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Big Tobacco moves closer to Florida pack tax hike

TALLAHASSEE — Big Tobacco appears more ready than ever to accept a higher cigarette tax in Florida — but only in return for an extra fee on a rising competitor: Dosal Tobacco Corp.

The Opa Locka discount manufacturer has exploded into a statewide market force on the strength of its dirt-cheap "305s'' cigarettes. Dosal has undercut competitors largely because it doesn't have to pay settlement fees from the state's tobacco lawsuit over deceptive marketing and the cost of treating sick smokers.

Reynolds American, Philip Morris USA and Lorillard Tobacco Company still pay into the $11.3-billion 1997 tobacco settlement. They want Dosal to pay the fee as well, at a cost of up to 50 cents more per pack. Dosal says it shouldn't pay because it was dismissed from the tobacco suit.

For years, tobacco companies have swiftly and easily killed efforts to raise Florida's 33.9 cent-a-pack tax — among the lowest in the nation. But now they're on defense. The state's budget deficit is growing, prompting even some Republicans to strongly consider a $1-a-pack increase to raise about $1-billion yearly.

And if critical mass builds behind the tax increase, a few of the big companies have signaled that they might be willing to go along — if legislators make Dosal pay the additional fee as well as the new tax everyone will have to pay, lawmakers, lobbyists and Dosal officials told the Herald/Times.

"We have a big target on our back," said Dosal's chief legal counsel, Guillermo J. Fernandez-Quincoces. "This is our last stand."

Dosal poured nearly $360,000 into the campaign coffers of Republican and Democratic legislators throughout the state this election cycle — just $30,000 shy of the total contributions made by the Big Tobacco firms.

Dosal has also deployed a team of 26 lobbyists — two more than the three big firms combined — who have begun patrolling the Capitol's halls three months before the regular lawmaking session starts.

The large cigarettemakers aren't publicly discussing their strategy, however.

"We oppose any increase in the state excise tax on tobacco," said Reynolds' spokesman Frank Lester.

But he added that imposing a settlement fee on Dosal "would provide a level playing field for manufacturers in Florida."

If a tax seemed inevitable, would the company be willing to support it in return for such a fee?

"I'm not going to go there. I can't predict into the future," Lester said, echoing comments from a Lorillard written statement and Philip Morris spokesman David Sutton.

Sutton said the company's main focus is to oppose a tax. Citing studies, he said smokers will flock to Alabama and Georgia if Florida "substantially'' raises its tax, which could also encourage contraband smuggling.

A new settlement on fees on Dosal and other discount makers could raise an additional $90-million yearly for the state, proponents say. Dosal says the fee will bring in much less money because the firm eventually would be forced out of business as its customers start buying better-known cigarettes if the price is almost the same.

Florida is ranked 46th in terms of cigarette excise tax. The national average tax per pack: $1.19. Average retail price per pack: about $4.25.

Cigarette lobbyists on both sides, who aren't allowed to talk to reporters due to company privacy rules, have told some lawmakers that Big Tobacco is ready to strike a deal.

"The word is going around that Dosal is a target over the tax issue," said Hialeah Republican Sen. Rudy Garcia.

He said he opposes both a new cigarette tax and a fee because he fears it could put Dosal out of business. It directly employs about 150 people who live in and around his district.

The last time the fee issue arose was in 2004 at the behest of another settlement company, Liggett Group. Garcia supported the bill in the Senate, where it passed 28-8. But the bill died in the more antitax, antifee House.

Any tax or fee bill will have a harder time in the House this year as well. Gov. Charlie Crist is cool to a cigarette tax increase.

Since the 2004 vote, Garcia said, he has learned more about Dosal and its importance to the community. The company was established in 1962 after the Dosal family fled Cuba, a story that has special relevance to Miami-Dade's 14 Hispanic lawmakers.

But other Republicans and Democrats say the state's overriding focus has to be on finding more money. As part of that, smokers should pay up.

"I don't really care if it's fair," said Bradenton Republican Sen. Mike Bennett. "The cost of health care isn't fair. The budget deficit isn't fair."

Complicating the matter: A coalition of the health advocates have floated a proposal to direct portions of the potential $1-billion in new tax money to their pet projects. Yet, if there are too many competing voices, support for the tax legislation could collapse.

The advocates also want cigarettes to cost as much as possible to cut down on smoking rates. Reducing smoking too much, however, reduces tax collections.

Brenda Olsen, vice president of the American Lung Association of Florida, said the state will save money on health costs if fewer people smoke. She cited studies showing that for every 10 percent increase in the price of cigarettes, youth and adult smoking declines 7 percent and 4 percent, respectively.

Olsen fretted that the tussle between Dosal and the other tobacco companies is a distraction from getting tobacco companies to pay their fair share of health costs: "It is infighting and the tobacco industry has a history of creating smoke screens."

In the current financial crisis, however, money is a top concern.

The Lawton Chiles Endowment Fund, an annuity established with settlement money, has lost nearly half its $2.1-billion worth in the bad economy. Lawmakers want to raid it to plug the budget hole. Advocates want to replenish it with cigarette money.

Tobacco tax money is forecast to decline 1 percent next year to $269.1-million. Tobacco settlement fees are also expected to decrease to $389.9-million, $8-million less than last year. The fee money is declining because state collections are based on the big companies' market share.

Dosal now has nearly 14 percent of the Florida market, up from less than 1 percent in a decade. The remaining market share — 4 percent — is split among 17 other small manufacturers.

Greenacres Democratic Sen. Dave Aronberg, whose political committee received $12,500 from Dosal in the past year, said he's against higher taxes in general and specifically opposes the settlement-fee issue.

"This isn't a debate about taxes or health care, really," he said. "This is a fight about market share."

Staff writers Mary Ellen Klas, Jennifer Liberto and Steve Bousquet contributed to this report. Marc Caputo can be reached at mcaputo@MiamiHerald.com

Big Tobacco moves closer to Florida pack tax hike 12/15/08 [Last modified: Friday, December 19, 2008 2:39pm]

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