NOTE: As provided in LFC policy, this report is intended for use by the standing finance committees of the legislature.  The Legislative Finance Committee does not assume responsibility for the accuracy of the information in this report when used in any other situation.

The LFC is only preparing FIRs on bills referred to the Senate Finance Committee, the Senate Ways and Means Committee, the House Appropriations and Finance Committee and the House Taxation and Revenue Committee. The chief clerks are responsible for preparing and issuing all other bill analyses.

Only the most recent FIR version, excluding attachments, is available on the Intranet. Previously issued FIRs and attachments may be obtained from the LFC office in Room 416 of the State Capitol Building.

(Parenthesis ( ) Indicate Revenue Decreases)

Companion to SB-654

SOURCES OF INFORMATION

Taxation and Revenue Department

SUMMARY

Synopsis of SFl#1 Amendment

The Senate floor amendment redirected 3 cents of the cigarette tax increase that would have gone to the state general fund to the University of New Mexico Cancer Center.

Fiscal Impact of SFl#1 Amendment

As a result of the senate floor amendment 5 cents of the 6 cent cigarette increase are directed to the cancer center and one cent is directed to the State Department of Education for smoking education and cessation programs. The distribution of the cigarette tax increase are shown in the table at the top of the page. The gain to the general fund shown in FY 2000 and the offsetting loss shown in the subsequent year column are due to two factors. The 6 cents price increase is expected to decrease demand, resulting in a $189 thousand recurring revenue loss. However in the first year, the cigarette inventory tax yields a $360 thousand non-recurring revenue gain; so the net effect in the first year is a positive $171 thousand impact to the general fund.

Synopsis of Bill

Senate Bill 653 distributes cigarette tax revenues to various beneficiaries. The distributions provided in the bill are contingent upon passage of a 6 cent per pack cigarette tax increase (contained in Senate Bill 654). The additional six cents would be shared by the University of New Mexico Cancer Center, the State Department of Education and the state's general fund. The cancer center would receive 2 cents; the State Department of Education 1 cent; and the general fund the remaining 3 cents. The distribution to the State Department of Education would be passed through to the school districts for smoking prevention and cessation programs. The school district distribution would be determined on a per program unit basis by adding the annual revenue to the state equalization guarantee. The other distributional changes included in the bill were designed to be roughly revenue neutral.

FISCAL IMPLICATIONS

The table shown at the top of the first page shows the additional revenues that the cancer center, the public schools and the general fund would receive provided the 6 cent cigarette tax increase passes. TRD notes that there is also a $360 thousand non-recurring impact to the general fund in FY 2000 due to the impact on the cigarette inventory tax.

The cigarette tax is expected to yield $833 thousand per penny of tax. This is lower than was assumed last year when a penny was expected to raise about $900 thousand. The lower yield is based on recent cigarette price increases and a pending federal cigarette tax increase. The higher cigarette prices are expected to decrease consumption and thus the revenue yield. The standard assumption is that a ten percent increase in the price of cigarettes results in a 4 percent decrease in consumption.

BT/gm