Roll-Your-Own shops will face new state fee, but get 3 months to prepare

Connecticut’s so-called “roll-your-own” cigarette industry, which became embroiled two weeks ago in a congressional campaign scandal, won’t avoid a stiff new state fee, but will have an extra three months to prepare for it.

That’s according to draft legislation that the General Assembly is expected to adopt Tuesday in a special session that also is expected to address economic development, state police staffing levels, energy issues and the distribution of surplus state property.

House Majority Leader J. Brendan Sharkey, D-Hamden, said that despite the political and legal issues swirling around “roll-your-own” operations and House Speaker Christopher G. Donovan’s campaign for Congress, state legislative leaders negotiations centered on a fairly uncomplicated question of legal equity.

“This was not, in any way, an uncomfortable conversation to have,” Sharkey said, referring to preparations for a measure that would define businesses that own or make available cigarette-rolling machines as tobacco manufacturers. More than a dozen smoke shops that make rolling machines available for patrons’ use would have to pay the same annual licensing fee, $5,250, charged to cigarette manufacturers.

The FBI arrested the finance director of Donovan’s congressional campaign two weeks ago, accusing him of accepting illegal contributions meant to push the speaker to kill the tobacco legislation.

No evidence has surfaced that Donovan was aware of the effort or did anything to stop the bill. In fact, the measure was a Senate bill that never reached the House when the regular 2012 legislative session ended in early May.

Even before the arrest, Democratic leaders were preparing to include the tax measure in the budget implementer bill.

Donovan recused himself from negotiations over the scope of the special session but has said he intends to vote Tuesday for whatever bills are produced by the negotiations.

Though smoke shops argued they don’t fit the description of manufacturers, some asked that if any fee is imposed, it be delayed until July 2013. Both Gov. Dannel P. Malloy’s administration and the legislature’s Finance, Revenue and Bonding Committee had suggested instituting the new obligation July 1, 2012.

“It is a bit of a compromise to give folks more time,” Sharkey said.

Rep. Patricia Widlitz, D-Guilford, co-chairwoman of the finance committee, said lawmakers tried to balance the smoke shops’ concerns with the administration’s argument that the state must close a legal loophole that could prove costly.

“I think (imposing the new fee) a year out is too much time,” Widlitz said. “We are already seeing more of these roll-your-own shops pop up. We’re addressing a fairness issue here but also recognizing these shops are small businesses who may need a little more time to plan.”

The legislation at issue grew out of a dispute between the Department of Revenue Services and a smoke shop retail outlet based in southwestern Connecticut.

After a Superior Court judge ruled earlier this year that DRS couldn’t classify Tracey’s Smoke Shop of Norwalk as a tobacco manufacturer merely because it owned and rented cigarette-rolling machines, based on current definitions under law, the administration crafted legislation to change them.

The owner of Tracey’s Smoke Shop, Tracey Scalzi, was at the Capitol on several occasions during the final weeks of the regular legislative session lobbying against the proposed definition change, arguing it would unfairly harm many small businesses. Scalzi could not be reached immediately for comment Monday afternoon.

Both the administration and some legislators have said they fear that not classifying roll-your-own shops as manufacturers could threaten a crucial source of state revenue.

Connecticut has received more than $100 million annually from major tobacco manufacturers for nearly a decade-and-a half since it settled a lawsuit against five major firms in 1998. And some officials argue not closing the loophole could prompt cigarette manufacturers to sue Connecticut in hopes of ending their financial obligations to the state.

The roll-your-own measure is one of several issues expected to be addressed Tuesday as lawmakers gather primarily to approve policy legislation needed to implement the new state budget.

Though a jobs promotion bill crafted by the Senate stalled in the House during the regular session, leaders of both Democratic-controlled chambers confirmed Monday that the language would be adopted Tuesday.

“This really was a broadly supported consensus bill,” Senate Majority Leader Martin M. Looney, D-New Haven, said, predicting it would have passed in the House during the regular session, had House leaders called it for a vote.

Highlights of the jobs measure include:

  • Expanding the existing state Small Business Express Program to provide loans and grants to an estimated 3,600 additional businesses. Currently limited to firms with 50 or fewer workers, the program would be expanded to assist businesses with as many as 100 employees.
  • Launching a new program to subsidize a business’ cost of hiring unemployed veterans for the first 180 days of the job.
  • Creating new “Connecticut Made” and “Connecticut Treasurers” programs to promote products made here as well as the state’s cultural, education and historic attractions.
  • And allowing the state Department of Economic and Community Development to give preference for loans, tax incentives and other assistance to companies that relocate jobs from overseas to Connecticut.

The jobs legislation had stalled, in part, because a minimum wage hike sought by Donovan did not have support in the Senate. The proposed increase, from $8.25 to $8.50 in January and then to $8.75 in January 2014, will not be taken up in the special session, leaders said.

Looney added that no decision has been reached yet about whether to revise a campaign finance disclosure bill that has raised some concerns with Malloy. “The issues have not yet been resolved,” Looney said.

Early drafts of the proposed budget implementation bills contain dozens of provisions and House Minority Leader Lawrence F. Cafero, R-Norwalk, charged that majority Democrats loaded the bills with “special interest items and pet projects.”

“This is what we have with one-party rule,” Cafero said Monday. “The Democrats broke their word about sticking to the specific call for the session and have crammed in every conceivable special interest item left over from the regular session and every pet project for themselves. There is no rational reasoning for this process except that they write the rules.”

Among some of the other items Cafero cited include proposals to expand the scope of the Capital Region Development Authority to oversee state sports, change retirement benefits for judges and to create a new Housing Department. Drafts of two bills released Monday total nearly 600 pages.

“If these items are so important they should have been taken up during the regular session or addressed as separate bills in a special session dedicated for different purposes,” Cafero added. “We are supposed to be implementing the budget. This is not a straightforward or transparent of doing the peoples’ business.”

But Looney responded that “the bulk of what we were doing is tied pretty closely to the budget.”

And Sharkey noted that one of the key bills outside of the budget scope enjoys strong bipartisan support, referring to an omnibus measure transferring small bits of vacant surplus state properties to numerous communities, in both Democratic and Republican districts.

“I don’t imagine I’m going to hear any Republicans complaining about that,” Sharkey said.