Friday, March 27, 2009

Fee Hikes Will Hurt Education

We just received the following information from Jim Calvin, the president of the convenience store association (NYACS). It sheds another light on why the proposed increase in cigarette license fees is such a bad idea.

It appears that going forward with the fee hike will jeopardize millions of dollars in lottery aid to education. Here's how. Around 60% of lottery merchants also sell tobacco products.
Budget Division estimates that the tobacco fee hike will reduce the number of tobacco outlets by 40%.If 40% of the 60% of lottery merchants lose tobacco, that means the lottery sales in 24% of retail lottery outlets will be impacted by a drop in customer traffic entering the store. How much is hard to say. What's scary is that nobody in the Budget Division has done an analysis to determine the magnitude of the resulting loss of lottery aid to education.

We can assume that when their favorite shop no longer selling tobacco, some of the displaced smokers will just go to the next closest tax-collecting store tobuy tobacco. But a significant portion of them will instead seek out untaxed,unregulated sources of cigarettes -- Native American reservations, the Internet, the black market, none of whom offer NYS lottery tickets. Thus it stands to reason that fewer smokers will be visiting tax-collecting retail stores that also sell lottery, and fewer lottery tickets will be sold because of the drop in customer count. Yes, those customers who come to the store for the primary purpose of selling lottery will still come, but those who used to come for the cigarettes and then buy lottery tickets while there, you won't see them anymore.

We understand that lottery net proceeds to education are around $2.6 billion. If the impact of shift in tobacco purchases to non-lottery venues impacts lottery sales by even 1%, that will reduce lottery aid to education by $26 million,which is greater than the $17 million in new revenue they project in 2009-2010from the tobacco retail registration fee increase itself.
Bottom line, the fee increase that's designed to reduce smoking will not only fail because it will drive smokers to the tax-free, unregulated side of the street, but it also will reduce state aid to local school districts.