Cigarette sales dive, hurting health funds

WARNING: Arizonans quitting smoking may be hazardous to the fiscal health of publicly funded programs that receive tobacco tax revenues.
Tucson Citizen
Friday, November 30, 2007
Heidi Rowley

Sales of cigarettes in Arizona have fallen by millions of packs since voters approved a big tobacco tax increase and a ban on smoking in bars a year ago

Tobacco tax revenue increased $57 million in the fiscal year that ended June 30, to $345.6 million.

But all of that increase, and more, went into a new fund for early childhood education. The fund received $74 million, nearly all the revenue from an 82-cent per pack increase approved by voters.

It means that other state funds and programs that get tobacco tax revenue, including the state's program to help people stop smoking and other health-care funds, have gotten less money.

And the end of the decline is not yet in sight, said Kevin McCarthy, president of the Arizona Tax Research Association.

"They are in the early stages of seeing diminishing returns," McCarthy said. "Their pots of money are only going to decrease over time."

McCarthy's group warned last year that the higher tobacco tax would present the state with a fiscal hazard.

In the last seven months of the 2006-07 fiscal year, cigarette sales fell so much that state funds dependent on tobacco tax revenues took in about $17 million less than they did in 2005-06.

The program for the poor is known as the Arizona Health Care Cost Containment System. It used money from the state general fund to make up for declining tobacco tax dollars this time out.

But the state's dark economic outlook and expected budget tightening could limit or eliminate that option in the future.

"It will be a much more discussed issue next spring as the state tries to deal with its overall picture," AHCCCS Deputy Director Tom Betlach said.

Even programs that help smokers quit are seeing their funding source shrink as the demand for their services increases.

The state tax increase on a pack of cigarettes, from $1.18 to $2, took effect last Dec. 1, after voters approval in November.

Eighty cents of the increase go to the Early Childhood and Development Fund, created by Proposition 203, known as First Things First for Arizona's Children.

Two cents go to Smoke Free Arizona, an education program in the state Department of Health Services focusing on the smoking ban in public buildings. That ban took effect effect May 1.

Sales of cigarettes in Arizona dropped 50 million packs, or 31 percent, in the first eight months of 2007, to 112 million packs compared to 161.6 million during the same period in 2006.

AHCCCS took almost $10 million from the general fund in 2006-07 because of the drop in tobacco tax money, spokeswoman Rainey Day Holloway said.

Although revenue from tobacco taxes is less than 1 percent of the agency's $7.5 billion budget, AHCCCS' Betlach said the agency monitors it regularly.

From July through October, the first four months of fiscal 2008, Betlach said, AHCCCS received $8.7 million less in tobacco tax revenue than in the same period last year. He said the Legislature will have to reassign funds to make up the difference.

AHCCCS has not had to cut any programs.

AHCCCS gets tobacco tax revenue through both the Tobacco Tax and Health Care Fund and the Tobacco Products Tax Fund.

The Tobacco Tax and Health Care Fund was created in 1994 when Arizonans voted to increase the cigarette tax by 40 cents a pack, from 18 to 58 cents, to pay for health care for the medically needy through AHCCCS, among other programs.

The Tobacco Products Tax Fund was created in 2002 when voters approved increasing the tobacco tax to $1.18 a pack to help fund AHCCCS and the state's trauma centers.

Together, the funds have shrunk more than $14 million with cigarettes sales down.

In addition to AHCCCS, the Tobacco Tax and Health Care Fund supports the Tobacco Education and Prevention Program, run by the Arizona Department of Health Services.

The Tobacco Education and Prevention Program funds local smoking cessation programs and the Arizona Smokers' Helpline.

Since Dec. 1 - when the new tax kicked in - the number of calls to the line has more than doubled, to 425 a week from 175, said Stephen Michael, director of the program.

Staff monitoring the line helps quitters by making weekly and sometimes daily phone calls of support. It also refers callers to local programs, such as Pima County's Tobacco Free Ways. The program has added 6 1/2 full-time positions since Dec. 1 to make and take calls.

"Demand for our program is going up," Michael said. "We've had to increase employees. . . . If more people are going to quit, you are going to have to put money into it."

Referrals from physicians to the line have increased to 750 a month from an average of 150 before the tax increase. A total of 2,700 referrals has come in since July, compared to 550 from July to November 2006.

About 40 percent of the people using line to quit are on the prescription drug Chantix, Michael said. The state pays for 50 percent, or about $60, of a 30-day supply. The state also will help pay for nicotine patches.

Byron Homer, administrative services officer for the Tobacco Education and Prevention Program, said the state is trying to lower the smoking rate from 20 percent of adults to 12 percent.

"It's frustrating," said Marcy M. Flanagan, senior program director of Pima County's Tobacco Education and Prevention Program. "If we're going to get the rate down, we're going to have to fund these programs."

As more people quit, the ones left are hard-core smokers who need costlier help.

"It might take more medical intervention to get people to quit," Flanagan said.

Tucsonan Phyllis Underwood, 49, called Tobacco Free Ways and enrolled two months ago in a six-week cessation program.

"I figure they're gonna drive everybody to not smoke anyway with all the laws they're making," Underwood said at her last class Nov. 13. She hasn't quit, but she is smoking less and will keep trying.

Michael expects even more calls for help in the coming months. The program traditionally helps more quitters from January to March as people make it a New Year's resolution.

"We know in January this will happen again," he said.

But cigarette tax revenue isn't likely to disappear altogether.

There are still people such as Rick Manke, 59, who was smoking less than 25 feet from a Great American Smokeout rally earlier this month.

He quit going to bars when the smoking ban started May 1.

Manke said he has smoked for 33 years and doesn't plan to quit regardless of the taxes.

"I figure I'd be better off if I quit," he said. "But I can still play (tennis) with the 18-year-olds, so why not?"