Gov. Timothy M. Kaine's proposal to pay for health care with higher cigarette taxes is dead, raising the specter of deeper spending cuts to close a $3.2 billion hole in the Virginia budget.
His recommendation to double the tax to 60 cents per pack was beaten yesterday on a tie vote -- 8-8 -- in the Democrat-controlled Senate Finance Committee. A Republican-dominated House subcommittee voted it down last week.
The defeat in the Senate -- following the defection of a tobacco-belt Democrat, W. Roscoe Reynolds of Henry -- is setting off a scramble to find cash for the recession-racked budget.
The proposal, attacked by Henrico County-based Philip Morris USA and other politically muscular tobacco interests as a job-killer, would have generated nearly $155 million for Medicaid, a program that provides health care for the aged and poor.
"The governor believes raising the tax to half the national average is preferable to cutting $155 million from state services," Kaine spokesman Gordon Hickey said.
Sen. John Watkins, R-Powhatan, said in opposing the tax plan, "Tobacco in my district means jobs, and in this session of the legislature, I will not vote against jobs."
Senate Minority Leader Walter A. Stosch, R-Henrico, a director of tobacco-processor Universal Corp., also resisted the tax increase because it "affects everybody." In 2004 -- to avoid a conflict of interest -- he did not vote on a tax break for Philip Morris.
To squeeze out additional dollars, lawmakers are tinkering with other Kaine proposals. This includes expanding the number of nonviolent felons for early release and rewriting a plan to reduce retailers' cut for collecting the sales tax.
The Senate Finance Committee could include in its budget-balancing package language to increase savings from inmate release from $5 million to $10 million, said Sen. Janet D. Howell, D-Fairfax, a member of the subcommittee that oversees prisons.
Sen. Kenneth W. Stolle, R-Virginia Beach, who is working with Howell on the plan, estimates there are 3,000 to 5,000 nonviolent, non-drug-using inmates who could be released and overseen more cheaply through home or electronic monitoring.
House Republicans, defending their narrowing majority in this fall's elections, have expressed skepticism about early release. It would represent a retreat from the no-parole system enacted in 1994 by then-Gov. George Allen, a Republican.
Also, the Senate Finance Committee and lobbyists for retailers and communications firms are cobbling a deal under which only the largest retailers -- those with sales exceeding $50 million annually -- would remit to the state sales-tax receipts in advance.
The arrangement would cover about 190 retailers -- a sliver of the 140,000 affected by the Kaine plan -- and provide a one-time burst of cash next year of about $100 million. That's about $40 million more than Kaine is seeking through his plan to scrap retailers' "dealer discount."
Contact Jeff E. Schapiro at (804) 649-6814 or jschapiro@timesdispatch.com.
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