BUDGET UPDATE: Lawmakers Resume Talks In Rare Meeting

FRANKFORT, Ky. (AP) - Though the prospects appear grim, anti smoking advocates still are holding out hope that Kentucky lawmakers will increase the state's tax on cigarettes.

Legislative leaders, meeting in a government office building next door to the Capitol, have been debating whether to raise the cigarette tax by 25 cents a pack to generate additional revenue to help offset a projected $900 million budget deficit over the next two years.

"It it were a fish, it would be probably turned over and little bubbles coming up," House Speaker Jody Richards said of the proposal to raise the cigarette tax. "It's got problems."

Richards and other House budget negotiators favor the hike. Senate lawmakers are resisting the proposal.

"We hope it's not dead," said Tonya Chang, a Kentucky lobbyist for the American Heart Association. "If it is dead, it's really a missed opportunity."

House and Senate lawmakers have been in talks for most of the past week, trying to agree on a two-year budget totaling nearly $19 billion. A sagging economy sent state revenues into a nosedive over the past year, and state economists aren't projecting a turnaround anytime soon.

Gov. Steve Beshear said state government faces major cuts unless lawmakers agree to raise the cigarette tax. The cuts, he warned, would hit social service and health programs as well as public education.

To avoid the cuts, Beshear proposed a cigarette tax hike of 70 cents a pack to generate nearly $200 million a year. That money, he said, could be used to finance hundreds of millions in bonds to fill the revenue gap.

House lawmakers refused Beshear's proposal, endorsing instead the 25-cent hike. The Senate, however, has been unwilling to consider a tax increase of any amount.

The state now has one of the lowest cigarette taxes in the nation at 30 cents a pack, which generates tax revenues of $165 million a year.

A tax hike of any amount isn't popular among Kentucky smokers.

Mary Helen Hodge, manager of Bo's Smoke Shop in Bardstown, said singling out cigarettes for higher taxes is unfair.

"If they're going to tax one person, tax everybody," she said. "Why not put a bigger sales tax on and make everybody pay, instead of just targeting smokers?"

Hodge said the proposed tax hikes could raise the price of Marlboro cigarettes - the most popular brand among customers at her store - to between $3.30 and $3.75 a pack.

Democratic state Rep. David Watkins, a physician from Henderson, said he believes increasing the cigarette tax is not only a good financial idea but also an effective means to cut the smoking rate in a state where more than a fourth of residents regularly light up.

Lawmakers have traditionally frowned on higher cigarette taxes, Watkins said, because tobacco has been an important cornerstone of the state's economy. Kentucky is one of the nation's largest tobacco producers. Until it was increased three years ago, the state's cigarette tax was 3 cents a pack, the lowest in the nation.

"We believe this is an issue that the legislature should deal with, whether we're facing record deficits or record surpluses," Chang said. "To us, it's really about reducing smoking."

Besides the cigarette tax, House Democratic lawmakers have proposed restructuring the state's debt to save money. Doing so
could mean an additional $300 million for the state over the next two years, said state Rep. Harry Moberly, D-Richmond, chairman of the House Appropriations and Revenue Committee. The Republican-led Senate hasn't agreed to go along with that plan.

Senate Republicans are calling for the Kentucky Lottery to turn over about $110 million in additional revenues during the next two years to help offset the projected budget shortfall. House lawmakers have balked at that idea, fearing it could reduce the size of jackpots and hurt sales.

One bright spot for budget negotiators: State officials are projecting a flood of retirements, perhaps as many as 3,000, that would cut personnel costs by about $170 million over the next two years.

"Without additional revenue, we're going to devastate our social programs," Watkins said. "We've got a significant deficit, and they're going to have come up with real revenue. The only realistic revenue I see is from a cigarette tax. I just don't think we have any choice."

Lawmakers had promised to open the budget negotiations to the public -an about face from past years when hallways were roped off, windows were covered over with paper and state police stood guard.

On Saturday, they met privately in small groups most of the day. They were expected to reassemble for a public session about 4 p.m. EDT.
The legislation is House Bill 406.

(Copyright 2008 by The Associated Press. All Rights Reserved.)

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