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HELENA — A bill to raise the tax on cigarettes by $1.50 a pack and start taxing electronic cigarettes was heard in committee Monday with lengthy testimony from supporters and opponents.

In addition to increasing taxes on cigarettes by a dollar amount, all other forms of tobacco, including e-cigarettes for the first time, would see a tax increase of 24 percent. Senate Bill 354 intends to lower healthcare costs by encouraging people to stop using tobacco products and funnel a portion of the revenue to increase the salaries of direct care workers providing Medicaid services. Under SB 354, carried by Sen. Mary Caferro, D-Helena, direct care workers would be paid $10.80 an hour by October 2017. The rate would gradually increase to $13.80 by October 2018.

“Tax policy with a purpose works,” Caferro said. “We know we have to do something about the community services. They are collapsing.”

The existing tobacco tax is distributed to several different accounts, with 44 percent going to a health and Medicaid account, eight percent to an account for maintaining veterans facilities, 2.8 percent to long range buildings and the rest to the general fund. That formula is not altered by the bill. The additional revenue to direct care workers will come out of the health and Medicaid account, Caferro said.

Supporters touted the savings and health benefits of reducing tobacco use. The direct care industry said the bill would keep staff from leaving due to low wages and provide a continuity of care to clients. Opponents said e-cigarettes can help people quit smoking and they shouldn’t be taxed like cigarettes. They also said they would have to lay off employees or close shop altogether if consumers quit or go elsewhere to purchase tobacco products.

Amanda Cahill, a representative of the American Heart Association, said the tax on cigarettes would have to be $19 to offset the cost of treating the harms of tobacco. In Montana, it costs $400 million each year to treat related illnesses, Cahill said.

Several clients from facilities with direct-care employees said a high turnover rate keeps compassionate and well-trained employees from staying in their jobs. As a result, facilities spend more time training and less time taking care of clients.

Larry Vanhoy, a client at Opportunity Resources Inc. in Missoula, an organization supporting people with disabilities, said he gets to know staff members right around the time they’re forced to leave due to low wages.

“They told me when they left that they would like to stay but they weren’t making enough money,” he said.

Gary Elliott has been a caregiver at Opportunity Resources Inc. for six years. He said the facility can’t attract enough good staff members due to low pay, which ultimately jeopardizes care of people with intellectual and physical disabilities.

“I am being paid $10.40 an hour,” he said. “If I were to leave ORI and draw early (Social Security) benefits, I would be getting $200 more a month than I am as a full-time employee.”

Dr. Greg Holzman, the state medical officer at the Department of Health and Human Services, said research shows a 10 percent increase on tobacco will lower the usage rate by three to five percent. For every one person who dies from tobacco related illnesses in the state, there are 30 more suffering, Holzman said.

E-cigarettes have been advertised as being a healthier alternative to cigarettes since people don’t have to inhale smoke with carcinogens. Instead, e-cigarettes heat up liquid nicotine with the user inhaling vapor.

A study published in the Lancet Respiratory Medicine journal reviewed 38 studies on whether e-cigarette use keeps people from smoking cigarettes. The authors found that people using e-cigarettes were 28 percent less likely to stop smoking than those who did not use e-cigarettes as a cessation aid.

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A majority of testimony from opponents said they disagreed with the research on e-cigarettes.

Deanna Marshall, owner of Freedom Vapes in Belgrade, said she used to smoke three packs of cigarettes a day.

“When I picked up an e-cigarette it took me a week before I took up another cigarette and when I did, I couldn’t even stand it,” she said. “That’s why we started our store. It will help you quit.”

Marshall and several other opponents said businesses will suffer when lower taxes in border states encourage Montanans to travel or buy tobacco products online.

Some said the revenue source wouldn’t be sustainable if fewer people buy tobacco products, but an analysis from the Legislative Fiscal Division says otherwise.

“The rate of increase is so great that it kind of overcomes that,” said Josh Poulette, a fiscal analyst. “The total revenue increase from this bill over four years is in the low to mid $70 million range.”

Caferro said the bill allows for a reduction in tobacco use while still funding the higher direct care worker salaries in the long term.

“You could have diminishing returns which is exactly what we want and still support what this bill seeks to do,” she said.

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