House Finance Committee members Thursday snuffed out a cigarette tax increase (SB 420) on a 21-3 vote, leaving a $170 million hole in the 2016-17 budget with no immediate funding alternatives to overcome the shortfall.
"We're turning into a little D.C.," said House Finance Chairman Eric Nelson, R-Kanawha, comparing the Legislature to ongoing impasses in Congress. "It's extremely scary, and it's unfortunate."
As passed by the Senate on a 26-6 vote, the bill would have raised $115.3 million a year by increasing the cigarette tax by $1 a pack, to $1.55, raising the tax on other tobacco products from 7 percent to 12 percent and imposing a new tax on e-cigarette liquids.
Thursday afternoon, though, House Finance members stripped out the other tax increases and reduced the cigarette tax increase to 45 cents a pack - the amount originally proposed by Gov. Earl Ray Tomblin, which would have raised about $71 million a year in new tax revenue.
By Thursday evening, a coalition of delegates who thought the 45-cent tax was too low to discourage smoking and delegates who opposed any tax increase at all combined to crush the bill, with only three delegates - Bill Anderson, R-Wood; Cindy Frich, R-Monongalia; and Carol Miller, R-Cabell - voting for it.
Nelson said the bill was dead.
"We've got a [budget] hole of at least $170 million with no revenue increases," he said. "It's tough. It's extremely tough."
During debate Thursday, some members, including Delegates Mick Bates, D-Raleigh, and Nancy Guthrie, D-Kanawha, pushed to keep the $1 a pack increase in the Senate bill, calling a 45-cent increase a "half-measure" that would not effectively discourage smoking or raise sufficient revenue to fully fund state Public Employees Insurance Agency health coverage for government workers and retirees.
"I think the Senate showed some real leadership and some courage," Guthrie said.
Conversely, members including Delegates Marty Gearhart, R-Mercer, and Eric Householder, R-Berkeley, argued against any tax increase.
"Make no mistake, this bill is not about eliminating smokers," Gearhart said. "This is, in fact, a tax measure."
Several delegates, including Gearhart, raised concern that higher cigarette taxes would hurt retailers in border counties.
"With all due respect," Dr. Clay Marsh, vice president for health sciences at West Virginia University, told committee members, "I don't want to be known as the state where people come to buy their cigarettes."
Anderson tried, unsuccessfully, to persuade colleagues that a 45-cent-per-pack increase would be a reasonable compromise.
"I've been here a long time, and I know there's a difference between what you would like to see and what can pass the House," he said. "I sincerely doubt $1 can pass the House, and I think 45 cents can."
Earlier Thursday, the executive director of PEIA reiterated that $43.5 million is needed in the state budget this year for employer premium increases to avoid $120 million in massive benefit cuts for employees and retirees.
Ted Cheatham said PEIA also will need major additional funding in future years to keep up with increasing medical and pharmaceutical costs, now that the plan has spent down its reserve funds.
"I need $50 [million] to $60 million of new revenue every year in perpetuity, because there's no reserves," Cheatham said.
Additionally, he said, the pay-as-you-go plan for retiree benefits, which currently requires $180 million a year, will need to balloon to $330 million a year by 2036, as retiring Baby Boomers add 10,000 retirees to PEIA rolls.
Reach Phil Kabler at philk@wvgazettemail.com, 304-348-1220, or follow @PhilKabler on Twitter.