Legislature(2003 - 2004)

03/25/2004 01:43 PM Senate L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
            SB 368-TOBACCO TAX; LICENSING; PENALTIES                                                                        
CHAIR CON BUNDE announced SB 368 to be up for consideration.                                                                    
MR.  JOEL  GILBERTSON,  Commissioner, Department  of  Health  and                                                               
Social Services  (DHSS), explained  why it  is important  for the                                                               
state to  address the tobacco  levy this  year. It is  the number                                                               
one  public  health  crisis  threatening   the  state  of  Alaska                                                               
according to  a new report called  Tobacco in the Great  Land - A                                                             
Portrait of Alaska's Leading Cause  of Death, published Feb 2004.                                                             
He summarized:                                                                                                                  
     Tobacco is  the number  one cause of  death, disability                                                                    
     and  chronic illness  in this  state.  We have  already                                                                    
     seen  in Alaska,  alone, the  impact of  increasing the                                                                    
     tobacco tax  on consumption of tobacco  products. Since                                                                    
     1997, which  is the year  in which the most  recent tax                                                                    
     was increased, we've  seen a 30 percent  decline in the                                                                    
     consumption of  tobacco products  in Alaska.  Those are                                                                    
     round  numbers done  for the  section of  Epidemiology.                                                                    
     It's also  true to say  that there is an  absolute link                                                                    
     between  the  price  of  a   tobacco  product  and  its                                                                    
     consumption both  by youth  and adults.  Increasing the                                                                    
     unit  price of  tobacco  products is  one  of the  most                                                                    
     effective ways in deceasing  the utilization of tobacco                                                                    
     products  by  minors.  Young individuals  have  limited                                                                    
     resources;  they are  least prepared  to afford  higher                                                                    
     tobacco  prices  and for  that  reason  we see  a  very                                                                    
     beneficial  affect   on  the  consumption   of  tobacco                                                                    
     products by minors.                                                                                                        
     As youth  are especially  sensitive to the  proposed $1                                                                    
     per pack tax increase, we  believe this will add to the                                                                    
     50 percent decline  we have seen in  the consumption of                                                                    
     tobacco   since  1995.   In   1995,   we  conducted   a                                                                    
     statistically valid  youth risk behavior survey  and we                                                                    
     have  completed another  statistically valid  survey in                                                                    
     2003,  just last  year. The  numbers between  those two                                                                    
     studies   have   shown   a  50   percent   decline   in                                                                    
     consumption.  We believe  that  can be  built upon  and                                                                    
     additional successes can be  realized with the increase                                                                    
     in the tobacco tax. A  further drop in youth smoking of                                                                    
     just  15   percent  from   the  current   levels  would                                                                    
     translate  to 1,800  lives saved  from premature  death                                                                    
     due to smoking.                                                                                                            
     Adults  will also  see a  great benefit  from this  tax                                                                    
     increase,  because  it  is also  an  effective  way  of                                                                    
     discouraging continued  use of tobacco products  and to                                                                    
     incentivize the  use of tobacco cessation  programs. It                                                                    
     is  estimated that  the  increased  cost of  purchasing                                                                    
     cigarettes  following this  tax increase  will lead  to                                                                    
     about 350,000  adult smokers  to finally  quit smoking.                                                                    
     For  every 3,500  smokers who  quit, that  means you'll                                                                    
     have about 800 individuals who  will not die because of                                                                    
     a smoking caused death.                                                                                                    
     We have some other  vulnerable populations in the state                                                                    
     as  a  result  of tobacco  consumption.  Smoking  among                                                                    
     expectant mothers  would also reduce  significantly and                                                                    
     we believe that  this would result in  an estimated 850                                                                    
     babies being  spared from exposure to  maternal smoking                                                                    
     while in utero during the next five years.                                                                                 
     With  the  smoking  prevalence of  44  percent,  Alaska                                                                    
     Natives  have the  most to  benefit from  this program.                                                                    
     Alaska   Natives  disproportionately   consume  tobacco                                                                    
     products. It's  one of a number  of unacceptable health                                                                    
     disparities  that we're  working in  the department  to                                                                    
     correct. We  see it  in suicide, we  see it  in alcohol                                                                    
     consumption, but it's also  in tobacco consumption. The                                                                    
     Alaska Natives who  smoke is nearly double  the rate of                                                                    
     non-Natives.  Among  the  high  school  population,  of                                                                    
     those  who  participated  in the  youth  risk  behavior                                                                    
     survey, smoking is  almost four times that  of the non-                                                                    
     Native  population. We  believe that  is another  great                                                                    
     reason to move ahead with the tobacco tax increase.                                                                        
     This  reduction  in  Alaska's   health  burden  due  to                                                                    
     tobacco will  translate into health care  cost savings.                                                                    
     Within five  years, Alaska's  health care  savings from                                                                    
     fewer  smoking  related  pregnancies  and  births  will                                                                    
     amount to  $1.6 million in  savings and that  came from                                                                    
     the  Campaign for  Tobacco-Free Kids....  In 1998,  the                                                                    
     medical  expenditure cost  in  this  state, alone,  was                                                                    
     $133  million as  a result  of tobacco  consumption. In                                                                    
     terms  of lost  productivity  just  because of  tobacco                                                                    
     related deaths was $137 million.  That does not include                                                                    
     illness,  sickness, breaks  - that's  just deaths  from                                                                    
     This proposed  increase will raise $45.5  million.... I                                                                    
     would say that  we did look at some  of the econometric                                                                    
     studies that  were done.  We looked  at the  17 largest                                                                    
     econometric studies  and they  analyzed the  effects of                                                                    
     price   increases  on   tobacco   use  prevalence   and                                                                    
     consumption in the general  population. In every single                                                                    
     study, in each one of  the 17 econometric studies, they                                                                    
     did  find a  correlation between  an increase  in price                                                                    
     and  a decrease  in  consumption  of tobacco  products.                                                                    
     That  has ranged  from 1.5  to 3.7  percent. It's  more                                                                    
     acute in juvenile populations.  There are strong public                                                                    
     health reasons.                                                                                                            
     I started out by saying  that tobacco is the number one                                                                    
     public health  problem for the  State of Alaska.  It is                                                                    
     our leading cause of death;  it is our leading cause of                                                                    
     disability; it's  our leading cause of  chronic illness                                                                    
     and  I  can   go  through  a  litany   of  health  care                                                                    
     complications  that come  from  tobacco consumption.  I                                                                    
     think you're  aware of them and,  ironically enough, so                                                                    
     are smokers.  We did  do an  analysis of  what smokers,                                                                    
     themselves,  think   of  the  health   consequences  of                                                                    
     smoking....  Alaska ATS  in  2003, found  that  5 of  6                                                                    
     Alaska adults  who smoke  wish they  could quit.  Of 85                                                                    
     percent that  were surveyed, 85 percent  said that they                                                                    
     would like to  quit and would like  to have assistance.                                                                    
     Three out of four adults  who smoke believe that people                                                                    
     should be protected from second hand smoke.                                                                                
     We know there's  a public health problem  here and this                                                                    
     is  an appropriate  step to  bring our  tobacco tax  in                                                                    
     alignment with  other states, but  also to  insure that                                                                    
     we're protecting young people  from beginning to smoke.                                                                    
     People don't start smoking when  they are 30, 40 or 50.                                                                    
     Some do, but  very few. Most start when  they are under                                                                    
     the age  of 18.  The more  we can do  to make  the cost                                                                    
     prohibitive  for the  consumption of  tobacco products,                                                                    
     the  less we  will have  of downstream  consequences of                                                                    
     tobacco.  On  behalf  of  the  governor,  I  urge  your                                                                    
     consideration of this bill and moving it forward.                                                                          
CHAIR BUNDE  observed that during  the previous tobacco  tax war,                                                               
many people didn't believe that  price would have any impact, but                                                               
later acknowledged  that the consumer  was affected by  price. He                                                               
said a lot of people wanted  to testify on this issue and limited                                                               
the time to two minutes a person.                                                                                               
MR.  STEVE PORTER,  Deputy Commissioner,  Department of  Revenue,                                                               
said the  governor totally supported  this bill,  which increases                                                               
the excise tax from  $1 to $2 per pack. The  total revenues for a                                                               
fiscal year is estimated to be $35 million.                                                                                     
MS.  JOHANNA  BALES,  Program   Manager,  Cigarette  and  Tobacco                                                               
Products  Excise Tax,  Department  of Revenue,  pointed out  that                                                               
this bill  has some  clean up  measures from old  tax law  in the                                                               
first  sections  that  weren't   addressed  last  year  when  the                                                               
cigarette  excise  tax stamp  legislation  passed.  The issue  of                                                               
double taxation  where the tax had  to be paid again  in state if                                                               
the licensee was from out of state and had already paid the tax.                                                                
A couple other items had to  do with technical corrections to the                                                               
same  legislation. Current  law has  no provision  that allows  a                                                               
distributor who  makes sales  of product  out of  state to  get a                                                               
credit for taxes that may have  been paid in Alaska. Now there is                                                               
a  credit provision.  Another issue  was  corrected by  providing                                                               
credit for tax stamps that get lost in transit.                                                                                 
The new  legislation increases  the cigarette tax  from $1  to $2                                                               
per pack.  Tax on other  tobacco products would increase  from 75                                                               
percent to  100 percent  of the wholesale  price. There  are also                                                               
forfeiture provisions,  which means if someone  imports unstamped                                                               
cigarettes into the state for sale,  that the state would be able                                                               
to seize assets  that were used in the commission  of that crime,                                                               
which is a felony tax evasion.                                                                                                  
The final,  major, provision would  require a floor stock  tax to                                                               
be paid  on all inventories  that are  currently in the  state at                                                               
the time of the  effective date of the act. A  floor stock tax is                                                               
the difference  between the old  and new tax rates.  Every person                                                               
who  stocks cigarettes  for sale  would  be required  to take  an                                                               
inventory and pay the tax to  the Department of Revenue within 30                                                               
days. This  is an  important provision because  in 1997  when the                                                               
tobacco tax was  originally increased without a  floor stock tax,                                                               
a  significant amount  of stock  piling  occurred. She  estimated                                                               
about 200 million sticks of  cigarettes were stockpiled primarily                                                               
by  retailers  who  didn't  pass the  savings  on  to  consumers.                                                               
Approximately $7 million  of revenue was lost  and the department                                                               
received numerous complaints about it.                                                                                          
MS. CAROLE EDWARDS, Alaska Nurses  Association, said she has been                                                               
an oncology nurse for 20 years.                                                                                                 
     The  Alaska Nurses  strongly support  the tobacco  tax.                                                                    
     Tobacco use, as you know,  is directly linked to cancer                                                                    
     and it  is the most  preventable cause of death  in our                                                                    
     society. Second-hand smoke causes  illness and death to                                                                    
     innocent victims  who have  chosen not  to smoke  or in                                                                    
     our  children   who  cannot  make  that   decision  for                                                                    
     Tobacco  use is  alarmingly high  in our  Alaska Native                                                                    
     population, particularly  in children  and adolescents.                                                                    
     Statistics  do  show  that increased  cost  of  tobacco                                                                    
     decreases the use particularly in our youth.                                                                               
MS.  EDWARDS  related  a  short  story about  how  she  became  a                                                               
cigarette smoker at the age of  17. She tried to quit many times,                                                               
but was unsuccessful, even after  her second child was born seven                                                               
weeks prematurely and almost died.  "It is an extremely addictive                                                               
disease and  very difficult to  quit once you have  started." She                                                               
finally quit when  her husband left the army and  she didn't have                                                               
access to cheap cigarettes any more. This happened 31 years ago.                                                                
MS.  JENNIFER  APP,  Alaska  Advocacy  Director,  American  Heart                                                               
Association, strongly supported SB 368.                                                                                         
     Cardiovascular disease  takes a  big toll in  the State                                                                    
     of Alaska. It is the number  one cause of death in this                                                                    
     state, if  you combine  heart attacks and  strokes. The                                                                    
     number one preventable  cause of cardiovascular disease                                                                    
     is cigarette smoke.                                                                                                        
She supported the testimony  of Commissioner Gilbertson regarding                                                               
the costs of smoking.                                                                                                           
     If we  actually wanted  to recoup  the amount  of money                                                                    
     that  this  state subsidizes  every  year  in terms  of                                                                    
     taking  care of  people  sickened by  cigarettes or  in                                                                    
     terms of lost  productivity, we would need  to tax each                                                                    
     pack of cigarettes at $6.38  per pack. So, when we talk                                                                    
     about increasing this tax to  $2 a pack, we're not even                                                                    
     making  up  the  difference.  So, I  really  urge  this                                                                    
     committee  to  think  hard  about  both  the  financial                                                                    
     aspects and also the important health costs.                                                                               
MS.   CHRISTIE  GARBE,   Director,  American   Lung  Association,                                                               
strongly supported SB 368.                                                                                                      
     High  school smoking  rates  have dramatically  dropped                                                                    
     since  1995  and  it's  a  commitment  from  all  these                                                                    
     program  elements  working  together. One  of  the  big                                                                    
     features in  that was increasing  the tax in  '97. What                                                                    
     we're  talking about  is children  not picking  up that                                                                    
     first cigarette... and don't have to quit later....                                                                        
     I just  heard yesterday  in the Alaska  Tobacco Control                                                                    
     Alliance meeting [that] the number  one cause of cancer                                                                    
     with Alaska  Natives is  now lung  cancer and  this has                                                                    
     come upon  them as  a new  horizon and  this is  a very                                                                    
     serious  problem....  The  reason  we  are  here  today                                                                    
     supporting the tax has nothing  to do with the revenue.                                                                    
     It has  only to do  with lives saved and  future health                                                                    
     care costs reduced.                                                                                                        
MS. MARIAH  WARREN, Alaskan  resident, said she  is a  student at                                                               
the University  of Alaska  Southeast and works  at a  local super                                                               
market and it's very apparent to  her that the cost of cigarettes                                                               
has a  very direct  link to  who smokes.  She fully  supported SB
MS.  EMILY  NENON,  Alaska  Advocacy  Director,  American  Cancer                                                               
Society, supported everyone's testimony and passage of SB 368.                                                                  
CHAIR  BUNDE asked  her  what percentage  of  the general  Alaska                                                               
public supported the tobacco tax.                                                                                               
MS.  NENON  replied that  67  percent  of Alaska  voters  support                                                               
increasing the  tobacco tax. The  support is the same  whether it                                                               
is  at 50  cents  or $1.  There is  consistent  support from  all                                                               
regions of the state.                                                                                                           
MS.  DORIS ROBBINS,  Juneau resident,  said she  is on  a crusade                                                               
against tobacco.  She agreed with  everything that has  been said                                                               
here  today. The  tax would  obviously lower  the number  of kids                                                               
starting  to smoke  and encourage  adults to  stop. She  has read                                                               
biological  data   that  says  when  children   get  addicted  to                                                               
something, it is much harder  for them to stop. Something happens                                                               
to  their brains  in their  formative years.  She also  heard Dr.                                                               
Urata say on  KTOO radio that if tobacco was  introduced as a new                                                               
product today, the Federal Drug  Administration (FDA) would never                                                               
allow it to be put on the shelves.                                                                                              
MS. ROBBINS  thought that  stopping kids  from ever  starting was                                                               
important, but focusing  on the cost was important  as well. Data                                                               
from Alaska Tobacco-Free Kids said  that in 1998, $60 million was                                                               
spent in Medicaid costs for tobacco related illnesses.                                                                          
TAPE 04-27, SIDE A                                                                                                            
MS. ROBBINS  related how a  friend of  hers died last  year after                                                               
contracting  pancreatic cancer  from  smoking.  She lasted  about                                                               
four months and in that time she  used all of her savings and had                                                               
to go  to the hospital because  the pain was so  severe she could                                                               
not be  at home.  She spent the  last months of  her life  in the                                                               
hospital trying to relieve pain.                                                                                                
Personally, she has permanently  reduced lung function and asthma                                                               
caused by second-hand smoke and  has to take daily medications to                                                               
be able to breath. That costs  her $4,800 per year if she doesn't                                                               
get sick.  She pointed out  that a  few people in  senior housing                                                               
smoke and it affects all the  other people who live there; she is                                                               
personally trying to help one of them now.                                                                                      
     Apparently, smoking  is allowed in all  [senior] Alaska                                                                    
     housing   which  is   partially  financed   with  state                                                                    
     funding. In order  to save the state money,  we need to                                                                    
     look at  tobacco as a  whole -  what it is  costing the                                                                    
     state. I look at this  tobacco tax as pre-insurance for                                                                    
     tobacco users, because they're going  to wind up at the                                                                    
     end of their  ropes on Medicaid.... This is  a big bill                                                                    
     for the State of Alaska.                                                                                                   
MS. MARGUERITE STETSON, State Coordinator for Advocacy, AARP                                                                    
Alaska, supported SB 368.                                                                                                       
     ...a  higher tobacco  tax will  help prevent  our youth                                                                    
     from  beginning  to  smoke.  It  will  also  help  some                                                                    
     current smokers to stop. If  raising the cost of a pack                                                                    
     of   cigarettes   helps   prevent   any   of   Alaska's                                                                    
     grandchildren from  starting to smoke, we  are strongly                                                                    
     in favor of it.                                                                                                            
     We  are  concerned  with the  data  in  the  governor's                                                                    
     transmittal letter indicating  that Alaska Natives, and                                                                    
     particularly Alaska Native  high school students, smoke                                                                    
     at a  much higher rate than  the non-Native population.                                                                    
     We  strongly recommend  that some  of  the new  revenue                                                                    
     coming in to state government  from the tax increase be                                                                    
     used  to target  cessation  efforts  to Native  smokers                                                                    
     and, in particular, to our Native youth.                                                                                   
     This week we heard a  report from the Medicare trustees                                                                    
     indicated  that  health  care costs  were  higher  than                                                                    
     expected. In AARP, we  worry about Medicare's financial                                                                    
     status. We also  know that Medicare would  be in better                                                                    
     financial  shape if  so many  current retirees  had not                                                                    
     been smokers.  Increasing tobacco  taxes in  Alaska has                                                                    
     immediate beneficial health  consequences. It also will                                                                    
     have  beneficial long-term  financial consequences  for                                                                    
     both  Medicare and  Medicaid. SB  368 is  good economic                                                                    
     policy and  good health policy.  It makes sense  and it                                                                    
     is fair.... Thank you.                                                                                                     
MS. JOELLE HALL, mother of two young children, said when they                                                                   
reach 12 and 13 years old, she really hopes that smoking is cost                                                                
prohibitive for them.                                                                                                           
     I  hope you  will consider  this inflation  proofing of                                                                    
     Alaska's tobacco  tax and that you  will consider doing                                                                    
     it again in a couple years,  because I think we need to                                                                    
     keep  it expensive  and  keep it  away  from our  kids.                                                                    
MS. KATTARYNA STILES, Alaska Native Health Board, said:                                                                         
     I do  think this proposal is  a good idea. It's  a good                                                                    
     idea  because it  will  save lives.  It's  a good  idea                                                                    
     because  it will  raise  money; and  it's  a good  idea                                                                    
     because it will reduce health care costs....                                                                               
She supported previous testimony,  especially comments on what it                                                               
means particularly to the Alaska Native community.                                                                              
     In western  Alaska, among  pregnant women,  the tobacco                                                                    
     use rate is as high  as 67 percent. Sixty-seven percent                                                                    
     of any  demographic using tobacco is  unacceptable, but                                                                    
     100  percent of  those  unborn  children are  ingesting                                                                    
     tobacco products.                                                                                                          
CHAIR BUNDE asked if anyone else  wanted to testify. There was no                                                               
response  and   he  closed  public   testimony.  There   were  no                                                               
amendments and he asked the will of the committee.                                                                              
SENATOR  SEEKINS  moved  to  pass  SB  368  from  committee  with                                                               
attached fiscal note and individual recommendations.                                                                            
CHAIR BUNDE asked  for a roll call vote.  Senators Hollis French,                                                               
Ralph Seekins,  Gary Stevens,  Bettye Davis  and Chair  Con Bunde                                                               
voted  yea; and  SB  368  moved from  committee.  There being  no                                                               
further business to  come before the committee,  he adjourned the                                                               
meeting at 3:30 p.m.                                                                                                            

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