Legislature(2003 - 2004)

04/05/2004 09:04 AM Senate FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
     SENATE BILL NO. 368                                                                                                        
     "An  Act  relating  to  taxes   on  cigarettes  and  tobacco                                                               
     products; relating to tax stamps  on cigarettes; relating to                                                               
     forfeiture  of  cigarettes  and  of  property  used  in  the                                                               
     manufacture,   transportation,   or    sale   of   unstamped                                                               
     cigarettes;  relating to  licenses and  licensees under  the                                                               
    Cigarette Tax Act; and providing for an effective date."                                                                    
This was  the first hearing for  this bill in the  Senate Finance                                                               
Co-Chair  Wilken informed  the  Committee  that this  legislation                                                               
would increase the cigarette tax  from the current one-dollar per                                                               
20-cigarette pack to two dollars  per pack and would increase the                                                               
Other Tobacco Products tax from  75-percent to 100-percent of the                                                               
wholesale cost.  Furthermore, he  specified that  the legislation                                                               
would  allow  the  Department  of Public  Safety  "to  seize  and                                                               
dispose of  assets used  in cigarette  smuggling and  tax evasion                                                               
activities." Co-Chair  Wilken identified the bill  version before                                                               
the Committee as SB 368, Version 23-GS2116\A.                                                                                   
JOEL GILBERTSON,  Commissioner, Department  of Health  and Social                                                               
Services,  stated  that  this   legislation  would  increase  the                                                               
cigarette  tax  from one  dollar  to  two  dollars per  pack.  He                                                               
explained  that this  legislation  is  being introduced  "because                                                               
tobacco is the number one public  health threat" for the State in                                                               
that it  is the State's  "leading cause of death,  disability and                                                               
chronic illness."                                                                                                               
Commissioner  Gilbertson  avowed  that increasing  the  tax  levy                                                               
would  continue to  produce health  benefits to  Alaskans, as  he                                                               
noted, that since 1997 when the  current one dollar tax went into                                                               
effect,  tobacco  consumption  in  the  State  has  declined  30-                                                               
percent. He  informed that  increasing this  user tax  would have                                                               
the most  dramatic impact  on young  Alaskans, as  increasing the                                                               
unit  price on  tobacco "is  one of  the most  effective ways  of                                                               
preventing  that  population  from   ever  beginning  a  lifelong                                                               
addiction  to smoking."  He stated  therefore that  a substantial                                                               
increase  in the  tax would  insure  that Alaskans,  particularly                                                               
young  Alaskans,  with  limited  resources would  choose  a  more                                                               
healthy avenue in which to spend their money.                                                                                   
Commissioner Gilbertson  declared that anti-smoking  efforts have                                                               
been successful, as, he disclosed  that statistics developed from                                                               
a recent youth behavior survey  [copy not provided] indicate that                                                               
there  has been  a 50-percent  decline  in tobacco  use in  young                                                               
people. He declared that increasing  the tax, as proposed in this                                                               
bill, would continue that trend.                                                                                                
Commissioner  Gilbertson   remarked  that  the   State's  tobacco                                                               
enforcement  efforts  have  successfully lowered  the  number  of                                                               
underage  Alaskans  illegally   purchasing  tobacco  products  in                                                               
retail establishments  from 30.2  percent to  ten percent  in the                                                               
last year.  This action,  he shared, has  brought the  State into                                                               
compliance with  federal mandates. He asserted  that were tobacco                                                               
use to  further decline by 15  percent as result of  the proposed                                                               
tax,  "1,800 lives  would be  saved from  premature death  due to                                                               
Commissioner Gilbertson  declared that,  in addition  to lowering                                                               
tobacco  use in  young Alaskans,  the increased  tax would  be an                                                               
effective tool in changing behavioral  patterns and improving the                                                               
health of adults  in the State. He estimated that  a tax increase                                                               
"would  be  the direct  catalyst"  in  encouraging 3,500  Alaskan                                                               
adults to stop smoking, which  he shared would save approximately                                                               
800 lives. He noted that  in conjunction with other entities, the                                                               
Department provides  opportunities for  people to  participate in                                                               
tobacco cessation programs.                                                                                                     
Commissioner Gilbertson  pointed out that included  in the number                                                               
of  individuals  who would  cease  to  smoke would  be  expectant                                                               
mothers.  He  stated that  this  would  equate to  assisting  850                                                               
babies  from  maternal  tobacco exposure  within  the  next  five                                                               
Commissioner Gilbertson  reported that  the Alaskan  group having                                                               
the highest number of smokers,  44-percent verses the norm of 22-                                                               
percent, is  Alaska Natives. He  commented that while  the number                                                               
of Alaska Natives who smoke  continues, "to be disproportionately                                                               
higher"  than other  groups, there  has  been a  decrease in  the                                                               
number smoking since the one-dollar  tobacco tax was implemented.                                                               
He additionally  noted that Alaska  Native high school  youth are                                                               
four  times  more   likely  to  smoke  that   the  general  youth                                                               
Commissioner Gilbertson  informed that  the Campaign  for Tobacco                                                               
Free Kids  compiled an  analysis of  health costs  that indicates                                                               
that an  increased tobacco tax  would assist in  reducing smoking                                                               
related health expenses by $1.6  million over the next five years                                                               
as  a result  of fewer  smoking  related heart  attacks and  $1.8                                                               
million would be  saved from expenses associated  with stokes. He                                                               
shared  that  information  garnered  from  a  [unspecified]  1998                                                               
comprehensive   study  denoted   that  smoking   related  medical                                                               
expenses amounted to $133 million  in the State with $137 million                                                               
in lost  productivity due to  tobacco related  deaths. Additional                                                               
expenses,  he  shared,  were incurred  by  smoking  related  work                                                               
absences  and  such things  as  smoking  breaks. He  stated  that                                                               
smoking  related   expenses  have  an  "unfortunate"   and  "huge                                                               
economic impact on this State."                                                                                                 
Commissioner  Gilbertson   stated  that  "17   large  econometric                                                               
studies"  have  been  utilized  by the  Department  in  order  to                                                               
determine  how pricing  would affect  the consumption  of tobacco                                                               
products. He shared that all 17  studies reflect that there is "a                                                               
direct  correlation  between  increase  in tobacco  price  and  a                                                               
decline  in  smoking."  He  stated  that  he  would  provide  the                                                               
Committee  with  a  copy of  a  recently  completed  Department's                                                               
Division of  Public Health  report titled  "Tobacco in  the Great                                                               
Land: A  Portrait of Alaska's  Leading Cause of Death"  [copy not                                                               
provided]  which  substantiates  the Department's  position  that                                                               
"tobacco  is  the number  one  public  health threat  facing  the                                                               
State"  as it  is, he  reiterated,  the leading  cause of  death,                                                               
disability and  chronic illness in  the State. He  concluded that                                                               
increasing the  tobacco tax  by one  dollar per  pack would  be a                                                               
"prudent" thing to  do, as it would prevent  people from starting                                                               
to smoke and would assist in getting other to stop.                                                                             
JOHANNA BALES,  Program Manager,  Cigarette and  Tobacco Products                                                               
Excise Tax,  Department of Revenue, testified  via teleconference                                                               
from an  offnet site  and presented a  technical overview  of the                                                               
legislation in  that it,  in addition  to increasing  the current                                                               
cigarette  tax from  one dollar  per pack  to two  dollars, would                                                               
increase the  Other Tobacco Products  tax from 75 percent  to 100                                                               
percent  of the  wholesale  cost. She  informed  that New  Jersey                                                               
currently has  the highest cigarette  tax in the nation  at $2.05                                                               
per  pack, and  that Rhode  Island would  soon implement  a $2.45                                                               
cent per pack  tax. In addition, she communicated  that the state                                                               
of Washington has  the highest Other Tobacco Products  tax at 129                                                               
percent of the wholesale cost.                                                                                                  
Ms. Bales noted that other  provisions in the bill would increase                                                               
the annual  direct buying retail license  fee from $25 to  $50 in                                                               
order to  align these license  fees with those currently  paid by                                                               
distributors, as,  she contended,  these two entities  more often                                                               
than not,  "operate in  the same business."  She also  noted that                                                               
the bill includes technical corrections  that would eliminate the                                                               
double-taxation issue  that might arise were  in-State dealers to                                                               
purchase  from  out-of-state  dealers  who are  licensed  by  the                                                               
Ms. Bales continued  that the bill would  also allow distributors                                                               
dealing with recent manufacturers'  returned goods policy changes                                                               
to possess  unstamped cigarettes and  it would also  provide them                                                               
with  credits  for  stamped  cigarettes  sold  out-of-State.  She                                                               
clarified,  however, that  the distributor  must prove  they "are                                                               
properly licensed  in the other  state where the  cigarettes were                                                               
sold" before the credit would be issued.                                                                                        
Ms.  Bales noted  that, as  reviewed by  Commissioner Gilbertson,                                                               
the seizure  section in the bill  would allow the State  to seize                                                               
assets that are  in violation of the State's  cigarette stamp tax                                                               
laws.  She stated  that  this enforcement  tool  would assist  in                                                               
promoting compliance.                                                                                                           
Ms. Bales  noted that the bill  also includes "a floor  stock tax                                                               
provision" which  would require  all entities  selling cigarettes                                                               
in the  State to conduct an  inventory upon the enactment  of the                                                               
new tax, and  remit the difference between the old  and new stamp                                                               
tax rate  to the State within  30 days. She informed  the Members                                                               
that  approximately   200-million  cigarettes   were  stockpiled,                                                               
primarily  by retailers  and distributors,  prior to  the State's                                                               
last cigarette tax increase. She  estimated that scenario to have                                                               
resulted in approximately  $7 million dollars in  lost revenue to                                                               
the  State.  She also  noted  that  the State  received  numerous                                                               
consumer complaints  stating that they  were charged the  new tax                                                               
rate on the first day it was  enacted, "when in fact, none of the                                                               
distributors or retailers had actually paid that increase."                                                                     
Ms. Bales  shared that  the federal  government and  other states                                                               
commonly institute similar floor stock taxes.                                                                                   
Co-Chair  Wilken noted  that Ms.  Bales' written  testimony [copy                                                               
provided] is in the Members' packets.                                                                                           
Senator  Bunde  asked  the Departments'  positions  on  including                                                               
tobacco products such as smokeless tobacco in this bill.                                                                        
Ms. Bales  reminded that  the tax on  Other Tobacco  Products was                                                               
increased in 1997 from 25 percent  to 75 percent of the wholesale                                                               
cost. She noted  that this bill would increase that  level to 100                                                               
percent. However, she continued,  when the Department conducted a                                                               
study specifically  addressing chewing  tobacco products  such as                                                               
Copenhagen, for the Department of  Health and Social Services, it                                                               
was  determined  that despite  the  tax  increase implemented  in                                                               
1997, there  has been "a  fairly significant increase in  the use                                                               
of that product  in the State." One of the  problems, she pointed                                                               
out, is that,  currently, Other Tobacco Products  are not subject                                                               
to  tax  if  an  individual imports  that  product  for  personal                                                               
consumption.  She stated  that,  even with  the  tax increase  as                                                               
proposed   in  this   legislation,  individuals   purchasing  and                                                               
importing  other tobacco  products  into the  State through  such                                                               
avenues as  the Internet or  other out-of-State  purchases "would                                                               
not be subject to any of the tax, period."                                                                                      
Senator Bunde  ascertained that  this is  good reason  to include                                                               
those who import  for personal consumption into this  bill, as he                                                               
contended,  not  including  them  "would drive  business  out  of                                                               
Alaska and puts retailers at a disadvantage."                                                                                   
Ms. Bales  stated that  the Department  of Revenue  would support                                                               
Senator  Bunde's  suggestion  for  two  reasons:  one,  it  would                                                               
support  local business;  and  two, an  increase  in price  might                                                               
curtail use of the product.                                                                                                     
Senator Dyson understood that "the  demonstrable health risks" of                                                               
non-smoked  products  "are  significantly less"  than  the  risks                                                               
associated with those that are inhaled.                                                                                         
Commissioner Gilbertson  responded that, "it would  be correct to                                                               
say that the health risks  are not identical"; however, he stated                                                               
that,  "the Department  would not  support a  statement that  the                                                               
health risks are so reduced as  to be one that is diminished." He                                                               
shared that  the Department could  provide material  attesting to                                                               
the  health  risks  associated with  both  smokeless  and  smoked                                                               
tobacco products.                                                                                                               
Senator  Dyson  agreed;  however,  he  commented  that  smokeless                                                               
products pose  "no risk  to others from  secondhand smoke  and no                                                               
risk  to a  fetus from  oxygen  deprivation that  happens with  a                                                               
smoking mother." In  addition to stating that  its addiction rate                                                               
might  be similar  to that  of cigarettes,  he acknowledged  that                                                               
chewing  tobacco  products does  incur  such  things as  gum  and                                                               
throat cancer.  However, he continued,  its contribution  to lung                                                               
cancer is minimal.                                                                                                              
Senator Dyson  asked how the  legislation would affect  those who                                                               
roll their own  product from loose tobacco. He also  noted that a                                                               
Surgeon General  report, issued  approximately 15  years earlier,                                                               
stated  that pipe  tobacco health  risks  are significantly  less                                                               
than  manufactured  cigarettes.  He  pointed  out  that  not  all                                                               
tobacco products have  the same cost impact and  health risk and,                                                               
therefore, he attested they should not be treated the same.                                                                     
Commissioner Gilbertson declared  that, "varying tobacco products                                                               
have  varying risks."  He reiterated  that  the Department  could                                                               
provide  scientific study  information to  the Members.  He noted                                                               
that,  while he  was unfamiliar  with the  pipe tobacco  research                                                               
referred  to,  studies  support the  position  that  all  tobacco                                                               
products "carry  some health risks." Furthermore,  he voiced that                                                               
the Department  views all those  health risks as  negative health                                                               
risks, of which the State should discourage.                                                                                    
Senator  Dyson asked  whether the  aforementioned impacts  of the                                                               
tobacco  tax increase  on such  things as  mortality rates,  were                                                               
annual projections.                                                                                                             
Commissioner   Gilbertson  clarified   that  the   aforementioned                                                               
results would be the accumulative affect of this tax increase.                                                                  
Senator  Dyson  asked  whether   information  could  be  provided                                                               
regarding annual death rates and usage effects of the tax.                                                                      
Commissioner Gilbertson  replied that  the most  noticeable long-                                                               
term  health benefit  that  would result  from  the tax  increase                                                               
would be  a reduction in the  number of young Alaskans  who would                                                               
choose not to smoke. He  informed the Committee that the majority                                                               
of  long-term  tobacco addicts  partake  of  their first  tobacco                                                               
product before the age of 18.                                                                                                   
Senator  Dyson   voiced  that  there  is   public  discontentment                                                               
regarding how the money raised  from this tax has been allocated,                                                               
as there is general perception that  it should be used to promote                                                               
cessation and  prevention programs. He  asked for a recap  of how                                                               
the current  tobacco tax revenue  is allocated;  specifically the                                                               
amount spent  on cessation and  prevention programs,  and whether                                                               
this legislation would alter the current scenario.                                                                              
Commissioner Gilbertson  stated that  this legislation  would not                                                               
dedicate its  revenues for tobacco control  programs. Continuing,                                                               
he informed that the Department,  individually and in conjunction                                                               
with  the Tobacco  Control Alliance  partners, manages  a tobacco                                                               
control program.  Furthermore, he explained that  the majority of                                                               
the monetary support  for these programs is  supported by Tobacco                                                               
Master Settlement  money with  additional funding  generated from                                                               
licensure fees. He  noted that approximately $5  million would be                                                               
spent on these programs in FY 05.                                                                                               
Ms.  Bales disclosed  that currently  76-percent  of the  revenue                                                               
generated  from the  tobacco tax  is distributed  to the  State's                                                               
School Fund  and 24 percent  is deposited into the  general fund.                                                               
She explained that  increasing the per pack tobacco  tax from one                                                               
dollar to  two dollars  would generate  double the  revenue; and,                                                               
she attested that  even though this legislation  would reduce the                                                               
percentage  allocation for  the School  Fund to  38 percent,  the                                                               
money  generated would  remain constant.  Continuing, she  stated                                                               
that the amount  allocated to the general fund  would increase to                                                               
62 percent.                                                                                                                     
Ms. Bales  noted that 100  percent of the revenue  generated from                                                               
the  tax  on  Other  Tobacco Products  is  currently,  and  would                                                               
continue to be, deposited into the general fund.                                                                                
Ms.  Bales clarified  that there  is  no language  in the  Master                                                               
Tobacco Settlement agreement  specifying that it be  used to fund                                                               
such  things as  tobacco  cessation and  education programs.  She                                                               
voiced  the  understanding  that  the  money  could  be  used  to                                                               
reimburse the  State's general fund  for such things  as Medicaid                                                               
expenses. She concluded that it  is the Legislature's decision as                                                               
to how to spend that money.                                                                                                     
Senator  Olson asked  for  assurance that  language  in the  bill                                                               
pertaining to  the seizure of  assets as specified on  page five,                                                               
line three  and page  six, line eight  would not  jeopardize such                                                               
things  as aircraft  and vehicles  owned by  common carriers  who                                                               
might unknowingly transport cigarettes.                                                                                         
Ms. Bales  understood that the  forfeiture provisions  which were                                                               
drafted by the Department of  Law, would provide "innocent person                                                               
relief" in the case that  their property were unknowingly used by                                                               
a cigarette  tax violator. She  assured that provisions  are also                                                               
included  to  address  situations,  for  example,  in  a  village                                                               
wherein  "a  family's  sole source  of  transportation  would  be                                                               
protected from seizure."                                                                                                        
Ms. Bales reminded  that violations of the tobacco  tax would not                                                               
apply to personal cigarette consumption.                                                                                        
Senator  Olson asked  regarding the  scenario in  which a  common                                                               
carrier who, as a means of business, transports cigarettes.                                                                     
Ms. Bales clarified  that a violation would not  occur unless the                                                               
common  carrier  knowingly  transported illegal  cigarettes.  She                                                               
noted that she would confirm  this interpretation of the language                                                               
with the Department of Law.                                                                                                     
Co-Chair Wilken  asked Ms. Bales  to review comments  included in                                                               
an  April 4,  2004 letter  [copy on  file] he  had received  from                                                               
wholesale distributor,  Mike Elerding of Northern  Sales, as well                                                               
as  two proposed  amendments  that pertain  to  comments in  that                                                               
Ms.  Bales stated  that  she would  review  that information  and                                                               
provide a response at the next hearing on this bill.                                                                            
Senator Hoffman asked whether a  portion of the revenue generated                                                               
from  this tax  increase would  be used  to support  anti-smoking                                                               
advertising campaigns.                                                                                                          
Commissioner Gilbertson  responded that this bill  specifies that                                                               
the  revenue generated  by this  legislation  would be  deposited                                                               
into  the  general  fund.  He   reiterated  that  the  Department                                                               
operates   a  tobacco   cessation   and   education  program   in                                                               
conjunction with the Tobacco Alliance.                                                                                          
Senator   Hoffman  reminded   that  the   previous  tobacco   tax                                                               
legislation   required  funds   to  be   spent  on   anti-smoking                                                               
advertisements, and he attested  that that effort was responsible                                                               
for   a  downturn   in  cigarette   consumption.  Therefore,   he                                                               
questioned the  reason that a  similar effort is not  included in                                                               
this legislation.                                                                                                               
Commissioner  Gilbertson  replied  that  a price  increase  is  a                                                               
"tremendous deterrent"  in that  studies indicate that  for every                                                               
ten percent  price increase in  the cost of a  cigarette product,                                                               
there   is  a   corresponding  three-point-seven   (3.7)  percent                                                               
decrease  in consumption.  He concurred  that the  media campaign                                                               
was successful  and would  continue to  be effective  in reducing                                                               
general  tobacco  consumption;  however,   he  stated  that  this                                                               
legislation  does  not  allocate  funds toward  that  effort.  He                                                               
stated that the Governor could  propose and the Legislature could                                                               
fund those efforts.                                                                                                             
Senator Hoffman, referring to the  high number of Native smokers,                                                               
asked what  efforts would be  exerted to reduce tobacco  usage in                                                               
this group.                                                                                                                     
Commissioner  Gilbertson responded  that while  there is  a large                                                               
variety  of  health  disparities  in this  State,  the  disparity                                                               
between  cigarette  consumption  between  Native  and  non-Native                                                               
populations is an important issue.  He specified that the Tobacco                                                               
Control program  has dedicated funds  to target tobacco  usage in                                                               
Natives via outreach  efforts in conjunction with  such groups as                                                               
the  Alaska  Native  Tribal Health  Consortium.  Furthermore,  he                                                               
stated, the Native Health Board,  the Alaska Native Tribal Health                                                               
Consortium  and   other  public  health  consortiums   have  been                                                               
supportive of  this legislation and  have agreed  that increasing                                                               
the cost of tobacco products  would be an effective public health                                                               
tool. He also  noted that they have testified in  support of this                                                               
legislation.  He declared  that while  stronger efforts  could be                                                               
exerted, efforts have been made in this regard.                                                                                 
Senator Hoffman  understood therefore that this  legislation does                                                               
not contain specific  measures to address the  Native tobacco use                                                               
Co-Chair Green  communicated that  dedicated funds should  not be                                                               
an issue  "at this table."  On another note, she  asked regarding                                                               
the  success of  "sting  operation" efforts  in  urban and  rural                                                               
Commissioner Gilbertson  stated that tobacco  enforcement efforts                                                               
have  been successful  throughout  the State.  He explained  that                                                               
each  state  receives federal  alcohol  and  mental health  block                                                               
grant funds,  the amount  of which is  contingent on  the State's                                                               
successful implementation  of a  tobacco enforcement  program. He                                                               
defined  success  "as a  lower  than  20  percent sales  rate  to                                                               
underage minors  who attempt to purchase  tobacco products." Were                                                               
this level of  enforcement not obtained, he  continued, the State                                                               
could  loose up  to 40-percent  of  its block  grant funding.  He                                                               
shared that the State has  been non-compliant for last five years                                                               
in that its  compliant rate has exceeded 30 percent  per year. He                                                               
stated that  this is unacceptably high  and that as a  result the                                                               
State  has had  to dedicate  funds in  the form  of a  cumulative                                                               
penalty,  reaching approximately  one million  dollars in  recent                                                               
years, so as not to loose  the block grants in their entirety. In                                                               
the  meantime, he  communicated, the  Department has  worked with                                                               
retailers and  others to raise  awareness, improve  training, and                                                               
improve enforcement efforts  in this regard. He noted  that, as a                                                               
result  of these  efforts, the  illegal sales  rate has  recently                                                               
declined to ten percent.                                                                                                        
Senator   Olson   noted   that  the   graph   titled   "Cigarette                                                               
Importations FY  1996 - FY  2002 and Cigarette Stockpiling  in FY                                                               
1998" [copy  on file]  reflects a dramatic  decease in  1997 when                                                               
the cigarette tax was increased  to one dollar per pack. However,                                                               
he  noted  that  since  1997,  the  volume  of  cigarettes  being                                                               
purchased has  continued to increase.  He questioned  whether the                                                               
slope  of  the  increase  would  indicate  that  over  time,  any                                                               
positive  impact of  the  proposed two-dollar  a  pack tax  would                                                               
Commissioner Gilbertson  responded that  he could  not adequately                                                               
provide a  statistical answer; however,  he noted that  while the                                                               
number   of  cigarettes   being  imported   into  the   State  is                                                               
increasing, overall  it is  a minor  issue as  95 percent  of the                                                               
tobacco products consumed  in the State are  bought through local                                                               
licensed retailers in the State.                                                                                                
DORIS  ROBBINS,  Volunteer, Juneau  Clean  Air  and Alaskans  for                                                               
Tobacco Free Kids, noted that  the Governor has requested that 20                                                               
percent  of  the  Master  Tobacco Settlement  fund  be  spent  on                                                               
education  and cessation  efforts  in  FY 05.  On  behalf of  the                                                               
organizations  she   represents,  she  voiced  support   for  the                                                               
proposed tobacco tax increase, as,  she declared, it would assist                                                               
in  stopping a  large  number of  people,  primarily youth,  from                                                               
smoking.  Were  the  legislation passed,  she  approximated  that                                                               
9,100 kids would not start  smoking. She stated that the majority                                                               
of  smokers begin  to  smoke  when they  were  children, and  she                                                               
continued, were the  price to deter youth from  smoking, it would                                                               
serve  to reduce  the number  of "next  generation smokers."  She                                                               
stated that other  benefits would include a  reduction in smoking                                                               
affected  births;  would  save   lives  of  numerous  adults  who                                                               
currently smoke; and  would result in lowering  long term medical                                                               
expenses. She  noted that  in order  to adequately  cover today's                                                               
medical expenses, the tax level should  be $6.38 per pack, as she                                                               
shared  that $60  million  is required  annually  by Medicaid  to                                                               
provide  for  tobacco  related  illness  care.  She  stated  that                                                               
efforts are being  developed to educate children at  an early age                                                               
of  the health  dangers  associated with  tobacco  use. She  also                                                               
stated that it is "a myth"  that crewing tobacco would not affect                                                               
a baby. She recounted Doctor  Robert Urata's testimony to a House                                                               
of Representatives  committee in  which he declared  that tobacco                                                               
products are "so poisonous" that  were they would fail to receive                                                               
federal Food and Drug Administration  approval were they to apply                                                               
for authorization  today. She stated  that 82 percent  of Alaskan                                                               
voters are  very concerned about  the use of tobacco  products by                                                               
young people.  She urged the  Committee to pass  this legislation                                                               
and also consider supporting the  Governor's proposal to spend 20                                                               
percent  of the  Tobacco  Settlement money  on tobacco  education                                                               
programs. In  summary, she  noted that  the state  of Mississippi                                                               
spends more on tobacco prevention that the State of Alaska does.                                                                
JENNFIER  APP,  Advocacy  Director, American  Heart  Association,                                                               
testified  via teleconference  from  an offnet  site, and  shared                                                               
that  the  American  Heart Association's  mission  is  to  reduce                                                               
disabilities, cardiovascular  disease and stokes.  She reiterated                                                               
that tobacco use is the number  one preventable cause of death in                                                               
the  State,  and she  stated  that  it  is  also the  number  one                                                               
preventable  cause of  cardiovascular disease  in the  State. She                                                               
stated that  the Association  is in "very  strong support"  of an                                                               
increase in the  tobacco tax because, she attested,  as the price                                                               
increases, more adults attempt to quit.                                                                                         
SFC 04 # 69, Side B 09:51 AM                                                                                                    
Ms. App  continued that  most smokers  begin smoking  between the                                                               
ages of ten and twenty, and  she noted that the average smoker in                                                               
Alaska began  at the age of  14.5 years. She attested  that "this                                                               
is  also  the   age  group  that  is  most   sensitive  to  price                                                               
increases." Therefore, she stated  that this price increase would                                                               
result,  over the  long-term,  in  a decline  in  smokers in  the                                                               
State. Furthermore, she  attested that the tax  would also assist                                                               
in reducing the approximate $130  million a year the State spends                                                               
on direct costs associated  with smoking, including approximately                                                               
$60 million  the State pays  in support of the  Medicaid program.                                                               
She  affirmed that  Alaskan businesses  are losing  approximately                                                               
$130 million  annually in lost  productivity related  to smoking.                                                               
She calculated  that to cover  these expenses, the tax  should be                                                               
$6.38  per pack;  therefore,  she concluded  that  even with  the                                                               
implementation  of a  two-dollar per  pack tax,  the State  would                                                               
continue "to  be subsidizing these costs."  However, she stressed                                                               
that the  proposed tax would  be an improvement over  the current                                                               
situation and would  result "in a win/win situation"  as it would                                                               
assist in  saving lives by  deterring youth from smoking  and the                                                               
State  would also  save money  through the  reduction of  smoking                                                               
related expenses.                                                                                                               
RUTHAMAE  KARR, Chair,  Alaska Tobacco  Control Alliance  (ATCA),                                                               
testified  via  teleconference  from Fairbanks  and  shared  that                                                               
while   more  funding   would  be   appreciated,  the   ATCA  has                                                               
experienced  success in  the State  in  its efforts,  via a  good                                                               
media  campaign, to  publicize  the negative  affects of  smoking                                                               
such as  second hand  smoke. She affirmed  that Alaska  is ranked                                                               
"very  high" in  its  number  of tobacco  users,  and she  voiced                                                               
additional  concern  that  even  with  the  educational  efforts,                                                               
smokeless  tobacco rates  are increasing  because people  believe                                                               
smokeless  alternatives are  safer  than  cigarettes. She  agreed                                                               
that an increase in the  Other Tobacco Products prices would also                                                               
result  in  a decrease  in  young  smoker  use and  would  assist                                                               
people's  efforts to  quit  smoking. She  also  stated that  this                                                               
would  result in  a win/win  situation,  as it  would assist  the                                                               
State in  reducing smoking related  health expenses  and increase                                                               
revenues   for  the   State.  She   expressed  support   for  the                                                               
PAT  LUBY,   AARP  Alaska,  testified  via   teleconference  from                                                               
Anchorage and  stated that this  legislation is favored  by AARP.                                                               
He shared that  research supports the position that  a higher tax                                                               
would assist  in curbing youth  from smoking and  would encourage                                                               
existing  smokers  to stop.  He  shared  that grandparents  love,                                                               
support, and  enjoy their grandchildren  and are saddened  to see                                                               
them smoke.  Therefore, he stressed  that any program  that would                                                               
assist  in preventing  kids from  smoking would  be supported  by                                                               
AARP.  He  voiced  concern  regarding   the  information  in  the                                                               
Governor's transmittal  letter that denotes that  Alaska Natives,                                                               
and  particularly Alaska  Native  youth, are  smoking in  numbers                                                               
higher  than the  State's norm,  and he  urged that  some of  the                                                               
anticipated revenue from this tax  be used to address this issue.                                                               
He shared  that a recent  Medicare Trustees annual  report stated                                                               
that  the State's  health care  costs rose  "significantly beyond                                                               
expectations,"  primarily   as  a   result  of   smoking  related                                                               
illnesses.  Therefore,  he  surmised,  that were  fewer  kids  to                                                               
smoke,  the long-term  affect on  lowering Medicare  and Medicaid                                                               
expenses "would be significant."  He stated that this legislation                                                               
is both  "good economic policy  and good health policy,  it makes                                                               
sense and it's fair." On behalf  of AARP, he urged passage of the                                                               
Co-Chair  Wilken noted  that the  April 4,  2004 letter  [copy on                                                               
file] from AARP is included in Members' packets.                                                                                
MICHELLE  TOOHEY,  Director  of Public  Advocacy,  American  Lung                                                               
Association   of  Alaska,   testified  via   teleconference  from                                                               
Anchorage  and  addressed  Ms.   Bales'  comments  regarding  the                                                               
Tobacco Master Settlement Agreement (MSA)  by stating that "it is                                                               
true"  that  the  agreement  does   not  require  that  money  be                                                               
allocated  toward tobacco  prevention "because  Attorneys General                                                               
have no power of appropriation;  however, there was absolutely an                                                               
intent in the  settlement for these dollars to go  to programs to                                                               
prevent kids from smoking and  to help adults quit." Furthermore,                                                               
she  attested  that "this  commitment  was  stated publicly  when                                                               
Alaska   settled,  in   fact,  Alaska's   Attorney  General   was                                                               
successful in negotiating an extra  $200 million for our State in                                                               
consideration  of  the  vastness   of  Alaska  and  the  logistic                                                               
complications  associated with  administering tobacco  prevention                                                               
programs  in  Rural Alaska.  Further,  in  2001, the  Legislature                                                               
created  the Tobacco  Use  Education and  Cessation  Fund to  set                                                               
aside the  remaining non-securitized 20-percent of  the MSA funds                                                               
to provide  a source to finance  comprehensive smoking education,                                                               
tobacco   use   prevention,   and  tobacco   control   programs."                                                               
Therefore,  she  concluded  that  while the  agreement  does  not                                                               
specify  a  requirement  to  fund  prevention  programs,  "public                                                               
commitment has  been made from  the beginning to use  these funds                                                               
in this manner."                                                                                                                
Senator  Hoffman  commented  that  while there  might  have  been                                                               
"pubic commitment  to spend those  dollars," the  Commissioner of                                                               
the  Department of  Health and  Social Services  has communicated                                                               
that, "there  are no  additional dollars in  the budget  for that                                                               
effort."  Continuing,  he  calculated   that  20-percent  of  $40                                                               
million would  amount to  $8 million  in additional  funding that                                                               
should be specified for cessation efforts.                                                                                      
EMILY NENON,  Alaska Advocacy  Manager, American  Cancer Society,                                                               
testified  via teleconference  from Anchorage  that the  American                                                               
Cancer  Society (ACS)  "recognizes tobacco  taxes as  one of  the                                                               
most effective ways to reduce  youth smoking and save lives." She                                                               
stressed  that  both  State and  national  studies  support  this                                                               
claim.  She stated  that  the  mission of  ACS  "is to  eliminate                                                               
cancer as the major health  problem by preventing cancers, saving                                                               
lives,  and diminishing  suffering from  cancer." She  noted that                                                               
cancer is the second leading cause  of death for Alaskans and the                                                               
leading cause of death for  Alaska Natives, and she attested that                                                               
one-third of all  cancers are tobacco related.  She affirmed that                                                               
the  majority  of  tobacco users  become  addicted  as  children.                                                               
Therefore,  she supported  testimony that  increased taxes  would                                                               
discourage youth  from smoking.  She stressed  that this  bill is                                                               
unique  in  that,  in  addition to  having  a  tremendous  health                                                               
impact, it  has large  public support  throughout the  State. She                                                               
urged the Committee to support this bill.                                                                                       
PATRICIA  SENNER,   Family  Nurse  Practitioner,   testified  via                                                               
teleconference  from  Anchorage  in  support  of  increasing  the                                                               
tobacco  tax  in order  to  discourage  youth from  smoking.  She                                                               
agreed with  Senator Hoffman's comments  that money  be specified                                                               
for an anti-smoking  advertising campaign as she  attested that a                                                               
"two-pronged  approach"  must  be  taken to  address  the  issue.                                                               
Furthermore, she  informed that  Committee that  one of  the most                                                               
common requests she experiences  when working with homeless youth                                                               
is  the request  for assistance  in stopping  smoking. She  noted                                                               
that  Medicaid does  not provide  funding to  assist people  with                                                               
such cessation  aides as nicotine patches.  Therefore, she voiced                                                               
that access  to such  things would be  helpful in  this endeavor.                                                               
She  also  encouraged  the  Committee   to  address  the  illegal                                                               
bootlegging and importation of tobacco products.                                                                                
JOELLE HALL, Parent, testified  via teleconference from Anchorage                                                               
in support  of the tax.  She stressed that  no one has  more need                                                               
for  this bill  than "our  children." She  charged that  parents'                                                               
role is to  teach their children the dangers of  smoking and that                                                               
the Legislature's  role is  to promote  legislation such  as this                                                               
tobacco tax increase in order  to assist efforts to halting youth                                                               
from smoking. She  voiced that while she is glad  to have smokers                                                               
contribute via  paying a  tax toward  the expenses  incurred from                                                               
tobacco related expenses,  her primary reason for  support was to                                                               
discourage use. She  urged the Committee to report  the bill from                                                               
KATTARYNA  STILES, Representative,  Alaska  Native Health  Board,                                                               
testified  via teleconference  from Anchorage  in support  of the                                                               
bill,  as she  attested, it  "would  save lives  by reducing  and                                                               
preventing tobacco use." Echoing  Senator Hoffman's concerns, she                                                               
stated  that  the high  percent  of  Native  youth who  smoke  is                                                               
unacceptable.  She  stated  that  raising the  price  of  tobacco                                                               
products would  assist in the  endeavor of discouraging  youth to                                                               
smoke. She noted Commissioner Gilbertson's  comments that the tax                                                               
would also alter  smoking behaviors of adults.  She stressed that                                                               
efforts  to  discourage  pregnant  women from  smoking  would  be                                                               
important,  as she  noted that  in  western Alaska,  there is  an                                                               
"unacceptable" smoking  rate of  up to 67-percent  among pregnant                                                               
women.  She  stated  that  by  using  Tobacco  Master  Settlement                                                               
Agreement  Funds,  grants,  and   other  funds,  a  multitude  of                                                               
agencies are working  together to educate Native  Alaskans to the                                                               
dangers of smoking. She stated  that adoption of this legislation                                                               
would  only  increase  the  success   of  the  efforts  that  are                                                               
currently in place to prevent use of tobacco in Native Youth.                                                                   
Senator  Hoffman asked  whether  the Alaska  Native Health  Board                                                               
could  utilize   additional  dollars  to  assist   in  prevention                                                               
Ms.  Stiles replied  in the  affirmative; however,  she clarified                                                               
that the purpose of her testimony  today is to support this bill,                                                               
"not  for the  money, its  because the  goal of  the tobacco  tax                                                               
itself is to prevent use."                                                                                                      
Senator Bunde  questioned whether  any polls have  been conducted                                                               
to  gauge public  support for  this tobacco  tax; and  if so,  he                                                               
asked  whether  a   one-dollar  or  a  $1.50   tax  increase  was                                                               
Ms. Nenon responded that the  American Cancer Society conducted a                                                               
poll with  the result being equal  support for either a  $1.00 or                                                               
$1.50 increase.                                                                                                                 
Senator Bunde asked the level of support favoring an increase.                                                                  
Ms. Nenon relied that 67-percent  of those polled supported a tax                                                               
Senator Bunde  reiterated that an amendment  should be considered                                                               
to incorporate all tobacco products into the bill.                                                                              
Co-Chair  Wilken   suggested  that   Senator  Bunde   develop  an                                                               
amendment and present it at the bill's next Committee hearing.                                                                  
There  being no  further testimony,  Co-Chair Wilken  ordered the                                                               
bill HELD in Committee.                                                                                                         
AT EASE 10:14 AM / 10:16 AM                                                                                                     

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