Cigarette fee might hurt AHC

Than Tibbetts

University officials estimate millions of dollars of state funding for the Academic Health Center could be lost if lawmakers approve the proposed 75-cent user fee on a pack of cigarettes.

Gov. Tim Pawlenty proposed the “health impact fee” to packs of cigarettes in May to buoy the state’s budget with approximately $380 million in state revenue.

While adding a new source of state money, officials said, the price hike would likely also discourage smoking and shrink overall cigarette consumption.

University officials said it would decrease state funding for the center, which receives 6.5 cents per pack sold. The center received $21 million from cigarette taxes in 2005.

Brian McClung, Pawlenty’s press secretary, said the governor made the proposal “in an effort to compromise and to bring closure to the work of the 2005 Legislature.”

University officials responded by saying money from tobacco sales funds important center programs, and the state might have to change how it appropriates money to the center.

With a 75-cent “fee,” state financial officials estimate 45 million fewer cigarettes will be sold in the state, leaving the center with approximately $3 million less in funding.

Though the cigarette sales appropriation is a small portion of the center’s budget – with $687 million revenue in 2004 – the money is used to fund some important initiatives, said Beth Nunnally, the center’s chief financial officer.

Smoking has already been decreasing, she said, but the increase in the price of cigarettes would result in a quick drop in sales.

“That would be positive from a public-health perspective,” she said. “But the flip side is that from a financial perspective, the revenue stream to the Academic Health Center is also diminishing over time.”

The center uses the tobacco money to pay for programs in the Medical School, programs to increase the nursing workforce in the state, community-based education and hiring new faculty members.

For the center to remain at its current funding level, the cigarette tax would have to be increased by approximately 7.5 cents per pack, according to the state’s calculations.

When the state reached a $6.1 billion settlement with the tobacco industry, part of the money was set aside to provide an endowment for the center.

Richard Pfutzenreuter, the University’s chief financial officer, said lawmakers raided the tobacco endowment to fix the state budget crisis in 2003.

The 6.5-cent tax was instituted as a replacement solution for the endowment, he said.

University officials estimate their share of the tobacco tax would have to be increased to approximately 10 cents per pack to return to the prebudget-crisis funding level.

Rep. Phyllis Kahn, DFL-Minneapolis, said this type of funding scheme shows the problem that exists with dedicated taxes.

“If the Academic Health Center isn’t totally delighted that the consumption of cigarettes is going down, then they’ve got their priorities totally out of place,” she said.