE COLLECTED BY THE DEPARTMENT AND PAID TO THE STATE TREASURER IN THE MANNER PROVIDED BY THIS CHAPTER ON ALL CIGARETTES, CIGARS, SMOKING TOBACCO, PLUG TOBACCO, SNUFF AND OTHER FORMS OF TOBACCO THE FOLLOWING TAX:

1. ON EACH CIGARETTE, 2 CENTS.

2. ON SMOKING TOBACCO, SNUFF, FINE CUT CHEWING TOBACCO, CUT AND GRANULATED TOBACCO, SHORTS AND REFUSE OF FINE CUT CHEWING TOBACCO, AND REFUSE, SCRAPS, CLIPPINGS, CUTTINGS AND SWEEPINGS OF TOBACCO, EXCLUDING TOBACCO POWDER OR TOBACCO PRODUCTS USED EXCLUSIVELY FOR AGRICULTURAL OR HORTICULTURAL PURPOSES AND UNFIT FOR HUMAN CONSUMPTION, 4.5 CENTS PER OUNCE OR MAJOR FRACTION OF AN OUNCE.

3. ON ALL CAVENDISH, PLUG OR TWIST TOBACCO, 1.1 CENTS PER OUNCE OR FRACTIONAL PART OF AN OUNCE.

4. ON EACH TWENTY SMALL CIGARS OR FRACTIONAL PART WEIGHING NOT MORE THAN THREE POUNDS PER THOUSAND, 8.9 CENTS.

    1. ON CIGARS OF ALL DESCRIPTIONS, EXCEPT THOSE INCLUDED IN PARAGRAPH 4, MADE OF TOBACCO OR ANY TOBACCO SUBSTITUTE:
    1. IF MANUFACTURED TO RETAIL AT NOT MORE THAN 5 CENTS EACH AT 4.4 CENTS ON EACH THREE CIGARS.
    2. IF MANUFACTURED TO RETAIL AT MORE THAN 5 CENTS EACH, 4.4 CENTS ON EACH CIGAR.

Section 24. Title 44, Arizona Revised Statutes, is amended by adding chapter 26 to read:

CHAPTER 26. Tobacco product manufacturers escrow accounts

ARTICLE 1.

44-7101. Tobacco product manufacturers escrow accounts; model statute

THIS STATE ENACTS THE MODEL STATUTE DESCRIBED IN THE MASTER SETTLEMENT AGREEMENT ENTERED INTO ON NOVEMBER 23, 1998 BETWEEN THIS STATE AND CERTAIN UNITED STATES TOBACCO PRODUCT MANUFACTURERS AS FOLLOWS:

SECTION 1. FINDINGS AND PURPOSE.

(A) CIGARETTE SMOKING PRESENTS SERIOUS PUBLIC HEALTH CONCERNS TO THE STATE AND TO THE CITIZENS OF THE STATE. THE SURGEON GENERAL HAS DETERMINED THAT SMOKING CAUSES LUNG CANCER, HEART DISEASE AND OTHER SERIOUS DISEASES, AND THAT THERE ARE HUNDREDS OF THOUSANDS OF TOBACCO-RELATED DEATHS IN THE UNITED STATES EACH YEAR. THESE DISEASES MOST OFTEN DO NOT APPEAR UNTIL MANY YEARS AFTER THE PERSON IN QUESTION BEGINS SMOKING.

(B) CIGARETTE SMOKING ALSO PRESENTS SERIOUS FINANCIAL CONCERNS FOR THE STATE. UNDER CERTAIN HEALTH-CARE PROGRAMS, THE STATE MAY HAVE A LEGAL OBLIGATION TO PROVIDE MEDICAL ASSISTANCE TO ELIGIBLE PERSONS FOR HEALTH CONDITIONS ASSOCIATED WITH CIGARETTE SMOKING, AND THOSE PERSONS MAY HAVE A LEGAL ENTITLEMENT TO RECEIVE SUCH MEDICAL ASSISTANCE.

(C) UNDER THESE PROGRAMS, THE STATE PAYS MILLIONS OF DOLLARS EACH YEAR TO PROVIDE MEDICAL ASSISTANCE FOR THESE PERSONS FOR HEALTH CONDITIONS ASSOCIATED WITH CIGARETTE SMOKING.

(D) IT IS THE POLICY OF THE STATE THAT FINANCIAL BURDENS IMPOSED ON THE STATE BY CIGARETTE SMOKING BE BORNE BY TOBACCO PRODUCT MANUFACTURERS RATHER THAN BY THE STATE TO THE EXTENT THAT SUCH MANUFACTURERS EITHER DETERMINE TO ENTER INTO A SETTLEMENT WITH THE STATE OR ARE FOUND CULPABLE BY THE COURTS.

(E) ON NOVEMBER 23, 1998, LEADING UNITED STATES TOBACCO PRODUCT MANUFACTURERS ENTERED INTO A SETTLEMENT AGREEMENT, ENTITLED THE "MASTER SETTLEMENT AGREEMENT," WITH THE STATE. THE MASTER SETTLEMENT AGREEMENT OBLIGATES THESE MANUFACTURERS, IN RETURN FOR A RELEASE OF PAST, PRESENT AND CERTAIN FUTURE CLAIMS AGAINST THEM AS DESCRIBED THEREIN, TO PAY SUBSTANTIAL SUMS TO THE STATE (TIED IN PART TO THEIR VOLUME OF SALES); TO FUND A NATIONAL FOUNDATION DEVOTED TO THE INTERESTS OF PUBLIC HEALTH; AND TO MAKE SUBSTANTIAL CHANGES IN THEIR ADVERTISING AND MARKETING PRACTICES AND CORPORATE CULTURE, WITH THE INTENTION OF REDUCING UNDERAGE SMOKING.

(F) IT WOULD BE CONTRARY TO THE POLICY OF THE STATE IF TOBACCO PRODUCT MANUFACTURERS WHO DETERMINE NOT TO ENTER INTO SUCH A SETTLEMENT COULD USE A RESULTING COST ADVANTAGE TO DERIVE LARGE, SHORT-TERM PROFITS IN THE YEARS BEFORE LIABILITY MAY ARISE WITHOUT ENSURING THAT THE STATE WILL HAVE AN EVENTUAL SOURCE OF RECOVERY FROM THEM IF THEY ARE PROVEN TO HAVE ACTED CULPABLY. IT IS THUS IN THE INTEREST OF THE STATE TO REQUIRE THAT SUCH MANUFACTURERS ESTABLISH A RESERVE FUND TO GUARANTEE A SOURCE OF COMPENSATION AND TO PREVENT SUCH MANUFACTURERS FROM DERIVING LARGE, SHORT-TERM PROFITS AND THEN BECOMING JUDGMENT-PROOF BEFORE LIABILITY MAY ARISE.

SECTION 2. DEFINITIONS.

(A) "ADJUSTED FOR INFLATION" MEANS INCREASED IN ACCORDANCE WITH THE FORMULA FOR INFLATION ADJUSTMENT SET FORTH IN EXHIBIT C TO THE MASTER SETTLEMENT AGREEMENT.

(B) "AFFILIATE" MEANS A PERSON WHO DIRECTLY OR INDIRECTLY OWNS OR CONTROLS, IS OWNED OR CONTROLLED BY, OR IS UNDER COMMON OWNERSHIP OR CONTROL WITH, ANOTHER PERSON. SOLELY FOR PURPOSES OF THIS DEFINITION, THE TERMS "OWNS," "IS OWNED" AND "OWNERSHIP" MEAN OWNERSHIP OF AN EQUITY INTEREST, OR THE EQUIVALENT THEREOF, OF TEN PERCENT OR MORE, AND THE TERM "PERSON" MEANS AN INDIVIDUAL, PARTNERSHIP, COMMITTEE, ASSOCIATION, CORPORATION OR ANY OTHER ORGANIZATION OR GROUP OF PERSONS.

(C) "ALLOCABLE SHARE" MEANS ALLOCABLE SHARE AS THAT TERM IS DEFINED IN THE MASTER SETTLEMENT AGREEMENT.

(D) "CIGARETTE" MEANS ANY PRODUCT THAT CONTAINS NICOTINE, IS INTENDED TO BE BURNED OR HEATED UNDER ORDINARY CONDITIONS OF USE, AND CONSISTS OF OR CONTAINS (1) ANY ROLL OF TOBACCO WRAPPED IN PAPER OR IN ANY SUBSTANCE NOT CONTAINING TOBACCO; OR (2) TOBACCO, IN ANY FORM, THAT IS FUNCTIONAL IN THE PRODUCT, WHICH, BECAUSE OF ITS APPEARANCE, THE TYPE OF TOBACCO USED IN THE FILLER, OR ITS PACKAGING AND LABELING, IS LIKELY TO BE OFFERED TO, OR PURCHASED BY, CONSUMERS AS A CIGARETTE; OR (3) ANY ROLL OF TOBACCO WRAPPED IN ANY SUBSTANCE CONTAINING TOBACCO WHICH, BECAUSE OF ITS APPEARANCE, THE TYPE OF TOBACCO USED IN THE FILLER, OR ITS PACKAGING AND LABELING, IS LIKELY TO BE OFFERED TO, OR PURCHASED BY, CONSUMERS AS A CIGARETTE DESCRIBED IN CLAUSE (1) OF THIS DEFINITION. THE TERM "CIGARETTE" INCLUDES "ROLL-YOUR-OWN" (I.E., ANY TOBACCO WHICH, BECAUSE OF ITS APPEARANCE, TYPE, PACKAGING, OR LABELING IS SUITABLE FOR USE AND LIKELY TO BE OFFERED TO, OR PURCHASED BY, CONSUMERS AS TOBACCO FOR MAKING CIGARETTES). FOR PURPOSES OF THIS DEFINITION OF "CIGARETTE," 0.09 OUNCES OF "ROLL-YOUR-OWN" TOBACCO SHALL CONSTITUTE ONE INDIVIDUAL "CIGARETTE."

(E) "MASTER SETTLEMENT AGREEMENT" MEANS THE SETTLEMENT AGREEMENT (AND RELATED DOCUMENTS) ENTERED INTO ON NOVEMBER 23, 1998 BY THE STATE AND LEADING UNITED STATES TOBACCO PRODUCT MANUFACTURERS.

(F) "QUALIFIED ESCROW FUND" MEANS AN ESCROW ARRANGEMENT WITH A FEDERALLY OR STATE CHARTERED FINANCIAL INSTITUTION HAVING NO AFFILIATION WITH ANY TOBACCO PRODUCT MANUFACTURER AND HAVING ASSETS OF AT LEAST $1,000,000,000 WHERE SUCH ARRANGEMENT REQUIRES THAT SUCH FINANCIAL INSTITUTION HOLD THE ESCROWED FUNDS’ PRINCIPAL FOR THE BENEFIT OF RELEASING PARTIES AND PROHIBITS THE TOBACCO PRODUCT MANUFACTURER PLACING THE FUNDS INTO ESCROW FROM USING, ACCESSING OR DIRECTING THE USE OF THE FUNDS’ PRINCIPAL EXCEPT AS CONSISTENT WITH SECTION 3 (B)-(2) OF THIS ACT.

(G) "RELEASED CLAIMS" MEANS RELEASED CLAIMS AS THAT TERM IS DEFINED IN THE MASTER SETTLEMENT AGREEMENT.

(H) "RELEASING PARTIES" MEANS RELEASING PARTIES AS THAT TERM IS DEFINED IN THE MASTER SETTLEMENT AGREEMENT.

(I) "TOBACCO PRODUCT MANUFACTURER" MEANS AN ENTITY THAT AFTER THE DATE OF ENACTMENT OF THIS ACT DIRECTLY (AND NOT EXCLUSIVELY THROUGH ANY AFFILIATE):

(1) MANUFACTURES CIGARETTES ANYWHERE THAT SUCH MANUFACTURER INTENDS TO BE SOLD IN THE UNITED STATES, INCLUDING CIGARETTES INTENDED TO BE SOLD IN THE UNITED STATES THROUGH AN IMPORTER (EXCEPT WHERE SUCH IMPORTER IS AN ORIGINAL PARTICIPATING MANUFACTURER (AS THAT TERM IS DEFINED IN THE MASTER SETTLEMENT AGREEMENT) THAT WILL BE RESPONSIBLE FOR THE PAYMENTS UNDER THE MASTER SETTLEMENT AGREEMENT WITH RESPECT TO SUCH CIGARETTES AS A RESULT OF THE PROVISIONS OF SUBSECTIONS II(MM) OF THE MASTER SETTLEMENT AGREEMENT AND THAT PAYS THE TAXES SPECIFIED IN SUBSECTION II(Z) OF THE MASTER SETTLEMENT AGREEMENT, AND PROVIDED THAT THE MANUFACTURER OF SUCH CIGARETTES DOES NOT MARKET OR ADVERTISE SUCH CIGARETTES IN THE UNITED STATES);

(2) IS THE FIRST PURCHASER ANYWHERE FOR RESALE IN THE UNITED STATES OF CIGARETTES MANUFACTURED ANYWHERE THAT THE MANUFACTURER DOES NOT INTEND TO BE SOLD IN THE UNITED STATES; OR

(3) BECOMES A SUCCESSOR OF AN ENTITY DESCRIBED IN PARAGRAPH (1) OR (2).

THE TERM "TOBACCO PRODUCT MANUFACTURER" SHALL NOT INCLUDE AN AFFILIATE OF A TOBACCO PRODUCT MANUFACTURER UNLESS SUCH AFFILIATE ITSELF FALLS WITHIN ANY OF (1)–(3) ABOVE.

(J) "UNITS SOLD" MEANS THE NUMBER OF INDIVIDUAL CIGARETTES SOLD IN THE STATE BY THE APPLICABLE TOBACCO PRODUCT MANUFACTURER (WHETHER DIRECTLY OR THROUGH A DISTRIBUTOR, RETAILER OR SIMILAR INTERMEDIARY OR INTERMEDIARIES) DURING THE YEAR IN QUESTION, AS MEASURED BY EXCISE TAXES COLLECTED BY THE STATE ON PACKS (OR "ROLL-YOUR-OWN" TOBACCO CONTAINERS) BEARING THE EXCISE TAX STAMP OF THE STATE. THE DEPARTMENT OF REVENUE SHALL PROMULGATE SUCH REGULATIONS AS ARE NECESSARY TO ASCERTAIN THE AMOUNT OF STATE EXCISE TAX PAID ON THE CIGARETTES OF SUCH TOBACCO PRODUCT MANUFACTURER FOR EACH YEAR.

SECTION 3. REQUIREMENTS.

ANY TOBACCO PRODUCT MANUFACTURER SELLING CIGARETTES TO CONSUMERS WITHIN THE STATE (WHETHER DIRECTLY OR THROUGH A DISTRIBUTOR, RETAILER OR SIMILAR INTERMEDIARY OR INTERMEDIARIES) AFTER THE DATE OF ENACTMENT OF THIS ACT SHALL DO ONE OF THE FOLLOWING:

(A) BECOME A PARTICIPATING MANUFACTURER (AS THAT TERM IS DEFINED IN SECTION II(JJ) OF THE MASTER SETTLEMENT AGREEMENT) AND GENERALLY PERFORM ITS FINANCIAL OBLIGATIONS UNDER THE MASTER SETTLEMENT AGREEMENT; OR

(B) (1) PLACE INTO A QUALIFIED ESCROW FUND BY APRIL 15 OF THE YEAR FOLLOWING THE YEAR IN QUESTION THE FOLLOWING AMOUNTS (AS SUCH AMOUNTS ARE ADJUSTED FOR INFLATION):

1999: $.0094241 PER UNIT SOLD AFTER THE DATE OF ENACTMENT OF THIS ACT;

2000: $.0104712 PER UNIT SOLD;

FOR EACH OF 2001 AND 2002: $.0136125 PER UNIT SOLD;

FOR EACH OF 2003 THROUGH 2006; $.0167539 PER UNIT SOLD;

FOR EACH OF 2007 AND EACH YEAR THEREAFTER: $.0188482 PER UNIT SOLD.

(2) A TOBACCO PRODUCT MANUFACTURER THAT PLACES FUNDS INTO ESCROW PURSUANT TO PARAGRAPH (1) SHALL RECEIVE THE INTEREST OR OTHER APPRECIATION ON SUCH FUNDS AS EARNED. SUCH FUNDS THEMSELVES SHALL BE RELEASED FROM ESCROW ONLY UNDER THE FOLLOWING CIRCUMSTANCES:

(A) TO PAY A JUDGMENT OR SETTLEMENT ON ANY RELEASED CLAIM BROUGHT AGAINST SUCH TOBACCO PRODUCT MANUFACTURER BY THE STATE OR ANY RELEASING PARTY LOCATED OR RESIDING IN THE STATE. FUNDS SHALL BE RELEASED FROM ESCROW UNDER THIS SUBPARAGRAPH (I) IN THE ORDER IN WHICH THEY WERE PLACED INTO ESCROW AND (II) ONLY TO THE EXTENT AND AT THE TIME NECESSARY TO MAKE PAYMENTS REQUIRED UNDER SUCH JUDGMENT OR SETTLEMENT;

(B) TO THE EXTENT THAT A TOBACCO PRODUCT MANUFACTURER ESTABLISHES THAT THE AMOUNT IT WAS REQUIRED TO PLACE INTO ESCROW IN A PARTICULAR YEAR WAS GREATER THAN THE STATE’S ALLOCABLE SHARE OF THE TOTAL PAYMENTS THAT SUCH MANUFACTURER WOULD HAVE BEEN REQUIRED TO MAKE IN THAT YEAR UNDER THE MASTER SETTLEMENT AGREEMENT (AS DETERMINED PURSUANT TO SECTION IX(I)(2) OF THE MASTER SETTLEMENT AGREEMENT, AND BEFORE ANY OF THE ADJUSTMENTS OR OFFSETS DESCRIBED IN SECTION IX(I)(3) OF THAT AGREEMENT OTHER THAN THE INFLATION ADJUSTMENT) HAD IT BEEN A PARTICIPATING MANUFACTURER, THE EXCESS SHALL BE RELEASED FROM ESCROW AND REVERT BACK TO SUCH TOBACCO PRODUCT MANUFACTURER; OR

(C) TO THE EXTENT NOT RELEASED FROM ESCROW UNDER SUBPARAGRAPHS (A) OR (B), FUNDS SHALL BE RELEASED FROM ESCROW AND REVERT BACK TO SUCH TOBACCO PRODUCT MANUFACTURER TWENTY-FIVE YEARS AFTER THE DATE ON WHICH THEY WERE PLACED INTO ESCROW.

(3) EACH TOBACCO PRODUCT MANUFACTURER THAT ELECTS TO PLACE FUNDS INTO ESCROW PURSUANT TO THIS SUBSECTION SHALL ANNUALLY CERTIFY TO THE ATTORNEY GENERAL THAT IT IS IN COMPLIANCE WITH THIS SUBSECTION. THE ATTORNEY GENERAL MAY BRING A CIVIL ACTION ON BEHALF OF THE STATE AGAINST ANY TOBACCO PRODUCT MANUFACTURER THAT FAILS TO PLACE INTO ESCROW THE FUNDS REQUIRED UNDER THIS SECTION. ANY TOBACCO PRODUCT MANUFACTURER THAT FAILS IN ANY YEAR TO PLACE INTO ESCROW THE FUNDS REQUIRED UNDER THIS SECTION SHALL:

(A) BE REQUIRED WITHIN 15 DAYS TO PLACE SUCH FUNDS INTO ESCROW AS SHALL BRING IT INTO COMPLIANCE WITH THIS SECTION. THE COURT, UPON A FINDING OF A VIOLATION OF THIS SUBSECTION, MAY IMPOSE A CIVIL PENALTY TO BE PAID TO THE HEALTHY CHILDREN, HEALTHY FAMILIES FUND ESTABLISHED PURSUANT TO SECTION 36-774 IN AN AMOUNT NOT TO EXCEED 5 PERCENT OF THE AMOUNT IMPROPERLY WITHHELD FROM ESCROW PER DAY OF THE VIOLATION AND IN A TOTAL AMOUNT NOT TO EXCEED 100 PERCENT OF THE ORIGINAL AMOUNT IMPROPERLY WITHHELD FROM ESCROW;

(B) IN THE CASE OF A KNOWING VIOLATION, BE REQUIRED WITHIN 15 DAYS TO PLACE SUCH FUNDS INTO ESCROW AS SHALL BRING IT INTO COMPLIANCE WITH THIS SECTION. THE COURT, UPON A FINDING OF A KNOWING VIOLATION OF THIS SUBSECTION, MAY IMPOSE A CIVIL PENALTY TO BE PAID TO THE HEALTHY CHILDREN, HEALTHY FAMILIES FUND ESTABLISHED PURSUANT TO SECTION 36-774 IN AN AMOUNT NOT TO EXCEED 15 PERCENT OF THE AMOUNT IMPROPERLY WITHHELD FROM ESCROW PER DAY OF THE VIOLATION AND IN A TOTAL AMOUNT NOT TO EXCEED 300 PERCENT OF THE ORIGINAL AMOUNT IMPROPERLY WITHHELD FROM ESCROW; AND

(C) IN THE CASE OF A SECOND KNOWING VIOLATION, BE PROHIBITED FROM SELLING CIGARETTES TO CONSUMERS WITHIN THE STATE (WHETHER DIRECTLY OR THROUGH A DISTRIBUTOR, RETAILER OR SIMILAR INTERMEDIARY) FOR A PERIOD NOT TO EXCEED 2 YEARS.

EACH FAILURE TO MAKE AN ANNUAL DEPOSIT REQUIRED UNDER THIS SECTION SHALL CONSTITUTE A SEPARATE VIOLATION AND THE VIOLATOR SHALL PAY TO THE ATTORNEY GENERAL THE COSTS AND ATTORNEY FEES INCURRED DURING A SUCCESSFUL PROSECUTION UNDER PARAGRAPH (3).

Section 25. Effective Date

This act shall be effective immediately, in accordance with Arizona constitution article 4, part 1, section 1; except that no sections of this act except sections 21and 26 shall take effect prior to the date of the first payment to the State pursuant to the 1998 Master Settlement Agreement between tobacco product manufacturers and the State.

Section 26. Title 11, chapter 2, article 1, Arizona Revised Statutes, is amended by adding section 11-201.01 to read:

11-201.01 Actions against Tobacco Manufacturers

A. NOTWITHSTANDING ANY LAW TO THE CONTRARY, NO COUNTY MAY SUE ANY TOBACCO PRODUCT MANUFACTURER TO RECOVER ANY DAMAGES THAT ANY COUNTY MAY CLAIM IT HAS INCURRED AS A RESULT OF HAVING TO PAY FOR ANY HEALTH CARE FOR ANY PERSON ALLEGED TO HAVE SUFFERED ANY ILLNESS, DISEASES OR DAMAGE AS A RESULT OF USE OF OR EXPOSURE TO TOBACCO PRODUCTS. IF ANY SUCH LAWSUIT IS PENDING AT THE TIME THE HEALTHY CHILDREN, HEALTHY FAMILIES ACT IS ENACTED, ANY PARTY AND THE STATE OF ARIZONA MAY MOVE TO DISMISS SUCH ACTION.

B. ALL MONEY PAID TO ANY COUNTY AS A RESULT OF A SETTLEMENT OR TO SATISFY A JUDGMENT IN ANY LEGAL ACTION INSTITUTED BY ANY COUNTY AGAINST ANY OF THE TOBACCO PRODUCT MANUFACTURERS AND RELATING TO THE CLAIMS ENCOMPASSED BY THE NOVEMBER 23, 1998 MASTER SETTLEMENT AGREEMENT BETWEEN THE STATE AND TOBACCO PRODUCT MANUFACTURERS OR ANY MONEY PAID TO ANY COUNTY AS A RESULT OF ANY LEGAL ACTION SEEKING TO RECOVER ANY MONIES PAID BY THE TOBACCO MANUFACTURERS AS A RESULT OF THE 1998 MASTER SETTLEMENT AGREEMENT SHALL, UPON RECEIPT BY THE COUNTY, BE DEPOSITED IN THE HEALTHY CHILDREN, HEALTHY FAMILIES FUND ESTABLISHED PURSUANT TO SECTION 36-774.

Section 27. Priority over existing inconsistent statutes

If any part of this Act conflicts with any law of Arizona already in effect, the Act shall prevail in all particulars as to which there is a conflict.

Section 28. Priority over other initiatives

This Act authorizes the use of and appropriates all money received pursuant to the Master Settlement Agreement and the tobacco tax established pursuant to section 42-3251, Arizona Revised Statutes. Any other act, statute, initiative or referendum that seeks to authorize the expenditure of or seeks to appropriate any such money is in conflict with and is inconsistent with this Act.

Section 29. Legislative approval

Except as expressly provided by the Healthy Families, Healthy Children Act, expenditures from each account, subaccount and fund established by this Act are hereby appropriated and are not subject to legislative approval.

Section 30. Other initiatives

If any other initiative allocating or appropriating eighty percent or more of the money to be paid to the State of Arizona pursuant to the 1998 Master Settlement Agreement between United States tobacco product manufacturers and the State of Arizona, receives more votes than this measure, only section 23, enacting section 42-3251, Arizona Revised Statutes, of this Act shall be effective.

Section 31. Conforming legislation; technical changes

A. The staff of the Arizona Legislative Council shall prepare any necessary legislation to conform the Arizona Revised Statutes to the provisions of this Act for consideration in the forty-fifth legislature, first regular session.

B. Subject to Arizona Constitution, article 4, part 1, section 1, paragraphs 6(b) and 14, the legislature may make technical and conforming changes to any section of this Act.

Section 32. Severability

If any provision of this Act or its application to any person or circumstance is held invalid, the invalidity does not affect other provisions or applications of the Act that can be given effect without the invalid provision or application, and to this end the provisions of this Act are severable.

Section 33. Model statute; prior enactment

If prior to the enactment of the Healthy Children, Healthy Families Act, the State enacts the model statute set forth in Exhibit T of the November 23, 1998 Master Settlement Agreement between tobacco product manufacturers and the State, section 24 of the Healthy Children, Healthy Families Act shall not go into effect.

Section 34. Additional appropriations

Nothing in the Healthy Children, Healthy Families Act prohibits the State from appropriating from the general fund or other funds available to the State, except funds appropriated and allocated by this Act, additional money for any program created or referred to in this Act.

Section 35. Legislative appropriation; mental health facilities; state medical labs

If between November 15, 1999, and the date of enactment of the Healthy Children, Healthy Families Act, the State authorizes construction of mental health facilities or a state medical laboratory and appropriates and spends money received by the State pursuant to the November 23, 1998 Master Settlement Agreement between tobacco product manufacturers and the State for such construction, such authorization, appropriation and expenditure is not inconsistent with section 36-2921.01 paragraphs (1) and (2), Arizona Revised Statutes, to the extent such appropriations and expenditures do not exceed the appropriations permitted under section 36-2921.01 paragraphs (1) and (2), Arizona Revised Statutes. The amounts allocated in section 36-2901.01, paragraphs (1) and (2), for mental health facilities or a medical laboratory shall be reduced by the amounts of money received pursuant to the November 23, 1998 Master Settlement Agreement allocated by the State for mental health facilities or a medical laboratory.