Lawmakers also were talking about the desire of the Legislature to have a greater say in how the settlement money would be spent. In particular, concern was expressed regarding the fact that such a large amount of money was to be disbursed by only nine people. “Some of my colleagues definitely feel that with the magnitude of dollars there, the Legislature should have more control,” said Senator Jensen, the chairperson of the Health and Human Services Committee.For the next few months, the University of Nebraska Medical Center and Creighton University continued to lead efforts calling on the Legislature to dispense the tobacco settlement instead of relying on the grant process.In September, Governor Johanns weighed in on the issue. He said that he supported splitting the settlement in three ways: one-third to remain for Nebraska Health Care Cash Fund grants, one-third to be distributed by the Legislature and one-third to go toward medical research at Creighton University and the University of Nebraska.Regarding the research opportunities, Johanns said, “I think it is a great opportunity to literally lift Nebraska and put it on the map,” but he added that he thought one-third of the money should remain in the grant process because, “These grants have great potential to improve access and delivery of health-care services to medically under served areas, improve the quality of health-care services and strengthen public health in Nebraska.”With all this prior discussion on how best to spend the tobacco settlement money,rolling benches it was not surprising that when the 2001 legislative session began in January numerous bills dealing with using settlement money for health improvements were introduced.
By combining the interest generated from the investment of the tobacco settlement dollars and money received from federal Medicaid transfers, the Health Care Fund was estimated at $50 million per year.This $50 million was separate from the $7 million that Tobacco Free Nebraska was receiving directly from the settlement payments for three years. The Speaker of the Legislature, Doug Kristensen of Minden, introduced a bill on behalf of Governor Johanns that included one-third of the $50 million to be going to biomedical research. Senators Jensen, Jennie Robak of Columbus and Thompson all separately introduced bills that focused largely on improvements to Nebraska mental health services, Senator Lowen Kruse of Omaha introduced a bill that would have raised state Medicaid payment rates for mental health services, and Senator Byars introduced three bills that sought to increase the amount spent on respite care and developmental disabilities. The focus on public health and specifically on mental health was not surprising. Historically, Nebraska’s funding per capita for public health had been either 49th or 50th out of all states,and as Susan Boust, a community mental health service provider from Omaha testified at the Appropriations Committee and Health and Human Services Committee’s public hearing for all these bills, Nebraska was spending $8.36 per person on community-based mental health efforts while the national average was $32.Unfortunately for the state, the biennium budget numbers continued to worsen. When new revenue figures came in early during the 2002 legislative session the anticipated $50 million shortfall rose to $186 million and then to $222 million in March, another 5%.Once again, Governor Johanns reiterated his position that the budget deficit should be remedied through spending cuts and not tax increases.Having already cut $171 million from the budget during the 2001 special session, legislators viewed the governor’s position toward tax increases as unreasonable. Over the governor’s veto, the Legislature passed temporary increases in the state income tax, sales tax and cigarette excise tax as well as made spending cuts including the state’s K-12 school system.Previously, Governor Johanns said that the only tax increase he would support was on the cigarette excise tax.
Governor Johanns was willing to support an excise tax increase because an excise tax increase was less likely to have political repercussions for him with Nebraska voters than a sales or income tax increase.Despite the fact that during the 2001 special session and the 2002 legislative session the Legislature had made $295 million in spending cuts and transfers and raised taxes by $142 million – $25 million from the cigarette excise tax increase – a shortfall of $130 million still remained by the end of the 2002 legislative session.One major consequence of the budget crisis facing the Legislature in 2002 was that Tobacco Free Nebraska lost $5 million from its $21 million total.In 2000, Tobacco Free Nebraska had been allocated $7 million for FY2000 but it was not possible for the program to scale up fast enough to spend this money during the first year. Because of the need to following standard government procurement rules , only about $2 million of the $7 million appropriated was spent.With this money not being spent by the end of biennium in FY2001, the Legislature considered this $5 million “unobligated.” Rather than treating these funds as encumbered for contracts being in the process of awarded, during the 2002 session, the Legislature decided, as part of LB1310, to reallocate this money to cover a shortfall for the Children’s Health Insurance Program.Tobacco Free Nebraska was not alone in this respect. Dozens of programs lost money that had been allocated to them during the previous biennium budget which had not been spent and thus had become unobligated.Unfortunately for the state, the biennium budget numbers continued to worsen. When new revenue figures came in early during the 2002 legislative session the anticipated $50 million shortfall rose to $186 million and then to $222 million in March, another 5%.Once again, Governor Johanns reiterated his position that the budget deficit should be remedied through spending cuts and not tax increases.Having already cut $171 million from the budget during the 2001 special session, legislators viewed the governor’s position toward tax increases as unreasonable.
Over the governor’s veto,grow tray the Legislature passed temporary increases in the state income tax, sales tax and cigarette excise tax as well as made spending cuts including the state’s K-12 school system.Previously, Governor Johanns said that the only tax increase he would support was on the cigarette excise tax.Governor Johanns was willing to support an excise tax increase because an excise tax increase was less likely to have political repercussions for him with Nebraska voters than a sales or income tax increase.Despite the fact that during the 2001 special session and the 2002 legislative session the Legislature had made $295 million in spending cuts and transfers and raised taxes by $142 million – $25 million from the cigarette excise tax increase – a shortfall of $130 million still remained by the end of the 2002 legislative session.One major consequence of the budget crisis facing the Legislature in 2002 was that Tobacco Free Nebraska lost $5 million from its $21 million total.In 2000, Tobacco Free Nebraska had been allocated $7 million for FY2000 but it was not possible for the program to scale up fast enough to spend this money during the first year. Because of the need to following standard government procurement rules , only about $2 million of the $7 million appropriated was spent.With this money not being spent by the end of biennium in FY2001, the Legislature considered this $5 million “unobligated.” Rather than treating these funds as encumbered for contracts being in the process of awarded, during the 2002 session, the Legislature decided, as part of LB1310, to reallocate this money to cover a shortfall for the Children’s Health Insurance Program.Tobacco Free Nebraska was not alone in this respect. Dozens of programs lost money that had been allocated to them during the previous biennium budget which had not been spent and thus had become unobligated.While Tobacco Free Nebraska lost $5 million from its FY2000 allocation, the Legislature did not touch the program’s budget for FY2001 and FY2002; therefore, Tobacco Free Nebraska was able to obligate $7 million a year for both of these years.Because of the reallocation that occurred during the 2002 legislative session, Tobacco Free Nebraska only received $16 million over three years and not the $21 million over three years that had been originally budgeted for the program as part of LB 1436 in 2000.With a shortfall of $130 million remaining after the 2002 legislative session, the governor once again called a special session in July, 2002322 and froze spending for all state agencies. With tax receipts for the preceding eleven months falling short of projections, the estimated budget deficit that state senators were faced with rose from $130 million to $233 million.Later it was determined that the actual deficit number for the biennium was much higher that $233 million figure that was estimated by the Governor’s budget office.
The $233 million figure was calculated by assuming that many expenditures would not increase, but when projected increases to Medicare, state aid to school, employee salaries and health insurance were factored in, the deficit figure rose to $778 million.Similar to the special session in 2001, the special session of 2002 cut over $15 million from the University of Nebraska system – half of which was taking from the largest campus, the University of Nebraska-Lincoln.In addition, approximately 19,000 people were removed from Medicaid enrollment by changing eligibility requirements which was supposed to save approximately $20 million.While tobacco control was unaffected by the special session of 2002, the Legislature was unable to solve the budgetary crisis facing the state. This massive deficit remained for the 2003 legislative session came at a very unfortunate time for Tobacco Free Nebraska. Believing that the Master Settlement Agreement earlier that year did not do enough to prevent underage smoking, the members of SmokeLess Nebraska decided to create a new coalition in November, 1998, with the specific goal of reducing smoking by minors by making cigarettes more costly through an excise tax.Named Citizens for a Healthy Nebraska, the new coalition was comprised of the Nebraska divisions of the American Cancer Society, the American Heart Association, the American Lung Association, Health Education Inc., the Nebraska Association of Hospitals and Health Systems, the Nebraska Dental Association and the Nebraska Medical Association.While no specific amount for an tax increase was announced, Rich Lombardi, the coalition’s lobbyist, stated that $1.00 would be a good goal.Only Alaska and Hawaii had excise taxes that high at the time. Citizens for a Healthy Nebraska’s announcement that it would pursue an excise tax increase came right on the heels of a nationwide announcement the day before by Philip Morris and R.J. Reynolds that they had raised the wholesale price of a pack of cigarettes by $0.45 to recoup the money they had to pay as part of the Master Settlement Agreement. The coalition’s reason for pushing for a large excise tax increase was that it viewed it as the most effective means of getting smokers, especially teenage smokers, to quit. “Our group understands that the real solution is to keep kids out of the market by increasing the cost of a pack of cigarettes so that kids won’t smoke,” according to Sherry Miller at the coalition’s first press conference.331Miller was the former President of the Nebraska Parent Teachers Association. It was Miller and Dr. Chris Caudill, a Lincoln cardiologist, that announced theformation of Citizens for a Healthy Nebraska. Speaking about the plans to increase the excise tax, Caudill said, “It is the number one way we can get kids to stop smoking.”Following standard tobacco industry rhotoric,the day after the Citizens for a Healthy Nebraska’s announcement, cigarette smuggling was already being proposed as a reason to forgo an excise tax increase. State Senator Bob Wickersham of Harrison, who later voted against LB 505 in committee, stated, “You do have to examine whether it will work or, in fact, whether it would be an incentive for bootlegging and other activities.”Wickersham was repeating one of the tobacco industry’s primary arguments to combat excise taxes is to argue that large excise tax increases lead to increased levels of cigarette smuggling.Cigarette smuggling typically means purchasing cigarettes in a state with a lower excise tax and then selling them for a profit in a neighboring state which has a higher excise tax. They also claim that excise tax increases lead to economic hardship for retailers due to revenue lost to neighboring states.