Could smokers could help solve another Pa. budget? Not in the way that you think

Believe it or not, cigarettes could play a starring role in one more Pennsylvania state budget debate.

Will Pennsylvania's elected officials turn to the cigarette to balance one more state budget?

Could happen, and this time it's got nothing to do with cigarette tax rates.

Several sources told PennLive last week one strategy under study to get to budget closure without a major tax increase is floating a bond issue against future proceeds owed Pennsylvania from the 1998 national tobacco settlement.

There is no consensus for this move yet, the sources cautioned, and there is no prospective deal available for review.

But it is on the list of possibilities as Gov. Tom Wolf and legislative leaders dig in for the legislative equivalent of a cram session to finalize and balance a new budget for 2017-18. The new fiscal year starts July 1.

Supporters believe it could be possible to take a bond issue to raise the cash needed to close most of a nearly $2 billion deficit arising from sluggish tax collections this year, and then allocate a portion - it's not clear how much - of the future tobacco settlement payments to pay the debt service.

That would set off a fresh survival-of-the-fittest battle among the six programs that receive tobacco funding now.

(In the current fiscal year, tobacco funding was earmarked for: subsidizing nursing home care for low-income elderly and disabled; health care for workers with disabilities; state-funded health research; pro bono care at hospitals; services that help seniors stay in their homes; and smoking prevention and cessation programs.)

One essential question is, would that limited reallocation battle be easier for Wolf and lawmakers than approving a large expansion of legalized gambling or battling over the merits of a new tax on Marcellus Shale gas production?

A spokeswoman for the Hospital and Healthsystem Association of Pennsylvania had little to say about the emerging proposal Friday, noting only that "we are in discussions with the legislature on this matter."

It's been done elsewhere.

In fact, to date 19 states have "securitized" their tobacco payments since 1999, raising a total of $64 billion. Some states used the money to fill budget holes. Others used it for capital programs, like school construction.

Many fiscal conservatives at and around the Pennsylvania Capitol hate the idea of taking out a long-term obligation - i.e. a bond issue - to help pay for operating costs.

To them, it's akin to using your credit card to pay the monthly cable bill.

And the bond's proceeds would represent another one-time revenue source thrown against what has been a stubborn recurring deficit.

But supporters point to the hope that state revenues will rebound in 2017-18 to a level much closer to current spending, meaning that a one-time infusion may be just the kind of bridge needed to get to brighter days.

A forecast issued by the state's Independent Fiscal Office Thursday showed projected 2.8 percent growth through the new budget year. If realized, that would leave lawmakers a much smaller deficit to deal with going forward.

No legislative leaders have publicly endorsed the tobacco bond concept to date.

But Senate Majority Leader Jake Corman, a Republican from Centre County, did tell The PLS Reporter this after a Wednesday meeting with his House Republican counterparts: "Obviously, we aren't looking at any new taxes [to balance the new budget], so we've got to look within and see what we can do to maximize our abilities with the assets that we have."

Attempts to reach Corman for this report were unsuccessful.

Several key Democrats, meanwhile, said Friday they still believe the best option is to address budget deficits head-on with new and recurring taxes, starting with Wolf's proposal to tax natural gas production in the Marcellus Shale.

But with Wolf and Republican majorities having taken personal income and sales tax rate increases off the table early on in this budget cycle, ideas like a tobacco revenue bond are filling the void.

"Unfortunately, we have very limited options when we restrict our ability to do our jobs, revenue-wise," said Senate Democratic Leader Jay Costa, from Allegheny County. "You're left with bad choices."

Pennsylvania is one of 46 states receiving annual payments from the nation's largest tobacco companies through settlement of a landmark suit for smoking-related health care costs.

Since 1999, Pennsylvania has received $6.5 billion through the agreement, according to an accounting by the National Association of Attorneys General. Over the last three years, payments here have averaged $353.6 million.

The settlement payments are expected to decrease over the long term, as the number of smokers in America continues to decline, but apparently not by enough to totally chill this market.

A research report by IHS Global Inc. for a 2015 tobacco bond refinancing in California projected an average annual decline in cigarette consumption of approximately 3 percent through 2045 due to factors like the emergence of electronic cigarettes, stronger indoor smoking bans and lower participation rates in the smoking habit by younger generations.

One bond rating agency, Fitch Ratings, actually stopped issuing ratings for tobacco-backed bonds last year, citing uncertainties both in long-term tobacco sales and the enforcement of the settlement agreement.

California, however, calmed any market jitters with a pledge to apply general fund dollars to the debt service should settlement payments ever fall short. Its bonds went to market with 'A' ratings.

Wolf and the legislative leaders have other tools at their disposal.

There are, for example, competing proposals to approve new forms of legalized gambling.

Both chambers have passed legislation permitting on-line games run through the state's existing commercial casinos and internet-based sales of Lottery tickets, but Senate leaders have been cool to a House-passed plan to permit small numbers of slot machines in state-licensed bars and private clubs.



As in recent years, there is also likely to be discussion of whether some of the current exemptions to the state's 6 percent sales tax should be ended.

And Wolf appears to be making little headway so far with his calls for the Marcellus Shale severance tax, but that has not been officially pulled off the table yet, either.

A non-tax plan like the tobacco proposal, if the final numbers work, could dramatically reduce the leaders' need to find new money from those other sources.

And that, for now, makes this an intriguing idea to watch.
Resource : http://www.pennlive.com/news/2017/06/how_smokers_could_smokers_help.html