July 19, 2002

Governor John Engler has signed House Bill 5248 (Public Act 503), which increases the tax on cigarettes from 75 cents per pack to $1.25, effective August 1, 2002. The increase is a key ingredient in balancing the budgets for Fiscal Years 2002 and 2003. Without the cigarette tax increase, a number of programs would have faced cuts and/or elimination. "I thank the Legislature and the education community for their hard work on the passage of this bill. It is essential to protect the gains we’ve made in K-12 education," said Governor Engler. "This legislation protects school funding, prevents painful cuts, and provides a dedicated source of revenue for health programs."

The 50-cent increase in the cigarette tax will not only allow the state to continue funding Michigan’s K-12 public schools at a minimum of $6,700 per pupil in the 2003-2004 school year but will also maintain current funding levels for many categorical programs.

The cigarette tax increase will generate approximately $290 million annually, of which 6 percent or 3 cents will be dedicated to the Healthy Michigan Fund.  The increase will boost the Healthy Michigan Fund by approximately $17 million annually.  The remainder will be distributed as follows:

• 20.2 cents (approximately $105 million annually) to the School Aid Fund;
• 22.3 cents (approximately $140 million annually) to the General Fund to prevent a reduction in state supported programs;
• 3.76 cents (approximately $24.7 million annually) will be invested in the Medicaid Benefits Trust Fund; and
• .94 cents (approximately $6 million annually) to fund indigent care in Wayne County.

The cigarette tax increase also spares a number of programs from cuts, including grants for local food banks, fire protection, school readiness, adult education, arts, waste management, and local governments. HB 5248 also increases the tax on other tobacco products by four percent. For Fiscal Years 2005 through 2007, tax proceeds from tobacco products, earmarked for the General Fund, will instead be used to rebuild the Budget Stabilization Fund.