State moves to keep up fee

12/22/2005

BY PATRICK SWEENEY
Pioneer Press

Smokers, don’t expect to see a drop in the price of cigarettes anytime soon.

Lawyers for the state of Minnesota on Wednesday sought a court order allowing the state to continue collecting a 75-cents-a-pack “health impact” fee on cigarettes while appealing a ruling that the fee is illegal.

Gov. Tim Pawlenty challenged the legal reasoning behind the ruling and downplayed the impact on Minnesota’s budget if the state loses the $400 million the fee raises during the current two-year budget cycle.

“This is certainly a concern, but it is not a crisis,” Pawlenty said. “It is manageable. … This is a small part of a very large budget.”

On Tuesday, Ramsey County District Judge Michael Fetsch struck down the health impact fee, which went into effect Aug. 1. Fetsch said the new fee, which seeks to recover money the state spends on health care for smokers, is barred by a multibillion-dollar court settlement the state entered into in 1998.

Fetsch said the fee was an attempt by the Legislature and Pawlenty to force cigarette manufacturers to pay health care costs they already have paid, and are continuing to pay, through the 1998 settlement.

Assistants to Attorney General Mike Hatch filed a motion late Wednesday, asking Fetsch to temporarily halt enforcement of his ruling so the state can continue collecting the 75-cent charge on cigarettes during an appeal. A hearing on that motion will be held Jan. 18.

Kris Eiden, a top assistant to Hatch, said the attorney general’s staff also is preparing appeals of the case and would ask the state Supreme Court, perhaps as early as today, to allow the appeal to bypass the state Court of Appeals.

Pawlenty said the 1998 court settlement, which was struck by former Attorney General Hubert Humphrey III and approved by a district court judge, should not bar the Legislature from imposing additional fees on cigarette manufacturers and wholesalers. Allowing an attorney general to tie the hands of future Legislatures would provoke a constitutional crisis and “simply defies Civics 101,” Pawlenty said.

Fetsch said the state, like any other party to a contract, is bound to hold up its end of a bargain.
Can the state win an appeal seeking to reinstate the health impact fee?

Two Twin Cities legal experts predicted Wednesday the state can win.

“The Legislature has the sovereign and constitutional power to enact legislation and to determine the state’s fiscal and revenue policies,” said Doug Blanke, who directs the Tobacco Law Center at the William Mitchell College of Law. “That’s not something the attorney general can diminish or give away in a legal settlement.”

Blanke was an assistant attorney general under Humphrey and was one of the signers of the 1998 settlement. The Tobacco Law Center receives much of its funding from groups and governmental agencies attempting to curtail smoking.

Fred L. Morrison, a University of Minnesota professor of constitutional law, said the state might succeed with its appeal — but only if its lawyers take a tack they did not pursue with Fetsch and argue that the health impact fee is indistinguishable from a tax.

“The way to win on appeal,” Morrison said, “is to describe it as a tax, because neither the Legislature nor the attorney general can give away the power to tax.”

The question whether the health impact charge is a fee or a tax is a sore point with Pawlenty. He made a 2002 campaign promise to veto any tax increase, a promise he mostly kept through big budget deficits in 2003 and 2004. Then last May, he proposed the 75-cents-a-pack charge on cigarettes but insisted lawmakers structure it as a fee, not a tax.

Fetsch said the health impact charge is undoubtedly a fee that is tied to health care costs. He also said the tobacco companies that challenged the fee would have had no case if lawmakers and Pawlenty had chosen, instead, to raise the state’s 48-cent excise tax on cigarettes.

Pawlenty on Wednesday did not rule out the possibility of working with legislators to change the fee into a tax, but he said: “I don’t like, and don’t support, tax increases.”

If the state does not win an appeal, “one option is to do nothing,” Pawlenty said. In that case, the state would cover the lost fee revenue with a predicted budget surplus. Pawlenty also hinted again that he might be able to administratively change the law, without action by the Legislature, to collect the fee at the retail level. That, he said, would remedy problems Fetsch had with the law because it collected the fee from consumers and not the tobacco companies that were parties in the 1998 settlement.

Legislative reaction Wednesday to Fetsch’s ruling was mixed.

Rep. Matt Entenza of St. Paul, the leader of the Democratic-Farmer-Labor minority in the House, urged Pawlenty to quickly meet with legislative leaders to discuss budget options. Two other top leaders — House Speaker Steve Sviggum, R-Kenyon, and Senate Majority Leader Dean Johnson, DFL-Willmar — called for a wait-and-see approach.

Johnson and Sviggum said the Legislature should take no action until after the Supreme Court rules on an appeal.

Republican Sen. Tom Neuville of Northfield said the tobacco fee hits hardest at low-income people. Neuville said he would be willing to consider a 25-cent increase in the cigarette tax but would oppose turning the 75-cent health impact fee into a tax.

“I can’t see us passing another $400 million tax increase on 20 percent of the citizens of Minnesota,” Neuville said.