Oklahoma Supreme Court concludes cigarette fee is unconstitutional, special legislative session likely.

OKLAHOMA CITY - The Oklahoma Supreme Court issued a ruling Thursday, Aug. 10 striking down a controversial cigarette fee approved on the last day of the 2017 legislative session.

Known as the “Smoking Cessation and Prevention Act of 2017” (SB 845) the bill would have added $1.50 to the per-pack purchase price of cigarettes, with the Oklahoma Tax Commission estimating over $200 million in 2018 fiscal year tax revenues from the cigarette fee.

The legality of SB 845 came into question due to its submission as a fee rather than a tax and specific rules regarding how revenue-raising bills must be introduced and approved.

While the state designated the cigarette fee a public health measure, challengers argued it was truly a revenue-raising tax and therefore adopted unconstitutionally.

As a revenue-raising measure, the bill would have needed to originate in the House of Representatives instead of the Senate and pass before the last week of the session as laid out under Article V, Section 33 of Oklahoma's Constitution.

SB 845 would have also required a supermajority of three-fourths of both chambers of the Legislator per State Question 640. Something that has yet to occur since SQ 640 was passed by voters in 1992.

On Thursday, the Oklahoma Supreme Court handed down its decision siding with Petitioners deeming the intent of the cigarette fee a revenue-raising one and therefore unconstitutional. A 31-page response on the ruling authored by the most recently appointed Oklahoma Supreme Court member, Justice Patrick R. Wyrick, designates the fee as a clear revenue-raising effort by the state.

"SB 845 is by far the single largest source of new revenue for the State, and the $225 million it generates is necessary in balancing the budget," wrote Wyrick.

The state now has until Aug. 17 to issue a response requesting a rehearing.

Budget Impact

According to a press release from the Governor's Office, the General Appropriations bill (SB 860), assigned the second portion of revenue that would have been generated from the smoking cessation fee to the Oklahoma Health Care Authority ($70 million), Department of Mental Health and Substance Abuse Services ($75 million), and Department of Human Services ($69 million).

With the fee being ruled unconstitutional, those agencies, without other legislative intervention, face an over $200 million shortfall in funding that is likely to impact services and programs.

Reactions

Fallin was among the first to issue an official statement, expressing disappointment in the decision.

“I am disappointed to hear the Supreme Court struck down the smoking cessation fee, but I certainly respect the justices’ authority," said Fallin in an issued statement. "I will be discussing with legislative leaders from both parties the need to address the $215 million shortfall this will create for the Department of Human Services, the Department of Mental Health and Substance Abuse Services and the Oklahoma Health Care Authority, the three agencies that received the bulk of the money that was to be generated by the cessation fee.

“These agencies and the people they serve cannot sustain the kind of cuts that will occur if we do not find a solution. My belief is we will have to come into special session to address this issue.”

Responses from lead Republicans and Democrats highlighted the lingering contentions between the two parties on resolving the state's budget deficit.

In his statement on the decision, House Speaker Charles McCall (R-Atoka) pointed to House Democrats as the reason for having to implement the failed fee strategy in an attempt to fill the nearly billion dollar gap in the state budget.

"The Court has made their ruling, and now it is up to the Governor and legislative leaders to agree on the best course of action moving forward," said McCall.

"It is important to remember that the reason our budget has been suffering is because Oklahoma families and businesses have been struggling, State revenues are a reflection of the people of our state," he said. "When our citizens have less money in their pockets to spend the state will realize less revenues. I am a firm believer that government must live within its means."

"The tobacco fee for health care was passed in an effort to avoid significant budget cuts. After House Democrats refused time and again to support increased revenue measures, the fee was our only opportunity to balance the budget without deeper cuts," McCall added. "The minority party decided to play games with the budget, and now that opportunity has passed.

"I look forward to working with the Governor and the Senate to overcome this latest challenge."

In contrast, a statement issued by the Oklahoma House Democratic Caucus on the ruling placed blame on Republicans.

“In order to appease special interests, Republicans made a decision to ignore the House Democratic Caucus, Oklahoma citizens, and the Oklahoma Constitution,” said Rep. Monroe Nichols (D-Tulsa). “As a result of that decision, we are now facing a $200 million hole in our current budget. It is time for the Republican Leadership to stop playing political games and to start working on real solutions to fund state government. As we have been all year, the Democratic Caucus stands ready to negotiate a long-term solution to fix Oklahoma’s funding crisis.”

Senator Micheal Bergstrom (R-Adair), whose representation includes Ottawa and Delaware Counties, issued statements on the ruling in a press release and by phone to the News-Record just before heading back to the State Capitol Thursday.

Bergstrom stressed the importance of addressing the matter, stating to the News-Record the imperative that he and his fellow legislators "get back to work" to collectively resolve the budget issue quickly.

Bergstrom who attended the hearings last Tuesday echoed the sentiment in his issued statement.

"As I sat in the courtroom and listened to the arguments in the Oklahoma Supreme Court on Tuesday, I came to the conclusion that the smoking cessation fee we passed last session was in serious trouble. This morning the court ruled that the fee was unconstitutional," said Bergstrom.

“The court made the right decision," said Bergstrom. "That means, however, that $215 million must be cut from the budget, primarily from the Department of Human Services, the Department of Mental Health and Substance Abuse Services and the Oklahoma Health Care Authority, or we have a special session to fix this.

"I expect we will go into a special session. This is too important. It must be addressed, and preferably sooner than later."

Dorothy Ballard is the managing editor of the Miami News-Record. Contact her at dballard@miaminewsrecord.com and follow her on Twitter @dm_ballard.