St. Louis Public Radio: Tobacco companies bankrolling rival efforts to hike Missouri’s tobacco tax

By Jo Mannies • Apr 21, 2016
For all the talk about increasing Missouri’s tobacco tax to provide more money for education and transportation, the state’s two dueling tobacco-tax proposals appear caught in a longstanding dispute that has nothing to do with their objectives.

Tobacco companies are the chief donors to both initiative-petition campaigns that seek to increase the state’s 17-cent-a-pack tobacco tax, now the nation’s lowest. One would raise the tax by 23 cents a pack to pay for transportation improvements, while the other would hike the tax by 60 cents a pack to pay for early childhood programs.

In a nutshell, the dueling donations stem from a decades-long fight between the nation’s largest tobacco companies, and the smaller ones. The large tobacco companies are upset that Missouri’s laws currently allow small tobacco companies to avoid making the government payments imposed by a multi-state court settlement in place since 1998.

Missouri is the only state that still has such an exemption.
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Different tobacco interests have different reasons to support tobacco tax proposals.

Reynolds American Inc., the parent company of the RJ Reynolds tobacco company, has donated more than $2 million to the Raise Your Hand for Kids group that is championing the 60-cent-a-pack increase in Missouri’s tobacco tax.

Reynolds’ contributions represent over 90 percent of the money that the group has collected for its initiative-petition drive to put the proposed constitutional amendment on the November ballot.
Credit Curran | Flickr

A Reynolds American spokesman, Bryan Hatchell, says the company’s money reflects its support for Raise Your Hand’s objective to earmark the bulk of the tax hike for early childhood programs focused on education and health.

But Hatchell and Raise Your Hand executive director Linda Rallo acknowledge there’s another reason for Reynolds’ involvement: The initiative includes a provision that would impose an additional 67-cent-a-pack tax on small tobacco companies. The upshot is that those small companies would see their state tobacco tax shoot up by $1.27 a pack.

That added tax is aimed at closing the “loophole’’ that has allowed small tobacco companies to avoid the payments that the large tobacco companies have made to 46 states, including Missouri, as part of the 1998 court settlement. The states had sued the companies to recover some of their tobacco-related health-care costs tied to their Medicaid programs, which provide health care to the poor.

Missouri Attorney General Chris Koster has been lobbying the General Assembly for years to end the loophole. So far, legislators have not complied. The lack of action is costing Missouri about $50 million a year in lost payments from the tobacco settlement. A spokeswoman for Koster said he’s aware of the provision inserted into the Raise Your Hand initiative, but remains focused on his own legislative solution.

Rallo said that Reynolds executives approached her group last fall about adding the provision that would impose a higher tax on the small tobacco companies. Her group supports the proposal, she said, because small tobacco companies produce the low-cost cigarettes that can entice teens to take up smoking, thus endangering their health.

Small tobacco companies seek smaller tax hike

Meanwhile, a handful of small tobacco companies are bankrolling the rival initiative proposal sponsored by the Missouri Petroleum Marketers and Convenience Store Association. Association executive director Ron Leone calls its proposed 23-cent-a-pack increase “fair and reasonable, but still substantial.”

The association actively opposed previous tobacco-tax hikes proposed in 2002, 2006 and 2012. All failed to pass.

Leone said the small tobacco companies are financing this year’s petition drive because the firms are members of the association and have the money to help out. The companies include LPC Inc. of Fenton, Xcaliber International LTD, and Cheyenne International LLC.

Chuck Hatfield, the lawyer for Cheyenne, also links its involvement, in part, to its opposition to the 67-cent tax embedded in the Raise Your Hand initiative.

As Hatfield sees it, Reynolds’ interest in the rival effort has “never been about education. This (Raise Your Hand) initiative is about Big Tobacco wanting to tax their competitors. That’s what this has always been about.”

Rallo disagrees, saying leaders of the Raise Your Hand group have been working on their tobacco-tax proposal for years. The provision sought by Reynolds was a late addition, and never the prime focus, she said.

In that case, asserted Hatfield, the enticement may have been Reynolds’ generous financial help. “It may be that early-childhood education advocates decided to make a deal with the devil,’’ he said.

The fact that tobacco companies have gotten involved in both initiative campaigns doesn’t surprise state Sen. Jill Schupp, D-Creve Coeur, who’s been closely following the efforts. “They see (a tobacco tax hike) as inevitable and this way, they can control the amount that the state’s tobacco tax is raised.”

Raise Your Hand group faces other controversies

The Raise Your Hand For Kids’ proposal calls for phasing in the 60-cent hike over four years. When fully implemented, the higher tobacco tax would raise about $305 million a year for early childhood-development programs, Rallo said.

The group initially had a broad base of supporters, but some recently have peeled off because of objections to certain provisions in the initiative.

Washington University and the Missouri Cures Education Foundation have been contending for months that some wording in the Raise Your Hand initiative could threaten the state’s constitutional protections covering embryonic stem-cell research programs. Missouri voters narrowly passed those protections in 2006, despite vigorous opposition from some anti-abortion groups.

The wording in question bars any use of the tobacco-tax increase for abortions, human cloning or embryonic stem-cell research.

Missouri Right to Life said in a statement in February that it was satisfied with the Raise Your Hand’s wording and therefore would be neutral regarding the ballot proposal.

But Schupp and former state Sen. Chuck Graham, D-Columbia, say the language dealing with abortion and stem-cell research has prompted them to drop their support for the initiative.

Schupp contended that the Raise Your Hands effort has been “hijacked by anti-choice and anti-research extremists.”

“I think it’s really disingenuous to have done this and to make this (initiative) about more than what we thought it was about,’’ Schupp said.

Graham laid out similar objections in a letter sent to a mid-Missouri newspaper.

Rallo contends that such critics are misinterpreting the language.

“We feel that it will have absolutely no impact on the provisions of Amendment 2,” Rallo said, referring to the 2006 stem-cell research protections approved by Missouri voters.

The wording dealing with abortion and stem-cell research was added to the initiative, she said, because “the pro-life community had concerns. We just wanted to make very clear that none of the funds would be used for those purposes.”

“We wanted to improve the likelihood that we would win in November,’’ Rallo continued. “We believe the language we used gives us the best opportunity to do that.”

Private and parochial schools

Critics also are pointing to a provision in the initiative that allows the early-childhood money generated by the tax hike to go to private and parochial schools. They contend that may run afoul of the prohibitions in the Missouri constitution.

Rallo replied that in some cases, it’s “absolutely necessary to partner with private providers’’ for early childhood education services, especially in some rural areas.

“None of our funding will go for any kind of religious curriculum,” she said. “Our language is not unconstitutional, and it is practical.”

Transportation proposal attracting less attention

In contrast, there’s been little debate over the smaller tax hike proposed by the Petroleum Marketers and Convenience Store Association. Leone contends that’s because his group’s tobacco-tax proposal for transportation “is transparent’’ with no unrelated provisions.

The association’s initiative would change Missouri law, and not the state constitution, so it will need fewer signatures from registered voters to get on the ballot.

Leone and Rallo both say they’re confident their dueling proposals will garner enough signatures. Both groups must turn in their signatures by May 8 to the Missouri secretary of state’s office.

But before then, they may meet in court.

Hatfield represents a business plaintiff in a fight to block the Raise Your Hand initiative from getting on the ballot, even if it collects enough signatures. Hatfield said his client objects to the ballot wording and also raises some constitutional questions. A hearing is scheduled for next Thursday in Jefferson City.

If both tobacco-tax proposals end up on the ballot, and both are approved by voters, Leone maintains that the result would be that both hikes would go into effect — thus, increasing Missouri’s tobacco tax by 83 cents a pack (and by $1.50 a pack for the small tobacco companies).

But such an increase would still keep Missouri’s tobacco tax lower than at least 34 states.

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