Proposed tobacco tax ignites debate fueled by convenience stores

Ron Leone, a lobbyist for Missouri convenience store owners, is a small player in the looming, multi-million-dollar battle over a proposed amendment to the state constitution that would raise the tobacco tax by 80 cents a pack.

Leone, executive director of the Missouri Petroleum Marketers and Convenience Store Association, gained stature in 2002 when a proposed 55-cents-a-pack increase was placed on the election ballot, and he was given much of the credit for its defeat.

This year, his members face an even greater threat to their viability — a tax hike from 17 to 97 cents — and he has increased his budget for the battle from slightly more than $40,000 to $100,000 for store-based voter education.

By the last week in September, the MPCA had printed and distributed 50,000 flyers to Missouri convenience stores, using the orange and black colors of Halloween, and plans to print hundreds of thousands more.
Those will be combined with “pump topper signs” and other placards at convenience stores. He also has commitments from convenience stores and chains for 25 to 30 existing billboards along interstates and major highways to promote their message.

Leone expects the “Enough is Enough” or “Stop Tax Abuse” campaign to reach more than a million customers before the Nov. 7 election.

The campaign is playing off public mistrust of the political process in Jefferson City — an attitude that even the proponents’ study of the 2002 election found was a determining factor in the defeat.

Big three on the ballot

Barring a last-minute court order striking the tobacco-tax constitutional amendment, three contests should dominate the airwaves as Missourians count the days to the general election:
· Jim Talent versus Claire McCaskill in the U.S. Senate race.
· Stem-cell research and cures versus anti-cloning and anti-abortion forces.
· Hospitals, physicians, insurers and disease groups versus smokers, convenience stores and R.J. Reynolds on increasing cigarette taxes.

Each side of the Amendment 3 issue has laid the groundwork for a full-fledged campaign. The proponents in mid-September made an initial purchase of about $2.3 million in advertising — another preliminary step toward a campaign that likely will meet or exceed $10 million in expenditures by the two camps.

Tobacco roots deep in Missouri

Although the state has no cigarette manufacturing facilities today, Missouri has had a long love affair with tobacco. In the 19th century, tobacco farmers from Kentucky, Virginia and Tennessee flooded into the Missouri River valley and as far south as Springfield. Cigar factories dotted the growing areas.

About one-fourth of Missouri adults smoke, and some rankings show the state as third in the nation in number of smokers. Almost as high a percentage of teenage Missourians smoke, but recent studies show the youth rate is falling sharply.

Missouri had no tobacco tax before 1956, when a rate of 2 cents a pack was set. Even after a major 1993 increase in cigarette taxes, the rate today is 17 cents, or the second-lowest in the country, behind South Carolina’s 7 cents.

The proposed 80-cent hike would move Missouri to the 22nd-highest rate in the country, or essentially the same as Illinois (98 cents). Among surrounding states, Kansas charges 79 cents, Oklahoma $1.03, Arkansas 59 cents, Iowa 36 cents, Nebraska 64 cents, Tennessee 20 cents and Kentucky 30 cents.

Anti-smoking advocates maintain that the low tax rate abets the smoking addiction in Missouri, and they see Amendment 3 as the way to sour the longstanding relationship between Missourians and tobacco.

Who profits?

While the stem-cell debate is focused on the substance of that initiative, the tobacco-tax battle already has evolved into a dissection of who will profit.

For Big Tobacco and small convenience stores that crowd the state’s intersections, Amendment 3 is directly linked to profitability, with tobacco manufacturers nervous about the impact of stiff tax hikes on current tobacco consumption and the stores worried about the likely large loss of out-of-state business along the borders with eight other states.
If Amendment 3 passes, hospitals will get compensation for inpatient, emergency room and ambulance services to some uninsured Missourians.

Physicians could pocket up to a 150 percent hike in Medicaid reimbursement rates. Insurers would benefit from a generally healthier life and health client base along with a potentially expanded Medicaid system that spends most of its funding on managed care companies.

Hospitals, HMOs and insurers already have surfaced as profiteers in early commercials by Missourians Against Tax Abuse, an anti-Amendment 3 group that will draw the bulk of its funding from Reynolds American, the cigarette manufacturer. Those commercials began running even before a Cole County judge in mid-September decided that organizers had garnered enough signatures to make the ballot and reversed Secretary of State Robin Carnahan’s earlier ruling.

The Missouri Hospital Association, a trade group, underwrote most of the cost for gathering voters’ signatures to place Amendment 3 on the ballot, although it also secured sizable financial help from Blue Cross of California (Wellpoint), Blue Cross/Blue Shield of Kansas City, Coventry Healthcare (a major Kansas City HMO), Civic Progress of St. Louis and the Regional Business Council of St. Louis. The “pro” campaign has been organized as the Committee for a Healthy Future.

However, no campaign finance reports have been filed since July. When the next reports are received Oct. 15, expect a flurry of advertisements about who is investing in Amendment 3.

Most eyes will follow the money trail to Reynolds American, a.k.a. R.J. Reynolds Tobacco Co., which already has warned investors that its second-half earnings will reflect expenditures of $40 million this year to fight state tobacco tax increases and smoking-ban initiatives.

Most of the money will flow to the enormous market in California, where voters will decide the fate of a $2.60-a-pack increase in taxes. Missouri will compete for lesser shares of Reynolds money, with lively smoking-ban campaigns in Arizona and Ohio along with smaller tax hikes elsewhere.

The forces aligned against Amendment 3 predict its backers will spend $7 million to $10 million, although a Committee for a Healthy Future official described the upper figure as “out of the ball park.” The anti-Amendment 3 campaign workers hint at spending $3 million or more themselves, although much depends on final decisions by Reynolds American.

To date, the anti-Amendment 3 forces say their group includes only Reynolds among the cigarette manufacturers as “deep pockets” for the campaign, and Philip Morris says it has reached no decisions on participating in the state cigarette tax campaigns.

The anti-Amendment 3 campaign will fight back with advertisements that raise the specter the constitutional amendment would force major future tax hikes for health-care services or severe cutbacks in current state spending for schools or other priorities.

“This amendment will create a huge unfunded mandate of $800 million that will require additional taxes or cuts in existing programs,” said Patrick Cacchione, a Missourians Against Tax Abuse campaign field organizer who has served as a Catholic hospital system executive in St. Louis.

The anti-amendment campaign also will assert that Missouri has “wasted” almost $1 billion from the national tobacco settlement so far that could have been spent for smoking cessation programs and health-care services and still could dip into future payments for such spending. Missouri instead spent those funds to cover a budget shortfall.

‘Soft’ support for tax hikes

National studies suggest that cigarette and tobacco tax-increase campaigns begin with large margins of support — often reflecting the smoking rate in the state — that tend to dwindle as they progress. The same phenomenon occurred in 2002, when Missourians narrowly defeated a 55-cent-a-pack cigarette tax hike.

Amendment 3 benefits from the same head start. A St. Louis Post-Dispatch poll in June found Missourians favored the 80-cent-a-pack increase by a 62-30 percent margin.

Among demographic groups, Republicans heavily opposed the tax hike, while it broke even in rural Missouri. Urban areas of the state backed the plan strongly, although the support may have been skewed because the question suggested the tax would reinstate Medicaid cuts that have been extremely unpopular there.

But the measure has drawn opposition from leading political figures in the state, including Republican Gov. Matt Blunt (opposed to all tax increases), Attorney General and likely 2008 Democratic gubernatorial nominee Jay Nixon (misuse of the state’s national tobacco settlement funds of $1 billion) and legislative leaders.

Democrats reacted angrily to Blunt’s comments because they say he privately is hoping that the amendment passes and defuses the widespread opposition of Missourians to severe Medicaid cutbacks he championed in 2005. They point to the fact that several leading GOP political operatives are running the Committee for a Healthy Future campaign, including John Hancock, the former Missouri Republican Party director who was among Blunt’s close advisers in the 2004 campaign for governor.

Avoiding 2002 pitfalls

Dr. Jim Blaine, a Springfield physician and Committee for a Healthy Future spokesman, said backers conducted a post-mortem on the 2002 cigarette-tax vote and identified two factors that accounted for its defeat:

n Voters believed that state government, which was enduring a severe financial crisis, could spend the funds elsewhere. The initiative would have enacted a statute that the legislature and governor could have changed. “This time it’s a constitutional change” that is immune from revisions except by a public vote, Blaine said, although that status complicates any efforts to correct problems later.

n “It was a smorgasbord,” segregating the funds into small pots of money that might have little meaningful impact. Some of the pots attracted the attention of Missouri’s well-organized anti-abortion organizations, which opposed it and this November’s tax hike. Included in the 2002 measure was life science research, which spawned the stem-cell item this fall and would not share in the proceeds from Amendment 3.

As rewritten in February, the amendment is designed to raise $350 million that would be spent as follows:

n $61 million for tobacco cessation programs, targeted at preventing youth from smoking or encouraging them to quit. The 80-cent tax alone would increase the cost of cigarettes per pack in Missouri by 20 percent and, based on national studies, the cost increase should convince 14 percent of teenage smokers and 8 percent of adults to quit. The cessation programs should add more former smokers to the list.

n $102 million for “medically necessary” services for low-income, uninsured Missourians who have incomes less than 200 percent of the federal poverty level. The amendment, however, does not restore the Medicaid cuts under Gov. Blunt.

Even if the amendment’s revenues generate the usual federal match under Medicaid, the funding would fall hundreds of millions short of the health-care needs of low-income Missourians who are uninsured and before got care under Medicaid. The measure establishes a preference for treating smoking-related conditions or custodial parents; low-income children are not expected to benefit much from the plan because they already are eligible for coverage under the federal children’s health insurance program.

n $102 million to increase payments for physicians under the Medicaid program. Missouri last approved a general rate hike for doctors under Medicaid in 1999, and they currently are paid only 40 percent of the rates under the federal Medicare program. The amendment sets a goal of matching the Medicare rate, but would need a federal match to do so.

n $44 million for hospital emergency room care for low-income Missourians who often use those services instead of regular primary care.

n $38 million for public health clinics that serve the same clientele.

n $4 million for ambulance services to the uninsured.

Beware the campaign rhetoric

Based on campaign literature and interviews with officials, expect both sides to toy with the truth as the contest progresses, with much of the rhetoric tied to the well-known, but little-un
derstood federal-state Medicaid program. Among the points of contention:

Missourians Against Tax Abuse plans to position the amendment as an enormous expansion of the Medicaid program without the necessary revenues.
But Amendment 3 alone would not expand the Medicaid program. The amendment instead dedicates about $100 million to new “medically necessary services” for low-income Missourians without requiring expenditure through Medicaid.
It does require the state to apply for a Medicaid waiver that would generate federal matching dollars, but that doesn’t guarantee approval. If the entire package earned federal matching funds — a large “if” when Congress is trimming Medicaid outlays — it would generate $746 million in extra health-care spending here, 60 percent from the federal government, but not enough to cover the medical needs of Missourians with low incomes.

The amendment makes scarce mention of the Medicaid program except for the waiver application and rates paid to doctors. Without explicit ties to Medicaid, the amendment likely creates no clear entitlement to care that would trigger an unfunded mandate. The legislature would have considerable latitude on who benefits from services.

Challenged about the contention, Cacchione with Missourians Against Tax Abuse acknowledged the uncertainty: “Let’s say it would create a huge risk that it could be interpreted as a mandate.”

That places the future of this claim squarely in the courts, and Marc Ellinger, the Jefferson City attorney who has represented Missourians Against Tax Abuse, flatly predicts “there will be a lawsuit.”

n Expanded health-care services. On the flip side, the large majority of Missourians who opposed Blunt’s reduction of Medicaid programs may see the amendment — incorrectly — as the chance to restore those services.

Blaine says their strong reaction “absolutely” creates fertile ground for the campaign, and its literature talks about “increased access” to physician care as a principal reason for supporting the measure.

The amendment actually places power in the hands of the legislature to craft a state-only $102 million program that would give preference to smoking-related conditions, custodial parents or persons with other disabilities.

Beyond that, Amendment 3’s health-care spending would raise rates paid to physicians in the Medicaid program and compensate providers ­— largely hospitals — for already existing services, not expanded care under Medicaid.

Amendment 3 would devote almost one-third of its total revenues to paying doctors more — with the goal of raising rates 150 percent to match Medicare levels. Physician net incomes have been declining over the past two decades, and the cost squeeze became particularly prominent when malpractice insurance rates rose several years ago. Missouri historically has held Medicaid reimbursement rates for physicians well below their usual charges and Medicare.

While higher rates should attract more physicians into the Medicaid program, state data does not clearly establish a shortage of physicians to treat Medicaid patients. Except for a spike in 2004, physicians billing Medicaid directly have remained steady since 2000, just after the last rate increase. While the levels of doctors are stable, the legislature last year slashed eligibility for about 100,000 patients who no longer qualify for care.

The physician totals do not reflect those paid through managed care companies (HMOs), but the overall number of Missouri doctors who have enrolled to take any Medicaid patients (including HMO patients) likewise grew until 2003 and then became stable.

Blaine said the Missouri State Medical Association — the trade group for M.D.s — found that 90 percent would take Medicaid patients if rates were raised, but he was unaware of data on current participation by association members.

The focus on smoking

Beyond the health-care issues, much of the campaign will hinge on public reaction to smokers and smoking, an addiction saddled with sharply declining levels of public acceptance.

Says one Committee for a Healthy Future official, who requested anonymity: “Tobacco is the only legal product that kills you when it’s used as directed. One way or another, we all pay” for the health-care costs to treat related cancer, lung and heart conditions.

The proposed 80-cent-a-pack tax “is a user fee not unlike the gasoline tax.”

In that way, smokers themselves become bogeymen in the debate, perhaps more so than in previous public policy debates in Missouri. Blaine, for example, characterizes the measure as “an opportunity for smokers to pay back” society for the costs they incur, which he pegs at more than $7 a pack. National studies, however, tend to discount the social costs imposed by smokers ­— because they don’t live as long.

Look for a full-fledged discussion of how Missouri has spent its $1 billion share — so far — of the 1998 national settlement agreement between 46 states and the major tobacco manufacturers. That agreement already was designed to pay the states for smoking-related health-care costs and encourage anti-smoking programs, as Amendment 3 does.

The first payment arrived in 2001 — just as Missouri’s financial situation began reeling from a plunging stock market, the dot-com bust and 9/11 after-effects. Gov. Bob Holden and the legislature began routing the funds into the state’s general fund to avoid a tax increase and maintain services, including Medicaid.

State Auditor McCaskill noted in a March report that Missouri has spent only $1.8 million of its share on smoking cessation programs. National data ranks Missouri last among the states. “So far, we have been working on these programs largely as volunteers,” said Blaine, who has a public health background.

The $61 million earmarked under the amendment for anti-smoking programs would move Missouri from the back of the pack to the first-tier of states on anti-smoking programs. The federal Centers for Disease Control recommends that Missouri spend $6.3 million to $30 million a year on such programs, and the amendment would double the optimal spending.

But Missouri’s failure to set aside any of the settlement — which he negotiated — for anti-smoking programs played heavily in Attorney General Jay Nixon’s decision to oppose the tobacco tax increase earlier this year. “At this particular juncture, additional taxes with this kind of track record are not warranted,” Nixon said

Leone’s campaign material – which he shortly will distribute to member stores – states the case more starkly: “Missouri has wasted almost $1 billion in tobacco revenue since 2000 that should have been spent on tobacco diseases (and) health care. Why should we trust politicians with even more of our tax dollars?” says one flyer.

Missourians Against Tax Abuse plans to use the same themes on the air.

The little guy fights back

The facts for convenience store owners are simple, Leone says: “We now have a competitive advantage over each of our eight border states. If this passes, we will have a disadvantage with six. In the other two, it wouldn’t be worth the drive for what you would save. There would be no more reason to cross the border” to buy cigarettes and make other purchases in his member stores.

The Haslag study estimated that the average convenience store in Missouri — which now sells $360,000 a year, or $1,000 a day, in tobacco products — would find sales dropping by $25,000 to $120,000 each. Sales would drop more sharply for stores located within an hour’s drive of the state’s borders. Other stores, particularly adjacent to Illinois, could see major declines because they would lose out-of-state business.