California’s OK of Prop. 99 Gives Minnesota Chance to Gloat

Al Podgorski, a tobacco revenue supervisor for the state of Minnesota, was gloating a bit Thursday because 2,118 miles miles away in California, voters had passed Proposition 99, which hiked the 10-cent tax on cigarettes to 35 cents a pack. In fact, he chuckled at an irony that he expects will make his own job a tiny bit easier.

Podgorski explained that his investigators have been chasing around the Land of 10,000 Lakes recently, trying to crack down on bootleg cigarettes being sold exclusively in Oriental food distributorships and fast-food outlets. Cigarettes that came from--you guessed it--California.

Minnesota a year and a half ago raised the cigarette tax from 23 cents to 38 cents a pack, making it the highest rate in the country. “We found that certain Oriental food distributors were selling California cigarettes to their dealers here along with the specialty foods made in California, and people were grabbing them up because they were so much cheaper,” Podgorski said in a phone interview.

But he added, Minnesota’s tax hike has actually given officials very little enforcement headaches. While it had an immediate impact on Minnesotans’ smoking habits, that doesn’t seem to have lasted. About 474 million packs were sold in Minnesota the year before the hike went into effect, and 395 million packs were sold a year later. But this year, the pace is picking back up.

In California, cigarette distributors, retailers, smokers and tax collectors are all waiting to see what will happen before, and after, the Jan. 1 hike: Will bootleggers abound? Will smokers spend the weeks before then stockpiling cartons in their refrigerators? Or will stores and wholesalers be left holding the packs?

What is clear is that the new tax is expected to raise $600 million a year, which will be used to pay for indigent health care, anti-smoking education in schools, research into tobacco-related disease and improvement of public parks. What it will do to retailers, wholesalers and tobacco companies is less certain.

Judy Becker, a spokeswoman for the 355 Lucky Stores in California, said they are not anticipating having to scale back their cigarette buying from distributors to any large degree. She noted that cigarettes are items they do not purchase very far in advance, so if there is a change in consumer buying patterns, the store can make adjustments quickly.

Like many other retailers, however, they do expect that there will be some stockpiling of cigarettes in late December. Shelf life for cigarettes is about 12 weeks, more if they are kept in the refrigerator, some say.

The 130 Ralphs grocery stores in Southern California are also gearing up for a cigarette rush. “There could be some increased buying. No question about that,” said Jan Charles Gray, senior vice president.

A pack-a-day smoker would pay an average of $7.25 more a month for cigarettes under the new law.

Kurt Feuerman, a tobacco analyst with New York-based Drexel Burnham Lambert & Co., notes that when the federal tax doubled to 16 cents in 1983, there was a one-time impact on consumption the first year. But it leveled off, and there was no negative impact on profits for the tobacco industry. “Tobacco stock is still attractive and people will still smoke in California,” he said.

Jack Nicholl, director of the “Yes on Proposition 99” campaign, said he expects that “most adults will pay their way. But the law will make it harder for teen-agers to afford cigarettes.”

In Washington state, wholesalers estimate that in 1987 about $54 million in revenue was lost because of untaxed cigarettes being sold on military and Indian reservations, and by bootleggers bringing in cigarettes from Montana and Idaho. California’s Proposition 99 set aside several hundred thousand dollars a year to enforce the tax hike, but State Board of Equalization officials do not expect that there will be a problem. In case of a rash of bootlegging, the state could hire as many as seven new tax inspectors to crack down on violators.

The board will be meeting soon to draft two emergency regulations to clear up points in the initiative--a deadline for collecting the higher tax rate on unsold cigarette inventories, already taxed at the old rate, and how to calculate new “equivalent tax rates” for cigars, pipe tobacco, snuff and other tobacco products never before taxed by the state.

Consumers have apparently not yet started to worry much about it, or at least enough to sign up for no-smoking classes, said Katherine Row, spokeswoman for the Los Angeles unit of the American Cancer Society. “There is no stampede. Those that are hard-core smokers will do it anyway. The halfway smokers for the most part have already quit. It’s children who will be helped by this law. . . . It’s out of their reach at $2 a pack in machines.”

But they aren’t going to rest now that Proposition 99 is law. Next Thursday, the society will sponsor the local festivities for the national “Great American Smokeout,” where smokers are urged to quit and youngsters cautioned not to start.

There will be a victory party at the Westin Bonaventure that will include magicians and Olympic athletes. An Amtrak “Smokeout Express” will travel from Santa Barbara to San Juan Capistrano with movie stars aboard. Also on hand, Row said, will be Mr. Potatohead, the cartoon character, who used to sport a pipe, but of course, cannot afford it now.