Wednesday, May 6, 2009

Cigarette Tax Increase Passed

This afternoon, the House approved the conference report on HB 364, a final vote on increasing the cigarette tax. The final cigarette tax increase was 50 cents to a total of 68 cents.

The vote was 102-18. The entire Hattiesburg delegation voted for the conference report.

And...we're back.

This morning a few of us arrived early for the reconvening of the 2009 Regular Session. On the agenda are a final vote on a cigarette tax increase, voting on the final FY 2010 budget and eminent domain. It's still unclear whether conferees will reach an agreement on a hospital assessment for Medicaid.

This morning, Governor Barbour briefed House and Senate legislators on the his 2010 Modified Budget Recommendation. When we left, the estimated deficit for FY 2010 was $400 million. Over the course of a few weeks, that number crept up to $480 million.

As we have seen from our federal government, budget deficits happen because of spending too much or revenue not coming in as estimated. Mississippi's Constitution forbids the state to carry any sort of deficit, hence Governor Barbour's budget cuts earlier this year. Because of the bad economy, the Governor's office does not anticipate tax revenues to recover in the next couple of years. Traditionally, Mississippi's economy, as with many other states, is the last to recover from a recession. So the bad news is that the state will have to be frugal for the next few years, which probably is not a bad thing.

To make budget and preserve things like education and public safety, the Governor proposed filling the gap with stimulus money, a cigarette tax (which will probably be passed later this afternoon) and using approximately $90 million of the state's Rainy Day Fund each of the next four years (the fund has approximately $350 million currently). The Governor also made a strong push for the legislature to pass a $90 million hospital tax to provide a more stable funding mechanism for Medicaid. He also pushed for us to set aside some Medicaid funding for the next two years to fund the program in FY 2011, when stimulus dollars run out.

Also, to my surprise, he proposed an additional increase in cigarette taxes for those tobacco companies who were not involved in the tobacco settlement in the 1990's, as well as an increase in smokeless tobacco, in order to sufficiently fund the state's car tag fund for the next few years. Pending today's passage of the cigarette tax increase, the fund will be made whole for this year. Governor Barbour's proposal would ensure that the fund would be full until the state's budget recovers from the recession.

We'll see how these issues shake out over the next 2-3 days. No one knows how long we'll be here, but many of us are hoping for a conclusion by the end of the week.