Industry giant weighs in on the debate over Cville cigarette tax increase

Mike Brown, owner of Brown’s Market, says the city’s plan to increase its cigarette tax will hurt his bottom line. Photo: Christian Hommel Mike Brown, owner of Brown’s Market, says the city’s plan to increase its cigarette tax will hurt his bottom line. Photo: Christian Hommel

The City of Charlottesville is looking to raise its tax on cigarettes from 35 to 55 cents a pack, a move officials say will make the city healthier by encouraging people to kick the habit while also boosting revenue. But some local convenience store owners are irate about the hike, saying it means they can’t compete with retailers in the county—and they’ve got a deep-pocketed ally in their corner.

“It’s common sense that this could harm your business,” reads a flyer delivered by a Philip Morris supplier to Brown’s Market on Avon Street. At the bottom of the flyer, in small, italicized print, is this line: “Paid for by Altria Client Services, Inc. on behalf of Philip Morris USA.”

The flyers, which suggest retailers and customers call their city councilors to complain that “taxes should be reasonable and the burden should be shared by everyone, not just adult smokers,” were indeed provided by Altria, the Richmond-based tobacco giant whose lobbying arm spent $10.2 million last year attempting to influence policy around the country. Altria happens to have two board members who call the Charlottesville area home—former UVA president John Casteen III and former Virginia Governor Gerald Baliles. Neither returned requests for comment on this story. But Altria spokesman David B. Sutton said it’s not unusual for the company to get involved in local politics when cigarette taxes come into play.

“We generally do make the trade aware when we’re informed of a proposal,” Sutton said.

The cost of Altria’s flyering in Charlottesville might be a drop in the bucket compared to its total lobbying budget—Sutton wouldn’t quote numbers, but said the expense was “minimal.” But Brown said the tax increase is a big deal. Cigarettes are already more expensive in Charlottesville than in surrounding Albemarle County, which has no local tax on tobacco. Bumping the per-pack price difference up to 55 cents will make people drive right past him and over the line into Albemarle, said Brown.

“I had a customer tell me that she’d go to the county to buy her cigarettes,” he said.

And with that customer goes the money she would have spent on other things, like gas and snacks. Cigarettes are “one of the big three” revenue drivers, Brown said, along with deli and drink sales, that get people in the door.

City spokeswoman Miriam Dickler said staff didn’t estimate the impact the proposed tax would have on the sale of other items at local stores. But the city concedes cigarette sales will go down—in fact, they’re counting on it. The total projected cigarette tax revenues for the 2015 fiscal year of $850,000—a $265,000 increase over this year—factors in a 20 percent decline in cigarette sales, Dickler said. That’s about the same drop the city saw after its last increase in 2008.

And that’s kind of the point, according to supporters of the increase. It’s part of Charlottesville’s goal of becoming “one of America’s healthiest cities,” according to the staff report attached to the ordinance.

Taxes do work as behavior modification, City Councilor Kristin Szakos said at a public hearing on the proposal this week. “We’ve seen studies that show a 10 percent rise in price reduces smoking 5 to 10 percent, and in youth smoking it’s the highest,” she said.

A tax increase is also justified, she said, because it offsets the public drain of funds that results from tobacco addiction.

“The U.S. Centers for Disease Control has estimated that smoking-caused health costs and lost productivity cost the public $10.47 a pack,” Szakos said. “It is a public expense when people smoke, and we’re supposed to pick that up. For us to assess 20 cents for us to recoup some of the public expense on cigarettes is perfectly within the realm of reason,” especially considering the state average for local cigarette taxes is 44 cents.

What’s less clear is whether the city will reap the revenues it’s hoping for. The tobacco industry has long railed against excise taxes on cigarettes, pointing to studies that show revenues from state cigarette taxes often fall short of what’s expected.

But what about Virginia, where 88 municipalities and two counties impose a tax on cigarettes?

As Dickler pointed out, a number of municipalities in the Commonwealth have increased their existing local cigarette tax in recent years—Alexandria and Salem in 2013, and Manassas, Leesburg, and Haymarket in 2011.

“We do not know what effect those changes had on the sales in those localities,” Dickler said.

With fewer than 2,000, the town of Haymarket is not exactly Charlottesville’s population peer, but its history with taxing cigarettes offers a window on what could happen.

In 2006, revenues from Haymarket’s 30-cent-per-pack local tax were coming in well below projected numbers. That year, the town budgeted for $224,300 in revenues from the tax, but actually took in $160,737.

The recession didn’t help. When officials were drawing up the 2009-2010 budget, they noted cigarette tax revenues had “declined steadily,” and projected it would bring in only $144,416 in 2010.

Then came the hike. In 2011, Haymarket’s cigarette tax went up to 50 cents, a 20-cent increase similar to the one Charlottesville is proposing. Fiscal year 2012 saw Haymarket’s cigarette tax revenues jump to $267,796. They’ve since fallen short of expectations; the town budgeted for $250,000 in revenues for 2013, but took in $232,817—only 3.8 percent more than it had projected in 2006.

Considering the 2013 cigarette tax haul was supposed to amount to 17 percent of the town’s operating revenues, it may not come as a surprise that the town is considering upping the tax again, this time to $1 per pack.

“We are being optimistic about a revenue increase and at the same time…we figure if it discourages resident smokers, that is a good thing,” said Haymarket Town Manager Brian P. Henshaw.

Sutton, the Altria spokesman, said such small-town taxes just don’t work from a revenue standpoint, for the very reason Brown’s customer gave. “It’s easy for the consumer to avoid that tax,” Sutton said. “They can just go outside the city boundaries.”

Some Charlottesville retailers aren’t so worried. Tony Lechmanski works at Lucky 7 on Market Street, and said he’s seen prices tick upward with no noticeable effects.

“I think with cigarettes, it doesn’t matter,” he said. “They can go up by $2, and everyone will say, ‘I’m quitting smoking!’ And they never quit smoking.”

But location plays a role in riding out those increases, Lechmanski said. Proximity trumps price for a lot of his customers, and Downtown smokers will probably still keep coming in the door, he said. There may even be a boost, considering CVS—one of the few stores currently selling cigarettes on or near the Mall—is due to stop marketing tobacco in October.

“I don’t think people are going to make the trip from here all the way to the edge of town,” Lechmanski said.

Brown doesn’t share his confidence. The way he sees it, his supplier’s lobbying effort—relatively low-budget as it might be—is spot-on with its message: Taxing tobacco is bad for his business. And when it comes to that behavioral change the city says it’s encouraging, big tobacco and the little guy are probably on the same page.

“Hopefully, people will keep buying them,” Brown said. “We can’t go down on prices any more than we already have.”

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