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Cigarette, liquor taxes could rise suddenly

FRANKFORT — Kentuckians could be paying more for cigarettes and alcoholic beverages as early as next Saturday.

State lawmakers said Friday they are considering increasing the state's cigarette tax by as much as 50 cents a pack and raising the tax on alcoholic beverages on either the wholesale or retail level.

The top two legislative leaders — Senate President David Williams and House Speaker Greg Stumbo — said they hope their chambers can present to Gov. Steve Beshear by next Friday a revenue-producing bill and a budget bill that could take effect immediately.

They told reporters after meeting privately with Beshear that they expect to have a specific plan by Monday or Tuesday to tackle a projected $456 million budget shortfall in this fiscal year, which ends June 30.

The Democratic-controlled House would like to see a blend of higher taxes on cigarettes and alcohol, Stumbo said.

Williams, R-Burkesville, said he thinks his chamber will manage to generate the $81.5 million in new revenue Beshear has requested, but he stopped short of saying how that should be accomplished.

The legislative leaders also seem willing to go along with the cuts Beshear proposed for state agencies. He suggested 4 percent cuts for most state agencies, excluding basic school funding and Medicaid, and only 2 percent cuts for higher education.

However, Stumbo and Williams said they hope to avoid Beshear's proposal to furlough state workers for three days and to transfer a surplus in the coal severance tax fund. Those two moves would have generated $25.5 million for the state's General Fund.

Beshear spokeswoman Jill Midkiff said the governor continues to work with legislative leaders "to forge an agreement."

"We're confident such an agreement is around the corner," she said.

Concerning the cigarette tax, Stumbo said he expects the state's current 30-cents-a-pack tax to go up no more than 50 cents.

Beshear recommended a 70-cent increase. Several legislators said Friday that they expect the tax increase to be somewhere between 30 and 40 cents.

Those who support Beshear's plan say even a 50-cent jump will not make a dent in Kentucky smoking rates, particularly among young smokers, who are more likely to quit or not start if cigarette prices are high.

"Sixty-eight percent of voters support Gov. Beshear's 70-cent increase," said Tonya Chang of the Kentucky Heart Association.

A less-than-70-cent increase will not result in the 16 percent drop in teen cigarette smoking that studies show would occur if Kentucky raised its cigarette tax to $1, Chang said.

Concerning taxes on alcohol, Stumbo said he favors a measure sponsored by Rep. Rick Nelson, D-Middlesboro, that would raise the wholesale tax on all alcoholic beverages from 11 percent to 20 percent.

House Bill 166 would generate between $67 million and $70 million a year, Nelson said.

The tax hike generally means raising the cost of alcoholic beverages by a nickel for every $1, he said.

The Distilled Spirits Council of the United States, which opposes any increase on alcoholic beverages, has said the proposal is tantamount to "a tax on the entire hospitality industry — negatively impacting restaurants, hotels, bars, nightclubs and liquor stores and the thousands of men and women they employ."

Jay Hibbard, vice president of the council, said Nelson's bill would cause sales revenue in the hospitality industry in Kentucky to drop by about $77 million and destroy 1,300 jobs.

State Rep. Steve Riggs, D-Louisville, filed an amendment Friday to Nelson's bill that would direct all state tax revenue from alcohol sales to the counties and communities that collect them.

He said the state has "a very unfair situation that takes alcohol taxes from wet communities and gives them to dry communities."

"I certainly respect the fact that many Kentuckians oppose local alcohol sales, but I also believe that they should not expect any benefit from them, either," Riggs said.

Nelson said he considers Riggs' measure "simply a protest on what I'm trying to do."

The state has 49 counties that are completely dry, meaning they do not allow any sale of alcoholic beverages, said the Alcoholic Beverage Control Board.

Rep. Eddie Ballard, D-Madisonville, said that adding the alcohol tax to the revenue plan is more palatable to him and other rural legislators.

"I think they're willing to accept something like that — just the fact that they're going to spread it out rather than just concentrating on the people that smoke," Ballard said.

Rep. Dennis Keene, D-Wilder, whose district is just across the Ohio River from Cincinnati, said areas such as his, where retailers sell a lot of alcohol and cigarettes to out-of-state people, won't like the added taxes on both products.

"But we have to weigh it all out with what the greater good is," Keene said. "We can't lay off teachers. Education has to be taken care of."

Stumbo, who was elected House speaker last month, said a bill he's been pushing to allow electronic slot machines at racetracks is not part of any agreement on the budget.