Exploring the Fiscal Impact of a Smoking Ban

By Jonathan Kleyer

Since Gov. Jennifer Granholm approved Michigan’s latest public smoking legislation on December 18th, there have been a great deal of positive and negative reactions to the manner in which many public venues, such as restaurants and bars, will be made smoke-free by May 1st.
Yet there is still an issue beyond lamentations about no longer being able to sit down for a drink and a cigarette in one’s favorite bar, or being able to smoke while at work: economics.

Senator Tom George, a Republic representative for the Kalamazoo area, was a co-sponsor on several revisions to the bill. George, who chairs the Senate Committee on Health Policy, held the legislation up as an action that will improve the health of Michigan residents while reducing health care costs.

“Smoking and exposure to secondhand smoke, are two reasons Michigan is one of the unhealthiest states in the nation,” said George. “The state now spends more on health care than on education. A healthier Michigan means fewer dollars spent on health care and more returned to the taxpayers or spent on education or other worthwhile initiatives.”

According to George, early last year he introduced a complete smoking ban without exceptions, but was willing to settle for a bill that made compromises, so that in the end, Public Act 188 bans smoking in all public places except cigar bars, tobacco specialty retail stores and the gaming floors of certain casinos.

While businesses and employers who conform to the law will not be penalized if individuals are caught smoking in their establishments, the bill creates penalties for establishments that do not comply with the new regulations. Businesses could be subject to a civil fine of $100 for a first offense and up to $500 for subsequent offenses.

According to the House Legislative Analysis Section (HLAS), the bill “is likely to cause tobacco tax and possibly gaming revenue to decline, but will also bring about short-term and long-term savings in medical costs.”
The organization predicts that the rate of smoking by the population will decline by 5 to 20 percent. In studying the fiscal impact of this drop in consumption, the HLAS cites that in the fiscal year of 2007-2008, $1.5 billion of Medicaid expenditures went toward smoking-related illness. If the reduced cigarette consumption can lower the cost of health care, 1 percent of savings would, based on that year’s figures, have reduced expenditures by $15.1 million.

It is also worth pointing out, however, that the legislature is expected to reduced revenue through the tobacco tax and the Lottery. According to the HLAS, a decline of 1 percent in cigarette tax revenue represents a loss $10 million in revenue.

This adds up to a fairly significant amount of lost revenue with the expected consumption drop of 5 to 20 percent.

If a decline of 1 percent in consumption reduces medical expenditures by 1 percent, then theoretically, the bill is truly the legislative measure that will help make Michigan economically more competitive, as George has claimed.
As for whether or not these figures will hold up when the bill takes effect in May, one can only wait and see.

Tell Us What You Think
If you have an opinion about Public Act 188 of 2009, write a Letter to the Editor and mail it to us at: 125 W. Michigan Ave.Galesburg, MI 49053, or email it to frontdesk@kalamazooshopper.com.