Legislature(2003 - 2004)
06/23/2004 10:48 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE BILL NO. 1001
"An Act relating to taxes on cigarettes and tobacco products,
to tax stamps on cigarettes, to forfeiture of cigarettes and
of property used in the manufacture, transportation,
possession, or sale of unstamped cigarettes, to accounting for
and use of part of the proceeds of the additional cigarette
tax, and to licenses and licensees under the Cigarette Tax
Act; relating to unfair cigarette sales; and providing for an
effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken stated that this bill would increase the current
cigarette excise tax by one dollar per pack and increase the tax on
other tobacco products. It would also designate a portion of the
tax revenues to support smoking education, tobacco use prevention
and tobacco control programs.
Senator Bunde noted that the bill is similar to a Senate bill heard
during the Twenty-Third Legislative Session. The few minor changes
include: the re-inclusion of the tobacco product floor stock tax
that was eliminated from the Session bill due to concern that it
might encourage product stock piling and thereby reduce revenue;
and the re-inclusion of the taxes on other tobacco products. This
language was excluded from the Session bill due to concern that it
would encourage the use of "substitute" cigarettes in order to
avoid the tax. The Session bill was altered in the House of
Representatives in that they amended language to pro-rate the
amount of the tax. To that point, he declared that the Legislature
should do all it could do to "increase sticker shock" by increasing
the tax by one dollar rather than gradually imposing the tax, as he
agreed with studies that have shown that an increase in the price
of cigarettes reduces smoking.
JOEL GILBERTSON, Commissioner, Department of Health and Social
Services, stated that the Administration proposed the tobacco tax
increase and the other changes proposed in the bill "largely
because of the public health impact that tobacco is causing on this
State and the public health benefits" that would be generated from
the tax increase. "Tobacco is the leading cause of death,"
disability, and chronic illness in the State and is recognized by
the Department as the State's "number one public health threat,"
specifically to the State's children. The 1997 tobacco tax increase
resulted in a 30-percent reduction in cigarette consumption. There
is a "direct correlation between increasing price and decreasing
consumption of tobacco products," specifically usage by young
Alaskans and individuals with limited resources. The results of a
2003 Department youth risk behavior survey compared to its 1995
survey substantiate the fact that the 1997 tobacco tax increase had
an impact on tobacco usage as youth consumption of tobacco products
has declined by 50-percent in that time period. "A good portion of
that decrease" is attributed to the tax increase. In addition, the
Department's tobacco enforcement efforts have also been effective
as the illegal sale of tobacco products to minors have reduced from
30.2 percent to ten percent. This is one of the lowest rates in the
nation. Were the proposed tax increase enacted, the Department
predicts a 15-percent decline in the number of youth smokers. This
would equate to 1,800 young Alaskans "being saved from a premature
death" attributed to smoking. The Department predicts that 3,500
Alaskans would quit smoking were the tax increase implemented. Of
that number, 800 would be saved from a smoking related death. IN
addition, 850 babies would be spared from exposure to maternal
smoking during the next five years. The tax increase would result
in a decrease in the number of Alaska Natives who smoke. Currently,
44-percent of Alaska Natives smoke. This is double the percent of
non-Native smokers.
Commissioner Gilbertson shared that a 1998 Department study
indicated that tobacco products usage costs the State $270 million,
or $400 per person. $133 million of the $270 million is direct
medical expenses such as hospital care, nursing home care, and
pharmacy costs. This expense directly affects health care premiums.
It has been determined that 15-percent, or $20 million, of the
State's Medicaid program's medical expenses are tobacco related.
The Tobacco Master Settlement Agreement was initially instituted to
fund the costs to states resulting from tobacco consumption. He
encouraged the Committee to support this legislation.
Co-Chair Green asked regarding "the proposed distribution" of the
revenue that would be generated by this tax.
Commissioner Gilbertson estimated that approximately four million
dollars would be provided to the Department's Tobacco Use Education
and Cessation Fund program, which is currently primarily funded by
the Tobacco Master Settlement Agreement (MSA).
JOHANNA BALES, Manager, Cigarette and Tobacco Products Excise Tax
Program, Department of Revenue, explained that, currently, a
portion of the revenue raised by the State's tobacco tax is
provided to the School Fund and a portion is provided to the
General Fund. This bill proposes that the entire revenue generated
from the tax increase be deposited into the General Fund. Under
this proposal, 8.9 percent, or approximately four million dollars,
of the tobacco tax revenue that is deposited in the General Fund
would be designated, annually, to support the Tobacco Use Education
and Cessation Fund program. Currently, 20-percent of the MSA, which
has historically averaged between four and five million dollars
annually, is directed to support that program. Were this
legislation adopted, the Program could receive approximately eight
or nine million dollars in funding. Eight million dollars is the
minimum amount specified for the program by the national Centers
for Disease Control and Prevention (CDC).
Commissioner Gilbertson stated that this is the minimum amount
recommended for Alaska as specified in the CDC "Best Practices for
States" guidelines.
Co-Chair Green interjected that the monetary range specified by the
CDC was between eight and $17 million. Therefore, she asked whether
the CDC might apply pressure for further increases. Her preference
would be that, rather than increasing the funding for the Tobacco
Use Education and Cessation Fund program, the revenue be utilized
to support the Department of Health and Social Services' tobacco
associated Medicaid expenses. She asked whether the increased
funding for the Tobacco Use Education and Cessation Fund program
would increase or replace existing funding.
Commissioner Gilbertson clarified that this would be "a true
increase" in the funding of the State's tobacco control efforts. He
characterized Co-Chair Green's remarks as being "very fair and
correct" and expressed that initially the dialogue regarding the
MSA money included compensating States for their Medicaid program
expenses resulting from "tobacco consumption by beneficiaries."
This bill would dedicate funds for the State's Tobacco Control
program rather than to Medicaid expenses. "That said," while the
State has implemented a good Tobacco Control program, its funding
level is below the amount designated by the CDC. The increased
level of funding that would be provided to the Tobacco Control
program via the Tobacco Use Education and Cessation Fund program
must be conducted in an "orderly ramp-up" fashion using Best
Practice guidelines. He reviewed the current Program endeavors.
Co-Chair Green asked whether the Tobacco Control program is "a
Department run program" that is separate from the media campaign
that is conducted by a variety of non-profit organizations.
Commissioner Gilbertson clarified that some of the MSA money
supports a variety of Department programs including the Tobacco
Enforcement program, which conducts "stings" on the illegal sale of
tobacco products to minors by retailers. In addition, MSA funds are
utilized by the Department to support the Tobacco Control program
that provides grants and contracts. These funds support a variety
of endeavors including the media campaign referenced.
Co-Chair Green asked whether funding for the anti-smoking media
campaigns might be doubled as a result of this legislation.
Commissioner Gilbertson responded that the total amount available
to the Tobacco Control Program is estimated to be "slightly less
than double" the current level. How the approximate four million
dollar increase would be spent is, of yet, undetermined.
Co-Chair Green asked whether the expectation in the future might be
that, as the funds are disbursed in support of various programs,
that more funds should be provided to fund the anti-smoking media
campaign, as this media funding discussion is a re-occurring one.
Commissioner Gilbertson replied that neither the Governor nor the
Department intent to request any further increase in tobacco
control funding in the next Legislative Session beyond what is
being proposed in this bill. He clarified however, that were this
bill enacted, the increased funds generated would require
appropriation.
Co-Chair Green asked whether details regarding the disbursement of
the new tax revenue are specified in the bill in addition to being
detailed in the Department of Health and Social Services fiscal
note #3, dated June 22, 2004.
Co-Chair Wilken noted that the Department's fiscal note #3 does not
reflect any expenditure in FY 05.
Senator Olson commented that the Senate bill, upon which this
legislation was based, did not specify that the generated revenue
would support Tobacco Control programs. As a physician, he would
always favor some sort of tobacco control; and therefore, he
supports the funding being designated to support Tobacco Control
programs.
Ms. Bales pointed out that the revenue disbursement language is
located in Section 16 beginning on line 18, page four, of the bill.
While this money would be specified for the Tobacco Use Education
and Cessation Fund, it does not specify how those funds must be
expended.
Co-Chair Green asked for a definition of the Tobacco Use Education
and Cessation Fund as "generally defined" within the Department.
Commissioner Gilbertson stated that the Fund, which is established
by AS 37.05.580, is the fund in which the MSA funds are deposited
each April.
Co-Chair Green asked whether the determination that the MSA funds
would be decreasing is the reason this program has been designated
as the recipient of the revenue generated by this legislation.
Commissioner Gilbertson responded that the terms of the MSA dictate
the level of payout to the States. There has been some indication
that the level of funding "might be modestly declining" due to
market share conditions of the MSA signatories.
Ms. Bales stated that the expectation is that the Tobacco Use
Education and Cessation Fund would receive $3.6 million MSA funding
in the year 2006. During the initial years, the MSA payment was
approximately five million dollars. While there has been a decrease
in the level of MSA funding, the reason this funding is being
proposed is to address the CDC minimum recommendation for the
State.
Co-Chair Green declared that the State would never to able to
satisfy CDC, and furthermore, CDC recommendations "should never set
the standards" for State programs.
Ms. Bales commented that this legislation is a combination of the
bill that passed the Senate and the amendments proposed by the
House Ways & Means and House Labor & Commerce committees. The House
of Representatives exerted tremendous effort in the consideration
of the funding provision included in this bill. In addition to
specifying how the revenues would be allocated, the bill would also
allow individuals to physically transport into the State up to 400
cigarettes per month without incurring any tax. This number would
align with federal allowances. In addition, the bill contains
penalty language for the violation of cigarette shipping
restrictions and the violation of the unstamped cigarette
guidelines; specifies that the one dollar per pack tax increase
would not be phased in; would increase the tax level on Other
Tobacco products as well as requiring that the tax be paid on these
products were individuals to ship these Other Tobacco products into
the State for personal consumption. Retailers and Distributors in
the State support this shipping provision. In addition, in-State
licensees who have a good tax paying record would be allowed to
reduce the level of the required bond; minimum pricing and a
provision addressing unfair pricing and other components are also
addressed in the legislation. The effective date of the bill would
be September first, 2004.
Senator Bunde moved to report the bill from Committee with
individual recommendations and accompanying fiscal notes.
Co-Chair Green did not object, but commented for the record, that
she would be "again opposing" this legislation on the Senate floor.
Until such a time the State were to impose a broad based tax such
as a sales tax, she could not support taxing specific commodities
or products. Such taxation is "an inappropriate" manner through
which to attempt to change individual's lifestyles or behaviors.
There being no objection, SB 1001 was REPORTED from Committee with
$828,100 fiscal note #1, dated June 15, 2004 from the Department of
Revenue; $206,400 fiscal note #2, dated June 14, 2004 from the
Department of Public Safety; and zero fiscal note #3, dated June
22, 2004 from the Department of Health and Social Services.
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