Cigarette tax might close budget gap

Increase of 70 cents per pack possible, legislators say

`Everything is on the table'

Hoffman would use money to augment education funding

March 02, 2002|By Howard Libit | Howard Libit,SUN STAFF

Maryland legislators are looking with renewed interest at increasing the state's tax on cigarettes, saying it could provide additional funding for public schools or offset revenue shortfalls.

"People are in favor of a tobacco tax because it's a user fee," said Sen. Barbara A. Hoffman, a Baltimore Democrat and chairwoman of the Senate Budget and Taxation Committee. "We did it once before, and if you look at our financial situation, you have to be willing to look at everything."

Legislation under consideration by the Assembly would raise Maryland's cigarette tax 70 cents per pack, increasing the per-pack tax from 66 cents to $1.36 - almost the highest in the nation.

FOR THE RECORD - An article in Saturday's Maryland section gave the wrong amount for the cigarette tax in Virginia. It is 2.5 cents per pack. The Sun regrets the error.

Even lawmakers who have fought past tobacco tax efforts say the state's budget woes are prompting them to give serious consideration to an increase - albeit one less than 70 cents, perhaps closer to half that.

"Everything is on the table now," said Sen. Thomas M. Middleton, a Charles County Democrat and member of the Budget and Taxation Committee. "These are going to be very deep cuts, and no one is going to escape it. So we need to look at everything."

Senate President Thomas V. Mike Miller - who adamantly ruled out raising the cigarette tax a week ago - said yesterday that he remains "opposed to any form of tax increases."

But he acknowledged that a tobacco tax may be something the Assembly has to do. "I'm going to look at the final analysis of the state's revenue and the cuts we need to make in order to pass a budget to deal with the state's shortfall, at the same time that we need to come up with more money for public education," Miller said.

The need for significant budget cuts - as well as the possibility of raising the tobacco tax - come as Miller and other legislative leaders have rejected an idea from Gov. Parris N. Glendening to delay the final 2 percent of the state's five-year, 10 percent income tax cut. Glendening has said he would support an increased cigarette tax.

Legislative fiscal leaders say they're particularly concerned about the effect that the national recession and slumping stock market will have on Maryland's revenue. Many are speculating that revenue forecasts due this month could be $200 million to $300 million less than earlier projections for fiscal years 2002 and 2003.

"That would take us from a $1.2 billion hole to a $1.4 billion hole," Hoffman said, describing a gap between Maryland's revenue collections and proposed spending this year and next. "I don't know how we will get there."

Beyond budget cuts, the remainder of the shortfall would be made up by taking hundreds of millions of dollars from the state's reserve funds, which total about $1 billion.

A spokesman for the comptroller's office refused to comment on the legislators' speculation until the next set of revenue estimates is released.

But Comptroller William Donald Schaefer announced yesterday that local income tax revenues distributed to Maryland's 24 jurisdictions in February were $800,000 less than the amount passed along in February of last year - about a 1.2 percent decline. "The most likely culprit for the drop in withholding is the lackluster performance of the stock market," Schaefer said.

Despite the state's slumping revenues, two national bond rating agencies renewed their support yesterday for Maryland's financial planning, issuing AAA ratings for the state's debt. Both agencies said they believe Maryland will be able to handle its projected deficits. The potential decline in state revenues has lawmakers concerned about the severity of cuts they believe they'll have to make to Glendening's $22.2 billion spending plan.

"It just complicates our problem in bringing this budget into fiscal shape and balance," said Del. Howard P. Rawlings, a Baltimore Democrat and chairman of the House Appropriations Committee.

Yesterday, two Senate subcommittees began making cuts to various departments. Many of the more significant decisions - including large cuts to Glendening's environmental programs and whether to continue giving state dollars for private school textbooks - are expected to be debated over the next week.

In the meantime, Sen. Christopher Van Hollen Jr. of Montgomery County and Del. Barbara A. Frush of Prince George's County, both Democrats, have introduced bills for the 70-cent increase, which would raise about $147.8 million next year, according to supporters of the bills.

Legislative leaders say such a large increase might not be possible, but they are suggesting a compromise 34-cent increase - placing Maryland's per-pack tax at $1.

The nation's highest cigarette tax is in Washington state, at $1.425 per pack, and Virginia's tax of 25 cents per pack is the lowest. The national average is 45 cents per pack.

Hoffman said yesterday that she would seek to attach any cigarette tax increase to education funding - providing a down payment for the Thornton Commission's plan. That task force has called for state spending on public schools to increase by $1.1 billion over five years.

"We can't find any money for Thornton in the regular budget," Hoffman said. "It's a win-win."

Rawlings said he would support the tobacco tax increase for education, though he thinks it might need to be higher than 34 cents - perhaps closer to 50 cents per pack. He said legalizing slot machines ought to be considered as another way to raise revenue.

Sun staff writers Michael Dresser and David Nitkin contributed to this article.

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