Kaine would double cigarette tax

Gov. Timothy M. Kaine's proposal for balancing Virginia's recession-ravaged budget includes doubling the cigarette tax, delaying an environmental tax break, drawing nearly $500 million from the "rainy-day fund" and pruning 1,500 state jobs, including 530 new layoffs.

The package Kaine will detail today, in which he would again go back on a promise not to raise taxes, is drawing criticism from tobacco-industry allies -- among them, senior Republicans.

Multiple sources at the state Capitol, speaking confidentially because they are not authorized to comment on Kaine's behalf, yesterday disclosed components of the plan shortly after he outlined it in a morning telephone conference call with Democratic legislators.

Kaine's office refused comment on his proposal to close a persistent hole -- now approaching $3 billion -- in the two-year, $77 billion budget, saying only that he will outline his remedy this morning in remarks to the General Assembly's money committees.

Kaine's plan -- all or parts of which could be scrapped by lawmakers -- is largely designed to protect in the approaching gubernatorial and House election year spending for public education and related programs, including his expansion of pre-kindergarten for 4-year-olds.

Pushing the cigarette tax from 30 cents to 60 cents per pack is being depicted, mostly by Republicans, as an affront to Philip Morris USA, the Richmond-based tobacco giant that moved its headquarters here from New York City in 2003. But advocates said the proposed increase is sound fiscal and health policy.

Coupled with the withdrawal from the state's rainy-day fund, an emergency cash reserve now brimming with about $1 billion, would be steps to further reduce the state payroll of 100,000.

Kaine has already announced layoffs approaching 600 as well as plans to keep vacant hundreds of others. William P. Ellwood, lobbyist for the Virginia Governmental Employees Association, said the administration told him that an additional 530 workers would lose their jobs.

Another anticipated casualty: an estimated $250 million for pay raises for public employees. State workers were due 2 percent this month, but that was delayed in October, and an additional 2 percent in late 2009.

Kaine is expected to announce that he is adjusting the state's projected shortfall to $2.9 billion from $2.5 billion. In the past year, Kaine and lawmakers have already lopped spending $2.2 billion.

Revenue from an additional tobacco levy, coming nearly five years after it was incrementally increased under Gov. Mark R. Warner from 2½ cents to 30 cents per pack, would help erase an anticipated deficit of $153 million in the Medicaid health-care program for the poor and aged.

The new tax increase, according to several estimates, could generate about $180 million. But fiscal experts warned that it could produce less if the increase were to drive down sales.

Kaine also is expected to recommend slowing $200 million in tax credits for Virginians who pledge to permanently preserve rural open space. The initiative is a pet program for Kaine and House Speaker William J. Howell, R-Stafford.

Howell, however, was unsparing in his attack on Kaine's cigarette-tax gambit. Howell joined Rep. Eric I. Cantor, R-7th, in blasting it as a potential job-killer for Philip Morris, which maintains its headquarters, a research center and factories in, and adjacent to, Cantor's Henrico County-anchored district.

"It's going to impact the jobs in Virginia, when we need to be doing everything we can to preserve jobs, if not create more jobs," Howell said.

Cantor, a former member of the House of Delegates and now the No. 2 Republican in the House of Representatives, said, "It's nothing but an assault on jobs here in the greater Richmond area and throughout Virginia."

But a Kaine loyalist, Sen. Janet D. Howell, D-Fairfax, a member of the Senate Finance Committee, welcomed the proposal.

"Everyone knows that raising the tobacco tax will improve the health of Virginians, both smokers and nonsmokers," Howell said. "The governor's plan to put the additional tax revenue into health care is a brilliant move."
Contact Jeff E. Schapiro at (804) 649-6814 or jschapiro@timesdispatch.com.

Contact Jim Nolan at (804) 649-6061 or jnolan@timesdispatch.com.