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Budget push focuses on cigarettes<br> Tax changes would boost revenue by $440 million

ALBANY — Gov. David A. Paterson will try to force state lawmakers Monday to approve a $1.60-per-pack increase in the state's cigarette tax this summer while beginning to collect taxes on tobacco sales by Indian retailers.

The tobacco measures — designed to bring the deficit-ridden state about $440 million in revenue — will be included in an emergency appropriation measure Paterson is sending to the State Legislature.

Lawmakers will have only two options: pass the bill without changes or shut down the state government by failing to provide emergency spending authority.

Under Paterson's bill, the cigarette tax would rise to $4.35 per pack, by far the nation's highest. Rhode Island, at $3.46 a pack, now holds that distinction.

With a corresponding increase in sales taxes, health groups said the effective increase actually would be closer to $1.75 per pack.

Paterson is making the latest push to collect taxes on Indian sales of tobacco products to non-Indians only days after top officials of the Seneca Nation of Indians had warned his aides not to bank on the additional revenues because the collection efforts will not work.

Seneca officials have vowed to take all actions, including more litigation, to stop the collection. They also have warned that some might turn to violence to protest what they see as an economic and sovereignty assault by the state.

"We would hope there would not be any violence," said Robert Megna, the governor's budget director, who announced the tax moves Friday evening. The tax, he said, would be collected in a way "to specifically avoid" a violent reaction.

The measure calls for collecting the taxes from wholesale suppliers, then providing a "liberal" amount of tax-free cigarettes for Indians for their personal use.

It would not issue coupons, a method already on the books, to Indians to buy cigarettes for personal use. Megna called the new effort a "fair, non-invasive way" to collect the taxes that does not directly involve Indian retailers charging the tax.

>Senecas slam move

State lawmakers previously approved laws requiring the Indian tax collections, but the most recent three governors have declined to pursue the matter — in part to avoid the violence that erupted in 1995 when members of the Seneca Nation and other tribes shut down portions of the Thruway during confrontations with state troopers.

Seneca Nation officials condemned the move.

"We stand by our treaty guarantees to the tax-immune, peaceful enjoyment of our territories. This is an act of economic violence against the native people of what is now New York State. The state is built on the graves and land sacrifices of our people," said Richard Nephew, chairman of the Seneca Nation's legislative council.

>‘Act of war'

Seneca officials say the state is using Indian retailers to bail out budget problems. "This is manifest destiny in action, as a result of decades of fiscal mismanagement in Albany," Nephew said.

"It's an act of war," added J.C. Seneca, a Seneca Nation councilor and co-chairman of the foreign relations committee. He said Paterson has chosen a "path of controversy and confrontation, [and] if anything happens, it's on their hands."

The governor had proposed raising the cigarette tax by $1 per pack but boosted the figure this week to $1.60 to help close the budget gap.

Health groups hailed the moves.

"It's probably the most important public health care measure in decades," said Russell Sciandra, director of the Center for a Tobacco Free New York. Smokers are extremely price-sensitive, he said, estimating that the tax increase would reduce the number of adults who smoke by 120,000.

The emergency bill also will increase taxes Aug. 1 on other tobacco products — pipe tobacco and cigars — to 75 percent of wholesale prices from the current 46 percent.

Chewing tobacco taxes also would rise.

Anti-smoking advocates say the state only would worsen bootlegging if it raised the cigarette tax without ending tax-free sales by Indian retailers. Excluding sales taxes, Indian retailers would have a built-in price advantage of $43.50 per carton over non-Indian retailers who must charge the $4.35 per pack excise tax.

New York City, a popular destination for Seneca cigarettes, proposes to impose an additional $1.50-per-pack tax.

Megna said the cigarette taxes would rise July 1 and the Indian collection effort would be under way by Sept. 1. He said he believes court challenges will not block the collection effort because the new measure is "consistent" with past court rulings on the matter.

In Albany earlier in the day, Paterson and lawmakers continued their piecemeal fashion of embracing less controversial portions of the state budget but left the Capitol for the weekend unable to agree on how much they already have reduced the state's deficit.

>Differences on deficit

If the $28 billion or so proposed Friday for such major expenditures as as transportation, economic development and public protection wins approval, legislators and the governor will have agreed on about 70 percent of the budget, expected to total about $135 billion.

But exactly how much of the projected $9.2 billion deficit has been resolved remains a bit of a moving target. The Assembly put the deficit-closing action so far at about $3 billion.

The Paterson administration put it at about $2.2 billion but said "administrative" actions — such as state agency savings — boost the deficit-cutting to about $5 billion.

No matter the numbers, one thing is certain: Some of the most divisive decisions are being left to the end, such as cutting funding for public schools, increasing taxes and whether the state will borrow to close the budget gap.

The Assembly approved the $28 billion Friday. But the State Senate left town without passing the bills because the Democratic majority did not have enough members to approve the package.

Critics say lawmakers are approving spending while keeping secret until the end whether they will close the remaining gap through tax hikes or other means. "You are spending money without knowing where it's coming from," Assemblyman James Hayes, an Amherst Republican, told lawmakers on the floor Friday.

The new deal includes cuts in state aid to local governments. In Erie County, localities will lose $700,000 in state aid, while state "efficiency" grants for Buffalo and Erie County would be reduced by a total of $4 million.

>$3 million for Bills

The plan merges some smaller state agencies to save money. It also calls for closing two state prisons — minimum security facilities in Clinton and Wayne.

Two other prisons, which Republicans complained are in Democratic Senate districts, were taken off the closure list.

Allocations include $78 million to create a state agency to improve access to legal services for indigent people accused of crimes.

One local group — the Buffalo Bills — would do all right. The Friday bill includes $3 million under a financial deal made back in the 1990s to keep the Bills from leaving Buffalo.

Friday's package calls for $155 million in new revenues, including a new $500 "credentialing" fee for people taking the bar exam and new or higher fees on everything from foreclosure filings to criminal background checks.

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