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UPDATE 1-Tobacco bond payments may fall if Calif. OKs tax measure-Fitch
June 5, 2012 / 10:22 PM / 6 years ago

UPDATE 1-Tobacco bond payments may fall if Calif. OKs tax measure-Fitch

(Adds comment, background)

SAN FRANCISCO, June 5 (Reuters) - Fitch Ratings said on Tuesday it believes all tobacco Master Settlement Agreement recipients may see lower payments if California voters support a tax measure that would raise the tax on a pack of cigarettes by $1 to $1.87.

Voters are taking up the measure, which would raise revenue for medical research into tobacco-related diseases and fund programs to control tobacco use, in Tuesday’s primary election.

Fitch in a report noted that a similar tax of $1.01 was implemented federally in March 2009, and cigarette consumption decreased by 10 percent the following year, exceeding a 12-year average rate of decline of 4 percent.

California is allocated approximately 12 percent of MSA payments, Fitch added.

The credit ratings agency said the negative effect on MSA payments from an increased tobacco tax in California could be softened as many of the state’s smokers may be not deterred by higher prices for cigarettes.

Fitch said “while California is the most populous state, it has the second-lowest incidence of tobacco consumption per capita. And we suspect that a proportion of remaining smokers have become relatively price insensitive.”

Polls ahead of Election Day showed support for the tax measure dropping sharply due to a blitz of advertising backed by the tobacco industry, leaving the outcome of the vote on the measure in doubt.

California voters last approved a measure to increase the state’s tobacco tax in 1998, and then, only narrowly by 51 percent to 49 percent. (Reporting by Jim Christie; Editing by Kenneth Barry)

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