Tax may not help Kansas' budget woes enough

Past tobacco tax hikes' revenue less than projected

01/17/2010 12:00 AM

04/03/2012 1:55 PM

TOPEKA — If history is a guide, Gov. Mark Parkinson's proposal to raise the cigarette tax may not help the state with its budget woes as much as predicted. Budget analysts projected that increasing the cigarette tax by 55 cents a pack — from 79 cents to $1.34 — would generate almost $52 million toward closing a $400 million budget gap.

But the last time the state raised the tax, when the Legislature more than tripled it in 2002, receipts fell slightly short of projections the first year and far short the second year.

And budget analysts did not account for one of the governor's other big initiatives: a statewide public smoking ban.

Ohio, the first Midwestern state to pass such a ban in 2006, has seen substantial declines in its cigarette-tax income since.

Beth Martino, an aide to the Democratic governor, said Parkinson is more focused on the health benefits of the proposed tax increase and smoking ban than on potential revenue.

"First and foremost, he's primarily interested in public policy that is beneficial to Kansans and protects their health," Martino said. "If it can help fill the state's budget hole, that's still good."

But some Republican lawmakers who will consider the tax increase said the governor's measures seem to be at cross purposes.

Senate Assessment and Taxation Committee Chairman Les Donovan, R-Wichita, said that trying to bulk up state income from cigarette taxes while simultaneously cracking down on smoking "flies in the face of itself."

He likened it to the Legislature's 2007 decision that allowed expanded gambling, but with strict conditions that have so far stymied efforts to develop casinos in the state's major markets.

"Gambling was going to bring in all this money," he said. "So far, we haven't done so well with that."

Previous tax increases

It's not the first time Kansas has gone down the tobacco tax road.

In 2002, at the request of then-Gov. Bill Graves, a Republican, lawmakers revolutionized the state's cigarette taxes with a two-phase increase that took the tax from 24 cents to 79 cents a pack.

In 2003, the first full year of collection, the state's cigarette tax income rose from $48.04 million to $129.25 million. That was about $2.75 million shy of budget analysts' estimate of $132 million — about as close as such estimates get, said state Secretary of Administration Duane Goossen.

But in 2004, when analysts projected an increase to $145 million in collections, the tobacco tax generated only $119.8 million, about $9.5 million less than the previous year and more than $25 million short of the estimate.

The tax income has gone down every year since and, absent the governor's proposed increase, is projected to generate $100 million in 2011.

Lawmakers cite two major reasons for the decline: Some smokers either quit or cut back to save money; others started buying cigarettes out of state, at tax-exempt tribal smoke shops or over the Internet.

There's no consensus on how much of a role each of those factors played in the decrease in tax collections. Cigarette-tax supporters claim reduced smoking accounts for much of the decline, while opponents argue the tax increase mainly turned smokers into smugglers.

Among Midwestern states, Ohio has led the way on cigarette tax increases and indoor smoking bans.

In January 2005, that state enacted an increase of 55 cents a pack — the same amount Parkinson proposes — to raise its cigarette tax to $1.25 a pack. The result was an immediate $200 million jump in tax income.

In 2006, the state set a record for cigarette tax collections at $1.08 billion, up $285 million from the year before, according to budget records.

Ohio passed its indoor smoking ban in November 2006 and tax receipts the following year dropped by $90 million. Collections have gone down by 3 to 7 percent a year since, the records show.

This year, the Ohio state budget estimates that the cigarette tax income for 2011 will be $804.1 million — exactly the same as in 2005.

House divided

While Donovan is the only Sedgwick County member of the Senate tax committee, the cigarette issue divides the area's two representatives on the House Taxation Committee, Reps. Melody McCray-Miller and Mario Goico.

McCray-Miller, D-Wichita, favors the tax and the statewide indoor ban because they will decrease smoking.

Although the tax income may not meet projections, it still will undoubtedly generate some additional money for the beleaguered state budget, she said.

In addition, she said "a reduction in people using tobacco products has a probability of benefiting us in another way — health specifically."

A large part of the state budget pays for medical care for low-income people, and if the need for that can be reduced, Kansas could wind up ahead even if cigarette tax receipts come up short, she said.

She said she's hoping the health benefits can be clarified and quantified as the debate over cigarette taxes and smoking bans unfolds during the legislative session.

Goico, R-Wichita, said smoking doesn't bother him, but his wife dislikes the smell and they avoid establishments that allow it.

But he said he thinks the revenue from the proposed tax increase has been overestimated, and he had already figured out that the governor's proposal has more to do with smoking reduction than budget balancing.

"People find ways around the tax," he said. "I wonder how many people will go to surrounding states or buy cigarettes on the Internet? If people are going through those areas, they're going to stock up on cigarettes."

He said he thinks the indoor smoking ban is unnecessary because most of the large cities and many of the small ones in the state have already passed their own rules, tailored to local business and social conditions.

"If I were to look at it from a philosophical standpoint, I think it should be determined by the localities — city or county," he said. "I don't think the Wichita or Kansas City areas should be dictating to a small town in western Kansas what they should or shouldn't do."

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