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Panel floats a tax hike to shield tobacco funds

By JO BECKER

© St. Petersburg Times, published April 14, 2000


TALLAHASSEE -- Two words rarely heard in the Republican-controlled Legislature were uttered Thursday with enthusiasm:

Tax increase.

A panel of state senators floated the idea of a cigarette tax hike Thursday as a way to fill the state's coffers if tobacco companies go bankrupt.

Sen. Jim Horne, an Orange Park Republican considered among the most fiscally conservative lawmakers in the Capitol, signed up to draft the cigarette tax proposal.

It is unclear whether the Legislature would be willing to pass a tax increase in an election year. But the fact that the unthinkable has even been spoken is a clear sign that, amid conflicting advice, lawmakers are flummoxed over how to protect the state's multibillion-dollar settlement with tobacco companies.

Lawmakers are concerned that the $17.4-billion the state expects to receive from the tobacco industry over the next 30 years is in jeopardy because of a huge class action lawsuit in Miami.

A jury last week awarded $12.7-million in compensatory damages to three representative smokers and is scheduled on May 15 to begin the next phase of the trial -- awarding punitive damages for as many as 500,000 Floridians.

The fear is that the award could near $300-billion, potentially bankrupting tobacco companies and stopping payments to the state.

Senators appeared Thursday to be leaning toward protecting the companies by limiting the amount of the bond required during any appeal of a punitive damages award. Several other states have taken that approach.

But in Florida, the vote between doing something and doing nothing is extremely close.

The Senate panel rejected a proposal to cap the amount of punitive damages tobacco companies would have to pay in any given year.

Lawmakers also heard from critics who argued that the state should do nothing to help companies whose products kill.

"The tobacco industry has been found guilty in a court of law, and the courts should be allowed to handle this phase without interference from the Legislature," a coalition of anti-smoking groups wrote to Gov. Jeb Bush.

Neal Roth, president of the Academy of Florida Trial Lawyers, said the tobacco companies are fueling unfounded bankruptcy concerns in a "Chicken Little ploy."

The law doesn't allow punitive damages that bankrupt a company, Roth told lawmakers.

He also said the plaintiffs' attorney in the Miami class action personally assured him that he would do nothing to bankrupt tobacco companies because he wants his clients to get paid.

Lawmakers also are considering a proposal by Bush that would hedge the state's bets.

He wants to sell $9-billion of the state's tobacco settlement to investors, who would assume the risk that tobacco companies would make the payments. The state would get $2.8-billion upfront, which it could invest.

Even at a good rate of return, however, the state stands to lose hundreds of millions because the transaction would involve huge payments to lawyers, bond experts and others.

That led to Thursday's unlikely talk of a cigarette tax increase.

Sen. Locke Burt, the Senate's chief budget writer and another fiscal conservative, said the state could immediately hike the cigarette tax by as much as 10 cents to pay the cost of selling off future tobacco revenues.

Burt said the higher cost of cigarettes would have the added benefit of reducing teen smoking.

Burt and Horne are considering another option that would obviate the need for selling future tobacco revenues: The state automatically would increase the cigarette tax if any one of the four big tobacco companies that owe the state goes bankrupt or fails to make payments. The tax would increase just enough to offset the money the state lost.

"I view this as a form of self-insurance," Burt said. "I think it's an idea we ought to explore.

The tax proposals took Carol Licko, the governor's top lawyer, by surprise. She said she did not know how he would react.

"I'm sure he'll be interested to hear about it," she said.

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