EagleTribune.com, North Andover, MA

July 8, 2012

NH's tobacco tax revenues plummet

By Doug Ireland

There are no ifs, ands or "butts" about it.

Reducing New Hampshire's tobacco tax was a big mistake, according to state Democrats..

The 10-cent-per-pack cut was touted by Republican leaders as a way to increase state revenues by stimulating cross-border sales.

But the year-old tax reduction failed to live up to expectations — falling $11.5 million below projections.

With the fiscal year ending a week ago, figures from the state Department of Administrative Services show a $20.1 million drop in tobacco tax revenues.

The tax produced $212 million in revenue in fiscal year 2012, down from $232 million in fiscal year 2011. The 10-cent cut was enacted July 1, 2011.

The reduction was expected to draw more people from Massachusetts, where the tax is $2.51 per pack of cigarettes compared to $1.68 in New Hampshire.

Democrats such as Sen. Lou D'Allesandro of Manchester said they still question why the Republican-led Legislature would support such a measure.

"I just didn't think it made any sense," D'Allesandro said. "They (Republicans) ought to come up with the $11.5 million it was down."

D'Allesandro said cutting the tax and other levies was unwise at a time when the state is strapped for cash.

Overall, state revenues are $26.6 million below projections, although the state's hospitals still owe $34 million in Medicaid enhancement tax payments.

Other critics include Democratic Gov. John Lynch and Rep. Susan Almy, D-Lebanon.

Colin Manning, the governor's spokesman, said Lynch has strongly opposed the move. Reducing a tax leads to less revenue, he said.

"It's certainly not a surprise," Manning said Friday. "That's just one of the reasons why the governor did not support that budget."

Almy, House policy leader for the Ways and Means Committee, agreed the tax cut was ill-advised.

"On the face of it, it's totally absurd," she said. "They (Republicans) have decreased taxes by a huge amount that can't be made up."

New Hampshire Democratic Party spokesman Collin Gately said GOP legislators cut much-needed funding for programs, including the state university system, while gutting a revenue source.

"The revenue report clearly illustrates how New Hampshire Republican lawmakers have the wrong priorities for New Hampshire's middle-class families and economy," he said. "They have made it harder to afford college but easier to afford cigarettes."

GOP supports tax cut

But Republicans continue to maintain the reduction will pay off in the long run, providing a major economic boost.

"If I had to do it over again, I would do the same thing," said Rep. Peter Silva, R-Nashua.

Silva, who replaced D.J. Bettencourt as House majority leader this spring, said it's too early to cast aspersions on the tax cut.

Despite the 8.7 percent decline in tobacco tax revenue, Silva said store owners have told him the reduction has boosted their business.

"The people I have talked to said it has helped them," he said.

His predecessor, Bettencourt, was also a strong supporter of the tax cut.

The Salem Republican was accompanied by House Speaker William O'Brien, R-Mont Vernon, and six other GOP proponents from Salem and Windham at a press conference last fall.

The two Republican leaders gathered at Klemm's Mobil in Windham — owned by former Senate President Arthur Klemm — to defend the cut.

They said it was too soon to dismiss the two-year reduction, which can be repealed next year if lawmakers choose.

"The New Hampshire House has — and will continue to make — our New Hampshire stores more competitive," O'Brien said. "We want to attract more cross-border customers to New Hampshire.

Business backs reduction

The lawmakers were joined by John Dumais, president and CEO of the New Hampshire Grocers Association.

Dumais said criticism of the tax cut was unfair, saying it helped spur tobacco sales at a time when higher food, energy and transportation costs are hurting his industry.

Dumais reiterated that view Thursday. Both Dumais and Silva said rising gasoline prices over the last year severely hurt sales.

"With the high gas prices, consumer spending has been down," Dumais said.

He said roughly 60 percent of all store sales are to out-of-state customers.

So lowering the tobacco tax to help increase cross-border sales was the right thing to do, Dumais said.

He said he's hopeful a recent drop in prices at the pump will help fuel store spending.

"We're encouraged that this summer we can make up a good part of that (revenue decrease) in the next fiscal year," Dumais said.

Several local store owners and managers, including some in the border town of Salem, have said the tax cut didn't help their business.

The 10-cent cut is roughly a $1 decrease per carton. The idea was that Bay State residents would buy other items when they crossed the state border to purchase tobacco.

But within 24 hours of the tax cut, manufacturers raised prices 10 cents a pack — negating the benefit.

Kevin Waterhouse, owner of Waterhouse's Country Store in Windham, said Friday that his store and others were hit hard by the recession.

But Waterhouse, also a GOP member of the House, said he still supports the tax cut.

"It definitely does bring people over the border to shop," he said. "I think what we did was sufficient."

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