Faced with unpalatable program cuts, legislators see alcohol, tobacco as possible revenue sources

by Sean R. Sedam | Staff Writer

Legislators are not ruling out increases in so-called sin taxes on alcohol and tobacco to prop up programs that have suffered during the state's ongoing budget crunch.

Such taxes have been at the heart of attempts in recent years to fund services for the developmentally disabled and to expand health care coverage for the needy.

Now, with services for the disabled sustaining $24 million in cuts, as part of the $735 million in budget reductions by the state Board of Public Works this summer, and with health care advocates looking to restart a stymied expansion of Medicaid, legislators say they are not ruling out raising taxes on alcohol and tobacco.

Cognizant of the 2010 elections, legislative leaders have said no to new taxes. And rank-and-file members agree that taxes are unpalatable.

"However, that being said, there may be a few targeted revenue increase measures that we may be able to take," said Sen. Mike G. Lenett (D-Dist. 19) of Silver Spring.

"One might be the alcohol tax," he said. Earlier this month, Lenett sent a letter asking Gov. Martin O'Malley (D) to, "reconsider the latest cuts and restore funding to protect adults and children with developmental disabilities and resist any further such cuts."

With the Board of Revenue Estimates on Thursday revising tax revenue forecasts for fiscal 2010 downward by $683 million, more cuts are all but assured; with or without new revenue.

The impact of such cuts was evident at the Board of Public Works on Wednesday, where the planned February closing of the Upper Shore Community Mental Health Center took center stage. The closing of the Chestertown center, as part of the $454 million in budget cuts made last month, was expected to save the state about $8.4 million annually and include 90 job losses.

Lawmakers who represent the area said the planned shuttering of the center has generated concern that there is not enough private capacity in the rural region to transfer uninsured patients from state-run facilities.

Advocates for mental health and people with developmental disabilities have been vocal since the Board of Public Works slashed by 2 percent aid to community service providers, many of whom were already cash-strapped after years of inadequate funding.

This year, Sen. Richard S. Madaleno Jr. (D-Dist. 18) of Kensington and Del. William A. Bronrott (D-Dist. 16) of Bethesda sponsored a bill that would have used a 5-cent-per-drink alcohol tax to generate an estimated $80 million a year for services for people with developmental disabilities and drug and alcohol addictions.

The bill failed to receive committee votes in either chamber. Madaleno expects an "uphill battle" when he introduces the bill again in 2010. Given the bleak fiscal outlook, a sin tax "might be more palatable to some of my colleagues who are prone to support them," he said.

But he doesn't expect to get the support of anti-tax conservatives. “To those who want to run on a mindless anti-tax platform, one tax is just as evil as the next,” Madaleno said

That has not deterred health care advocates from continuing to push alcohol and tobacco tax increases as a way to expand Medicaid coverage.

Maryland increased its cigarette tax by $1 per pack as part of an expansion passed during the 2007 special legislative session.

The increase led to 74 million fewer cigarette packs being sold in Maryland in 2008, according to the Maryland Citizens' Health Initiative. The Medicaid expansion that the tax revenue funded resulted in 47,000 more Marylanders gaining health care coverage.

"The successes indicate we should continue to use alcohol and tobacco taxes for public health goals," said Vincent DeMarco, president of the Maryland Citizens’ Health Initiative.

DeMarco's group plans to again push legislation that would expand health care, in part through a 75-cent-per-pack increase to the cigarette tax and substantial hikes to taxes on beer, wine and distilled spirits that have not risen in 37 years.

Advocates say the dual benefit is that the increases would raise awareness of the health consequences of alcohol and tobacco consumption and would lead to fewer people drinking and smoking, all while raising revenue for health care.

Critics say the tax model leads to decreased revenues for health care as sales decline, and that the taxes unfairly target individual products.

Indeed, the Board of Revenue Estimates on Thursday reduced its estimated tobacco tax revenue by $18 million. BRE Director David Roose attributed the downward revision to higher state and federal taxes on cigarettes, as well as the long-term trend of people kicking the habit.

As revenue goes down, lawmakers will look for other products to tax, said Nick Manis, whose lobbying firm represents both Reynolds American Inc. and the 24-member Maryland Beer Wholesalers Association.

Services for the developmentally disabled should not be paid for through increased alcohol taxes, Manis maintained.

"It should be funded by the general fund" he said.

Staff Writer Alan Brody and Bobby McMahon of the Capital News Service contributed to this report.