Lawmakers raise tobacco tax, don't vote on Murkowski's budget fix

Posted: Friday, June 25, 2004

JUNEAU The Legislature passed a tobacco tax increase and then adjourned Thursday without voting on Gov. Frank Murkowski's proposal to fix the state's chronic budget deficit.

House Speaker Pete Kott, who opposed the tobacco tax, called the three-day special session ''very unproductive.''

''We came down here to do a specific major issue on behalf of the citizens of Alaska, and we were unable to accomplish it,'' said Kott, R-Eagle River.

Other lawmakers, though, said incremental progress was made on addressing the long-term fiscal gap. And health advocates said the tax increase was worthwhile, even though the $1-a-pack tax increase will be phased in, rather than occurring all at once as they had hoped.

''This is still a major health victory for the kids of Alaska,'' said Kattaryna Stiles of the Alaska Native Health Board. Research shows every 10 percent rise in the cost of cigarettes reduces youth smoking by 6.5 percent, she said.

Murkowski praised lawmakers for passing the tobacco tax, which doubles the existing tax, but expressed disappointment that they failed to deal with the fiscal gap and other issues.

''The Legislature didn't give Alaskans the chance to vote on my plan and they failed to come up with one of their own,'' Murkowski said in a written statement.

The governor called lawmakers into session Tuesday to vote on a long-term fiscal plan, as well as the tobacco tax, transportation and university bonds and changes to the workers compensation appeals process. On Thursday, he asked them to approve more spending to address a looming crisis with rural fuel needs.

House and Senate leaders did not want to stay in Juneau several more days working on that issue, but said they'd cooperate with the administration if it needs to act before they return in January.

Senate President Gene Therriault, R-North Pole, said there still weren't enough votes in the Senate to push through the governor's fiscal plan.

Another version of that proposal failed 5-15 on the Senate floor during the regular session that ended May 11, and not enough minds had changed.

''It's not just the majority and the minority camps,'' Therriault said. ''Within each of the caucuses there's a split.''

Murkowski was seeking constitutional amendments to change the way payouts from the Alaska Permanent Fund are calculated, make some of that payout available for government and guarantee Alaskans an annual dividend.

His proposal would have turned the $29.7 billion fund into an endowment, making up to 5 percent of its market value available for state spending each year.

The governor had proposed spending 50 percent of that payout on dividends for Alaska residents, 45 percent for state government and 5 percent for local governments.

Lawmakers varied on their reasons for disagreeing with the plan. Some did not want to guarantee a dividend in the constitution, arguing that would place a higher priority on dividends than public safety, transportation and many other state needs.

Others said the share the governor was proposing for dividends was not high enough and would mean Alaskans would receive smaller dividends than they do under the current formula.

In the last two days, House Democrats said they had been working with the governor on a compromise that would place on the ballot the constitutional question of whether to switch to an endowment method of managing the fund.

They proposed a separate advisory question on how the proceeds from the annual payout would be split between government and dividends.

Democrats said the administration responded positively to their offer.

But Republican leaders dismissed their proposal as ''political theatrics'' after Democratic leaders had insisted throughout the four-month regular legislative session on enshrining the dividend in the constitution.

Minority Leader Ethan Berkowitz, D-Anchorage, said they had not made the proposal earlier because they had not had the same opportunity to negotiate with administration officials.

The House nearly adjourned the special session Thursday morning without voting on any bills.

But Berkowitz objected, and after a long break, Rules Chair Norm Rokeberg, R-Anchorage, withdrew his motion to adjourn.

Many members of both parties still wanted to vote on the tobacco tax bill, which had passed the Senate on Wednesday.

''I see it as a health issue,'' said Rep. Nancy Dahlstrom, R-Eagle River.

By late afternoon, a weaker version of the tobacco tax bill had made it through the House Finance Committee and had been approved on the House floor.

The bill will raise taxes by 60 cents a pack Jan. 1, then by another 20 cents in July 2006 and another 20 cents in July 2007. The Senate version would have raised the tax all at once.

Sen. Con Bunde, R-Anchorage, objected to the House tax, saying the phase-in will reduce the ''sticker shock'' and persuade fewer people to quit smoking. It also does not raise taxes on other tobacco products, such as cigars.

Bunde also complained the House version eliminated a provision designed to prevent retailers from stockpiling cigarettes before the tax goes into effect, thus avoiding paying the tax for several months.

But the House had already adjourned by the time the bill made it back to the Senate, so senators' only choice was to accept the House bill or nothing.

Department of Revenue officials said the last time the tobacco tax was raised in 1997, they lost about $7 million the first year due to stockpiling.

The administration estimates the tax increase will bring in about $5 million in the first six months it's in effect.

In the full 2006 fiscal year, it will raise an estimated $20 million. By the time all the increases are phased in, the higher tax is expected to be bringing in another $35 million a year.

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