Cigarette Tax proposed to Richmond City Council

RICHMOND, Va. –It’s that time of year again where Richmond City Council is looking at options to close gaps within the city’s budget. This year, a big focus has been on Richmond public schools and the school board 5-year $224.8 million school construction and renovation plan that was approved in December 2017.

Richmond City Council voted in February to increase the current 6 percent meals tax by 1.5 percent that will provide $9 million in projected revenue. This revenue will be used to borrow $150 million to put toward public schools, leaving $74.8 million still needing to be found.

The question now is: What other streams of revenue can the city tap into to provide the additional funds needed to rebuild and improve its dilapidated school system? When looking across the board, Richmond puts taxes on: business licenses, lodging, meals, real estate, utilities, but what you don’t see on the board: Cigarettes.

In February, a cigarette tax of $0.04 per cigarette or rather $0.80 a pack was proposed by 5th District Councilman Parker C. Agelasto. The tax could bring in $5 million in revenue, which could be used to borrow $50 million to put toward the schools, says Agelasto.

The ordinance has yet to be voted on but it has so far proven to be a divisive issue both within city council and amongst the community. The long-term usefulness of the cigarette tax has come up time and time again within city council because of the deteriorating nature of the product.

“it's an unreliable revenue stream, it's declining,” Mayor Levar Stoney said in an interview with Style Weekly in February in reaction to Agelasto’s proposal.

According to the Centers for Disease Control and Prevention, cigarette smoking has gone down from 24.7 percent of the U.S. population in 1997 to 15.8 percent in 2017. Cigarette use has been declining yearly and with that, revenue from cigarette taxes has been decreasing as well.

“Today in Richmond, we’re down to 20 percent [of the population] smoking,” said Agelasto, “and as that goes down, so is the revenue. We understand all of that dynamic.”

            In a study conducted in part by the CDC and RTI international, cigarette taxes are an effective public policy to get people to quit smoking.  As a cigarette tax or tax increase is implemented, smokers either quit smoking cigarettes and look to products that can help them quit or they switch to other methods like e-cigarettes or vapes.

            “It does deter people from smoking and it does have that added health benefit of getting people to quit,” said Agelasto.

            So, if a cigarette tax causes people to smoke less, how effective can this cigarette tax be and how likely is the city to see that $5 million projected revenue Agelasto was talking about?

            “In the first year or two you’re going to see a reaction,” said Agelasto, “than in the following years, it stabilizes and deteriorates at the same time the smoking rate changes.”

            Even though the estimated $5 million in revenue from the cigarette tax might not be seen past the first year, overtime, the cigarette tax could be used as an additional stream of revenue until it eventually runs dry. Therefore, because of its deteriorating value, councilmembers and the mayor have spoken out against it in large part to the deteriorating use of cigarettes.

            Besides it’s deteriorating use, a study conducted by The Thomas Jefferson Institute of Public Policy in 2016, found that with a cigarette tax comes some other negative effects alongside it.

            The study—which was funded by the Altria Group—states increasing or implementing a cigarette tax could negatively impact local businesses such as convenience stores that rely on cigarettes to bring customers into the store in the first place.

Amir Rashid, the owner of the Eastern Express Convenience & Food Store on the 900 block of West Grace Street, says about 60 percent of his sales come from cigarettes.

            “They [customers] are going to stop coming, no question,” Rashid said.” $0.80 is a lot of money.”

            Rashid relies on people coming to the store to buy cigarettes who also buy other products in the same transaction. Those other products include beverages, snacks and other miscellaneous goods, which make up the other 40 percent of Rashid’s sales. He fears if a cigarette tax is implemented, then less people will come to his store and ultimately, he would have to close his doors.

“That’s going to hurt me and put me out of business,” Rashid said.

            Rashid says people would start going to other localities to purchase their cigarettes at a much cheaper price if the tax was implemented. He points to Henrico and Chesterfield which currently, alongside Richmond, don’t have a cigarette tax. Rashid says without that business the city could lose revenue in the process.

            “If I close the store, then how are they going to make money?” Rashid said.

            If this tax were to be implemented would individuals go as far as Henrico or chesterfield for a pack cigarettes? Agelasto says cigarettes are a consumer product meaning people will go buy them when and where they want to. Initially people might start going to other localities, Agelasto says, but overtime they’ll just go back to buying them at their regular spot out of convenience.

            “I can understand they might go out of Richmond and I think that it’s a person’s decision,” said Agelasto,” but I don’t think it’s going to have a significant material impact within the city.”

            Emily Holter, a mass communications major at Virginia Commonwealth University, says going out of the city to save $0.80 on a pack of cigarettes doesn’t seem worth it.

“I’m just going to pay the $0.80 and complain in silence,” Holter said.

 Holter averages about two packs of cigarettes per week, her pack of Marlboro 27’s cost her about $5 and if this tax were to be implemented it would raise the price up to $6.

Although the tax seems high to her—the city would be going from no cigarette tax to $0.80 a pack—she reconciles because it’s going to improving the schools around the city.

Holter says a cigarette tax seems to be just a quick initial boost for the city’s budget to be able to borrow funds to improve the public-school system. But as cigarette use dwindles and people are finding other methods to smoke, or quit rather, what about the ever-growing presence of e-cigarettes and vapes?

“If you’re going to tax regular cigarettes, then why not tax vapes?” said Holter.

A bill that was introduced in the 2017 Virginia General Assembly would have implemented a statewide $0.05 tax per fluid milliliter of vapor liquids and a 10 percent tax on e-cigarettes and similar devices. This bill was stricken down by the finance committee less than two weeks after it was introduced and since then, no other legislation of its kind has been introduced.

In Agelasto’s current cigarette tax proposal, there is nothing about a “vapor tax” because the commonwealth has not approved the taxation of vapors.

Currently, according to the Tax Foundation—an independent nonprofit tax policy research group—there are eight states, including Washington D.C, have some form of Vapor Tax on a state level. Some states tax by the milliliter, others tax a percentage on wholesale purchases.

In West Virginia, the vapor tax is $0.07 per fluid milliliter of vape liquid that is sold, while in other states, such as Kansas, it’s as high as $0.20 per fluid milliliter. Because these two states classify their revenue from e-cigarettes jointly with tobacco products, it’s hard to see the exact revenue they estimate to earn from such a tax according to their revenue estimates for FY 2018.

            Agelasto did not confirm whether he would be in favor of a tax on vapors if the state were to allow it. He says that would be something others would help determine.  

            This isn’t the first time a cigarette tax has been proposed to city council. Agelasto says since his time on council from 2013 till now, there have been two other attempts to pass an ordinance like this. Both of those proposals were not approved by city council.

“From the city’s perspective, no it’s not ever been passed,” said Agelasto. “I mean we’re a big tobacco town but I think we have a very good chance this year in making some progress.”

Richmond is home to Altria, one of the biggest tobacco companies in the world. Altria owns Philip Morris USA, whose brands include Marlboro, Virginia Slims, Parliament and other smaller brands. Their cigarette factory is in the city’s 8th district and Altria all together employs about 3,600 of the city’s residents.

            8th District Councilwoman Reva Trammell alongside 9th district councilman Michael Jones, have spoken out against the cigarette tax, pointing to how it could negatively impact local businesses and the employees of large tobacco companies located in Richmond.

            Trammell, during the 2016 general election, received $2,000 from the Altria group in donations, according to the Virginia Public Access Project. Altria, in the same year, donated $2,000 to 6th District Councilwoman Ellen Robertson and $500 in donations to 2nd District Councilwoman Kimberly Gray, 1st District Councilman Andreas Addison, 9th District Councilman Michael Jones, and 4th District Councilwoman Kristen Larson. Mayor Levar Stoney himself received a $25,000 donation from the Altria group through the One Richmond political action committee for his Inaugural celebration held on Jan. 14, 2017.

            According to an article published by the Richmond Times-Dispatch on Feb. 1, 2018, Altria is also planning to invest $35 million over three years in philanthropic programs in the surrounding communities where it operates. The tobacco giant has its headquarters located In Henrico, a research facility in downtown Richmond, and the cigarette factory in the south side of Richmond.

            Despite how intertwined Richmond is with big tobacco, its public schools are in dire need of the additional funding more than ever. Whether it comes from cigarettes or from another source of revenue, the need for the additional funding is ever looming over city council. Although cigarette use is declining, Agelasto says this cigarette tax is a temporary solution to the city’s financial problem.

“A cigarette tax is a diminishing tax, so ten years, twenty years from now it’s [revenue] going to be less than what it might be today,” Agelasto said. “It’s an immediate cash infusion for when we need it the most.”