Legislature(2003 - 2004)

06/23/2004 10:48 AM FIN

Audio Topic
* first hearing in first committee of referral
+ 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                                                            
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                                                            
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                                                            
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                                                            
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                                                            
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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