`Sin taxes' at the heart of battle over budget.

Byline: DAVID STEVES The Register-Guard

SALEM - Gov. John Kitzhaber is the first to admit he hasn't come out ahead in many skirmishes over how to solve Oregon's nearly $1 billion budget crisis.

When asked recently who the big winners are so far, he was just as quick to name names:

"Peter Coors, R.J. Reynolds and the Gallo Brothers," he said dryly, ticking off some of the nation's biggest corporations in the beer, tobacco and wine industries. "But none of them live in Oregon."

Kitzhaber's remark came in the wake of a special session earlier this month in which the Republican-controlled Legislature refused to even hold hearings on his proposals to raise the cigarette tax by 50 cents a pack and to increase taxes on beer and wine by the equivalent of a nickel a drink.

The Democratic governor will continue to push for his package of "sin taxes" when the Legislature returns to Salem today for another special session, but Republicans who control both chambers are dead-set against his plan to bridge the budget gap. Kitzhaber said last week that he may grudgingly allow legislators to close the shortfall with a no-new-taxes package of program cuts and one-time dollars from state trust funds and reserve accounts - despite his veto of such proposals after the first special session.

This steadfast rejection of the increased sin taxes, placed against the backdrop of the Enron scandal and a renewed congressional effort to reform campaign finances, has prompted some to join Kitzhaber in questioning whether the real power brokers are big corporations and the lobbyists they employ at the state Capitol.

"Polling data shows that there's a perception among the public when a politician receives a contribution, votes are affected," said Janice Thompson, director of the Portland-based Money in Politics Research Action Project, a political watchdog group.

The alcohol and tobacco industries spent $2.2 million on campaign contributions to candidates for the Oregon Legislature in 1998-2000 and lobbying its members in 1999-2001, according to research by Thompson's organization. That figure grows to $5.3 million when political spending by the Oregon Restaurant and Oregon Grocery Industry associations, two key allies of the tobacco and alcohol lobbies, are added, according to the campaign watchdog group.

Legislators and lobbyists, however, argue that it's ridiculous to contend that some wining and dining or campaign contributions could influence the debate over tobacco and alcohol taxes.

House Speaker Mark Simmons, R-Elgin, said he's refused to allow any public hearings on bills to increase the beer, wine or tobacco taxes because of his concern for the consumers who would pay the higher prices - not the businesses that produce, distribute and sell alcohol and cigarettes.

"I haven't thought about the industries, specifically, at all," Simmons said.

Although he received $17,190 in campaign contributions from the tobacco, beer, wine and liquor industries in the last two election cycles, Simmons said neither he nor other legislators have been unduly influenced by those industries' lobbyists.

In fact, despite the intense politics surrounding the pair of legislative special sessions this month, Simmons said he has spent almost no time in the past few weeks with lobbyists for those or other industries. Instead, he has worked with other elected officials, trying to solidify the House Republicans' position on the shortfall and working on a budget agreement with other statehouse players. "I've spent more time with the governor than anyone in the lobby," he said.

Simmons' appointment calendar for the four weeks after Kitzhaber announced his package of sin taxes on Jan. 23 shows a smattering of meetings with the governor. But the calendar makes clear that the biggest share of Simmons' time went to strategy meetings with members of his own staff and fellow Republicans in the Legislature.

While most of his scheduled meetings were set for 15 minutes, Simmons blocked off an hour on Jan. 28 to meet with two of the lobby's most ardent opponents of the governor's sin taxes: Mike McCallum, executive director of the Oregon Restaurant Association, and Mark Nelson, whose clients include tobacco giant RJ Reynolds and Anheuser Busch, the nation's largest brewer.

Although the tobacco, beer and wine industries and the bars, taverns, restaurants and grocery stores that sell their products could see a drop in profits as a result of the taxes, their lobbyists never framed the debate as one between big special interests and the needs of schoolchildren, frail elderly and others who rely on tax-funded public services. "The governor wants to make it about tobacco and beer companies. Tobacco and beer companies don't pay taxes. Oregonians pay taxes. That's what this is all about," Nelson said.

Kitzhaber on Friday characterized the Legislature's preference to borrow from one-time reserves instead of raise taxes as a reflection of the leadership's desire "to protect the beer and wine lobby and the tobacco industry." Nelson and others who work on behalf of those groups said just the opposite is true: Kitzhaber is trying to bully the little guy into paying for other people's needs.

"His approach to try to take a minority of Oregonians who consume these products and to force them to pay a tax that's going to fund programs for everybody in the state just isn't right," Nelson said. "It's easy to pick on 20 percent of Oregonians because they don't have the political clout of the other constituencies, who don't care because they don't have to pay the tax."

In opposing Kitzhaber's plans, lobbyists for large out-of-state producers also argued that small, in-state producers will be big losers.

Sandra Bishop is a Eugene lobbyist for the Wine Institute, a trade group that includes some of the nation's biggest wineries, such as Gallo. But when she talked to reporters and legislators about who would be harmed by an increase in the Oregon excise, she used a different group to make her case. "It's the small, family owned agricultural operation that will be hurt," she said.

A parallel argument was used to describe the proposed beer-tax increase as an attack on the state's craft breweries.

Oregon's wine tax, although equivalent to a 1.8 cents-per-glass tax, is actually a per-gallon excise that's levied on wine distributed in Oregon before the retail level. Oregon's beer tax works the same way.

But both taxes are designed to help small, in-state producers avoid the hit. Wineries that produce 100,000 gallons or fewer are exempt from the tax for their first 40,000 gallons - which covers all but a few of Oregon's wineries.

Kitzhaber's beer-tax proposal would have exempted all producers who make 200,000 barrels or less. That's enough to shelter every one of Oregon's brew pubs and craft breweries from the tax that would instead hit the large, out-of-state producers, such as Gallo, Coors and Anheuser Busch, and ultimately their customers.

Bishop said her discussions about the proposed tax increases left her convinced that a majority of legislators viewed the debate in broad-stroke terms of whether taxes should be imposed in general. Most members of the House and Senate concluded they shouldn't, she said.

Lobbying pressure and the possibility that campaign contributions might dry up or shift to opposing candidates didn't enter the equation, Bishop said. "I think the wisdom of legislators that we don't want to raise taxes in a regressive way on a particular industry, that's what prevailed," she said.

Regardless of how alcohol and tobacco lobbyists tell it, public-opinion surveys have indicated that a majority of Oregonians are willing to accept Kitzhaber's proposed sin tax increases.

A survey by the nonpartisan firm Davis, Hibbitts & McCaig of 500 probable voters in late January found that 71 percent strongly or somewhat favored an increase of 5 cents per drink in the beer and wine taxes if the money were dedicated to prevent cuts in drug abuse prevention and mental health programs. The poll found 68 percent strongly or somewhat favored a 30 cents per pack cigarette tax increase with the money dedicated to the Oregon Health Plan.

As Sen. Bill Morrisette, D-Springfield, sees it, lawmakers can't help but be influenced by campaign contributions and lobbyist-furnished Trail Blazers tickets and dinners - and the fear that the money will be jerked away if lawmakers oppose the interest groups.

"I think you become in a sense addicted to collecting a certain amount of money from various sources," said Morrisette, who has received $300 over two election cycles from the alcohol and tobacco industries. He supported Kitzhaber's tax increases.

"That's how lobbyists develop a sense of loyalty from legislators," he said. "They become your friend and you don't want to hurt them or go against them."

SPECIAL SESSION

The problem: Oregon's recession has caused income tax revenue to plunge, leaving a shortfall estimated at $846 million in the 2001-03 budget cycle.

How we got here: The Legislature's Republican majorities pushed through a budget-balancing plan in a special session that ended Feb. 11, but Gov. John Kitzhaber vetoed much of the package. Kitzhaber said the plan relied too heavily on borrowing from trust funds and reserves.

What the governor wants: Kitzhaber agrees with Republicans on many proposed program cuts and some borrowing plans, but he also supports tax increases on cigarettes, wine and beer. Most GOP legislators adamantly oppose any tax hikes.

When does special session II start: 9 a.m. today