Cigarette tax renewal could be snuffed out

Back in mid-August, an Oregon Senate committee chose a one-page House bill intended to renew a 10-year-old, 10-cents a pack cigarette tax as a vehicle to carry a much bigger, unrelated tax plan.

The result was a hefty bill loaded with about $800 million in tax increases used to balance the 2003-05 state budget. Opponents now are trying to put the tax increase package on the ballot. If voters overturn it, the relatively routine cigarette tax boost would get snuffed out, too.

If that happens, Oregon would be the first state in 10 years to reduce a cigarette tax. The per-pack tax would drop from $1.28 — eighth-highest in the nation — to $1.18.

Smokers would save money, but the Oregon Health Plan would lose $22 million in addition to an almost $200 million hit if the tax increases were overturned.

When the health plan was created, the 1993 Legislature enacted the 10-cent increase for two years to help pay for it. They have renewed the increase every two years since, despite opposition from the powerful tobacco lobby. Voters have tacked on increases of 30 cents a pack in 1996 and 60 cents in 2002 mostly to finance the health plan.

The dime tax is set to die Jan. 1 . This year, legislators approved House Bill 2152 to keep it for another two years. When the Senate needed a tax bill that had originated and passed in the House in order to generate its $800 million revenue plan, it chose HB2152.

If opponents of the tax package do not gather enough signatures to put the plan on the ballot, or if voters say no to the referendum, HB2152 will take effect and the dime-a-pack tax will be in place for another two years.

Chuck Sheketoff, executive director of the Oregon Center for Public Policy, said the 10-cent tax should not have been included in the referendum. Organizers of the repeal effort “are asking people to roll back our tobacco taxes,” he said, which Oregon voters have not done before.

The 10 cents also “has been an integral part of the revenue stream” to the point where governors included it in their budgets, said Sheketoff, who lobbies on behalf of low-income people.

Referendum organizers don’t deny that they could have chosen to exclude the cigarette tax from the referendum proposal.

“There wasn’t any conversation about it, to be honest with you,” said Russ Walker, who is directing the petition drive.

“We view tobacco taxes the same way we do other taxes,” said Walker, Oregon director of Citizens for a Sound Economy, a Washington, D.C.-based antitax group that is paying for the campaign.

“The referral essentially allows it to sunset” as scheduled, he said.

Arkansas and Montana were the last states to reduce cigarette taxes, in 1993, according to the Campaign for Tobacco-Free Kids, based in Washington, D.C.

A drop from $1.28 a pack to $1.18 in Oregon would leave the state with about the 10th-highest cigarette tax in the nation, according to tax rates as of July.

The cigarette tax bill was used for the larger tax increase plan because the Senate cannot initiate tax proposals that require a three-fifths vote to be approved, said Paul Warner, legislative revenue officer. Such bills must start in the House.

With the House-passed cigarette tax bill awaiting Senate action, it served as a handy way for the tax increase backers to put their plan into motion.

The outcome of a referendum vote would have significant meaning for the Oregon Health Plan, which serves Medicaid clients and an expanded group of people who need medical care but do not qualify under traditional Medicaid coverage.

If the tax package fails, the health plan would lose about $190 million to $200 million from the income tax surcharge and other tax increases that make up most of HB2152, said Jim Edge, assistant director of the Office of Medical Assistance Programs.

“It did come as a bit of a surprise to us,” Edge, whose agency oversees the health plan, said of the potential additional loss of $22 million in cigarette tax money. “That one has been noncontroversial over the years and has had wide support” in the Legislature.

“We would be looking at massive cuts” in health plan services if voters reject the taxes, Edge said. Defeat, he said, would place the question of cuts back with the Legislature, which alone has the authority to make major changes in services.

The health plan serves about 380,000 people who are covered under federal regulations for reasons such as disability, age, blindness and pregnancy combined with a low income. They would be protected from cuts.

However, the plan also covers about 50,000 clients who do not fit those traditional categories. They could lose services such as dental care, prescription drugs and support for people with chemical addictions — the kinds of services they lost temporarily last spring when state revenues fell.

Because the federal government must approve such cuts, and patients must be notified, the changes would not happen until August 2004, Edge said. The cuts would be more difficult then because there would be less than a year in which to make up for the lost revenue.

Those are the kinds of budget decisions legislators must make, Walker said.

“If the Legislature says that the Oregon Health Plan needs that money, then they . . . cut back in other places.” Dan Hortsch: 503-221-8223;