THE TOBACCO WAR | Paydays vs. the Price Paid

Industry Intrinsic to Va. Now Vulnerable

By Fredrick Kunkle
Washington Post Staff Writer
Sunday, February 8, 2009

RICHMOND -- This is the first of two stories examining the impact of tobacco and changing attitudes about it in Virginia.

Twenty-four hours a day, five days a week, freshly cured tobacco flows along an intricate freeway of ramps, conveyor belts and pneumatic tubes inside Philip Morris USA's plant here.

It arrives by the ton inside wooden hogsheads. It spins inside giant drums that blend chocolate, corn syrup, eye-watering doses of menthol or other flavorings. It blows through high-tech, high-speed German machines that can roll the dried weed into paper, insert filters and spit out Marlboro cigarettes at the rate of 20,000 a minute.

That's almost 29 million smokes a day from a single machine -- and still just a tiny fraction of the product that has made Philip Morris the world's largest tobacco company. With revenue that rivals Iceland's gross domestic product, Philip Morris contributed $632 million to Virginia's economy through employee wages alone in 2007 and paid $87.1 million in payroll, property and corporate taxes.

Now, Gov. Timothy M. Kaine is leading an aggressive campaign to promote public health, perhaps at the expense of a homegrown industry that until last week was considered almost invulnerable.

On Thursday, Kaine (D) and House Speaker William J. Howell (R-Stafford) compromised on a bill to ban smoking in restaurants and bars, a monumental decision in a state where tobacco has thrived for hundreds of years. To pay for health damage from tobacco, Kaine had also sought to double the state excise tax on cigarettes to 60 cents a pack.

But many lawmakers and their constituents have been wary of imposing taxes or smoking bans. Mindful of the jobs and state revenue generated by Philip Morris, they warn against doing anything to hurt one of the commonwealth's most lucrative businesses.

"If it wasn't for Philip Morris up here, there'd be 4,000 people out of work," said Ken Davis, a truck driver who hauls for Philip Morris and smokes two packs a day. "Virginia was built on tobacco. And now they want to take tobacco away."

Such concerns killed the tobacco tax in a House committee and blocked a companion bill from reaching the Senate floor. Although some legislators in both parties have said they think the tax could remain in play until the session's final days, as lawmakers try to close a $3 billion budget gap, others said the defeat showed tobacco's clout.

"They pay an awful lot in taxes," said House Minority Leader Ward L. Armstrong (D-Henry). He said he was leery of targeting only one industry, which, although steadily declining, still provides a valuable kick to the economy.

In Keysville, some of the best wages can be found at S&M Brands, a closely held company that makes Bailey's Cigarettes. The company, founded in 1994 by Malcolm "Mac" Bailey and his son Steven, employs 170 people and generates net sales of $44.6 million a year.

But the Marlboro Man is still king here. Philip Morris USA's parent company, the Altria Group, is Virginia's biggest public company in terms of market value. Last year, Altria moved its corporate headquarters to Richmond, four years after Philip Morris relocated its executive suites just south of the James River.

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