State lawmakers should be careful to put two and two together as they deal with the unanticipated drop in payments from the national tobacco settlement.
Hawai‘i was party to a case in which the tobacco companies agreed to pay billions in settlement of lawsuits from states that claimed high health-care expenses related to the use of cigarettes and other tobacco products.
The payments are tied to sales of cigarettes. According to Health Director Bruce Anderson, the state expected to collect $55 million from the settlement but collected only $48 million. This year the state expects to get only $38 million instead of the $45 million in anticipated payments.
The money was earmarked for anti-smoking and other health education and promotion programs, which will now face a shortfall, as budgeted.
The immediate inclination might be to subsidize those programs with other funds, on the theory that the decline in cigarette consumption will continue. But is it truly a decline in consumption?
As Advertiser staff writer Sally Apgar recently reported, the state has been losing out on as much as $20 million a year in untaxed cigarette sales. These cigarettes get to consumers without going through the wholesalers, who actually pay the tax that measures how many are being sold. Some come from military commissaries, others from other sources.
The untaxed sales should diminish sharply once the state fully implements a new cigarette stamp tax law that will ensure the products are taxed at the final point of sale. Hawai‘i is one of the last states to impose a tax stamp law.
The drop in settlement payments, then, might have had as much to do with untaxed sales as it did with diminished consumption. Nationally, law enforcement officials have implied that cigarette manufacturers might even have an interest in untaxed sales, since such sales will not contribute to the amount of settlement payments they face.
While there is no evidence that manufacturers have any involvement in the sale of untaxed cigarettes in Hawai‘i, it is equally clear that such sales produce the side benefit of lowered settlement payments.
So lawmakers should be cautious before concluding that the decline in settlement payments will continue. A strong tax law, well enforced, should continue to produce the income expected for this important health education and prevention effort.
And if they can prove to the court that there were more cigarettes sold than taxed, they might be able to recover some back settlement payments as well.
