Columbia dining tax revenues dissipate with smoking ban, report says

Wednesday, December 12, 2007 | 8:16 p.m. CST; updated 11:58 a.m. CDT, Tuesday, July 22, 2008

The 13th paragraph of this story mistakenly said Third Ward Councilman Karl Skala wasn't surprised by the 5 percent "increase" in dining revenues after smoking was banned in bars and restaurants. The story should have said "decrease." The online version has been corrected.

COLUMBIA — Columbia’s smoking ban has been blamed for favoring bars and restaurants with patios, business closures and now for decreasing dining tax revenues.

The smoking ban decreased dining revenue tax by an average of 5 percent, according to a preliminary report released Tuesday by the Federal Reserve Bank of St. Louis.

More information

For the complete report, click here.

The effect of the decrease in sales tax will depend on the “magnitude of what the sales tax does for the city,” said Michael Pakko, author of the report, estimating the 5 percent decrease would equal $60,000 in lost revenue for the city.

“But that’s based on this data alone,” Pakko qualified.

The ban seems to have affected bars and restaurants the most, he said.

Pakko examined monthly sales-tax revenues for bars and restaurants in Columbia from January 2001 to July 2007. He also factored in variables, such as seasonality, an overall sales drop and a harsh winter. Pakko concluded that January 2006, when the smoking ban went into effect, marked a turning point in the data, with sales tax revenues starting a rapid decline.

He found that bars with patios were the exception to the shortfall.

“You have to have a patio to survive,” said one bar owner who was quoted anonymously in the report.

Pakko didn’t think the City Council “intended to promote patio building, but that was the effect,” Pakko said.

But even if bar and restaurant owners started building patios to give customers a place to smoke, the cost of building a patio would take away from their profits.

Those findings, coupled with the negative seven-month averages during 2007, made Pakko reasonably sure that Columbia’s smoking ban should take the majority of the blame for the revenue decline.

According to Pakko’s report, at least four business owners said the smoking ban was a factor in their decision to close. One business owner reported a 40 percent drop in alcohol sales and a 20 to 30 percent drop in food sales.

Third Ward Councilman Karl Skala wasn’t surprised by the 5 percent decrease but said he would like to see where Pakko got his numbers. However, Skala said the number of restaurants who benefited from the ban should balance out those that are losing money.

“Revenue across the board for restaurants has decreased,” Skala said. “We have to make sure the cause of that is the smoking ban, not a downturn in the economy.”

Skala said he considered smoking a public health issue, not a economic or civil liberties issue.

“I agree with the mayor on this regard; there are proven problems with secondhand smoke,” Skala said. “It is the first business of the government to protect the health of the people. It is incumbent on the government to protect those who don’t smoke.”

Pakko admitted that his study was limited by time.

“These findings are of course, preliminary,” Pakko wrote in his report. “With only seven months of data since the implementation of the smoke-free ordinance, any conclusion about the impact of the smoking ban should be considered tentative. The downturn in bar and restaurant business in Columbia may be associated with some other factor that has not been considered in this analysis.”

Though Pakko has no immediate plans to continue his research, he did say that it “would be an interesting topic to follow up on.”

The Colosseum Bistro, 402 E. Broadway, and its accompanying sports bar, Stumpy Joe Pete’s, is one of those businesses closing its doors, with owners claiming the smoking ban is the main culprit behind their decision to close. About 40 employees, including servers, dishwashers and cooks, will lose their jobs.

Last December, 20 to 25 bar regulars could usually be seen hanging out, eating chicken wings, drinking beer — and smoking, said Will Burns, head bartender and manager of the Bistro. This December, most nights consist of only four or five guys or some families coming in to the restaurant for dinner.

“The majority of people that came in here were smokers,” Burns said. “People still come out to have a meal, but when people are coming to eat food and food alone, not drink for six or seven hours, that has an effect.”

Burns described the regular Bistro customer as someone a little older than the normal college student and more “set in their ways.” Many customers told Burns the ban limited their freedom.

Shiloh Bar and Grill, 227 S. Sixth St., which Burns said was one of the few restaurant bars thriving since the ban, planned to move to the space being vacated by the Bistro early next year.

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Brian Ash December 13, 2007 | 12:13 p.m.

I would like to know who (if anyone) commissioned this report. Is it common practice for a Federal Reserve Banker in St. Louis to analyze something like this? Just curious. I think that's an important part of the story I haven't seen covered yet.

(Report Comment)
Tom Head December 13, 2007 | 12:27 p.m.

“I agree with the mayor on this regard; there are proven problems with secondhand smoke,” Skala said. “It is the first business of the government to protect the health of the people. It is incumbent on the government to protect those who don’t smoke.”


(Report Comment)
John Schultz December 13, 2007 | 1:24 p.m.

Brian, Michael Pakko has done a couple previous economic studies on smoking bans, probably available at the same link. One was a refutation of the DHSS study that showed a positive gain in Maryville after they passed their smoking ban. He claimed the positive trend in sales tax receipts was mostly due to a new Applebee's opening.

(Report Comment)
Michael Vaughn December 13, 2007 | 1:45 p.m.

Two independent government labs measured air quality for the secondhand smoke trace element nicotine* and obtained the following results. (Their purpose was to prove how hazardous secondhand smoke is, however the results prove quite the contrary).

St. Louis Park, MN. Environmental Health Dept, as well as the California EPA tested air quality for nicotine* levels in the identical manner.

SLP results were 1 - 33 micrograms/ cu. M. in other words 500 - 15 times safer than OSHA requires; the median reading was 152 times safer than OSHA requirements. (measurement of indoor air quality in all bars/ restaurants which allowed smoking in 2004 before smoking bans were in place)

CA EPA results 0.01 - 5 micrograms / cu. M. in other words 50,000 - 100 times safer than OSHA requires (measurement of outdoor air quality in smoking areas) results are at bottom of pg. 3 hyperlink.

OSHA permissible exposure limit level for nicotine* is 0.5 milligrams / cu. M which equals 500 micrograms / cu. M

* (As per air quality researchers) Nicotine is the only unique or "trace" chemical in secondhand smoke. If you measured for formaldehyde, the carpet and other interior sources of formaldehyde would corrupt the test result, fomaldehyde is formed naturally in our atmosphere due to photochemical oxidation. Benzene is given off from burning foods in the kitchen or diesel exhaust outdoors so again a false reading would be obtained. Therefore, nicotine is the ideal chemical to measure for to determine secondhand smoke concentrations in the air. And then our comparison to OSHA guidelines is the logical manner in which to determine if secondhand smoke levels pose a health hazard, as you can see they do not.

(Report Comment)
Michael Vaughn December 13, 2007 | 1:49 p.m.

Air quality tests performed in Minnesota and California in smoke-filled bars and restaurants show that secondhand smoke may not be the major health hazard that some claim it is.

The Environmental Health Department in St. Louis Park, Minn., tested for trace levels of nicotine and found results between 1 and 33 micrograms of nicotine per cubic meter of air.

The California Environmental Protection Agency tested for trace levels of nicotine in outdoor smoking areas and found (PDF) results between 0.01 and 5 micrograms of nicotine per cubic meter of air.

Occupational Safety and Health Administration regulations specify a limit for nicotine in the air of 500 micrograms per cubic meter of air.

The California study went on to state that people who have only “brief encounters with [secondhand smoke] are likely to be exposed to less than 0.1 [micrograms per cubic meter of air]” over a 24-hour time-weighted average.

This means not only is it not going to kill you to smell smoke once in a while, it isn’t even going to have much of an effect on you.

Thanks to Marcus Aurelius of Clearing the Air for the heads-up. He went on to suggest that smoking bans might just be about increasing sales and profits for certain companies at our expense.

(Report Comment)
Liz Heitzman December 13, 2007 | 3:27 p.m.

This is from an e-mail Karl Skala sent in response to the story:

"In terms of context clarity, the reference 'that I was not surprised by the 5 percent decline in dining revenues' is attributable, I suspect, to the overall across the board decline in sales tax revenues citywide. It is very likely that most declines in dining revenues for individual restaurants has much more to do with our robust local restaurant competition than any significant effect of the smoking ban."

(Report Comment)
Liz Heitzman December 13, 2007 | 5:14 p.m.

More from Karl Skala, sent via e-mail:

"I am currently working on a serious rebuttal to Mr. Pakko's report (by the way, your link to the Pakko report yielded an untranslatable report; I went to Google and found the St. Louis Fed Reserve Report text (attached). You may want to make this readable text available to your subscribers.

My current thoughts: I just wrote these down after reviewing quickly reviewing the Pakko Report:

My initial reaction/opinion to a cursory reading of the Pakko Report:

1. This is not an economic issue, but rather a public health and safety issue.

2. One cannot separate the economic downturn from the effects of the smoking ban, no matter how sophisticated the statistics. (Garbage In Garbage Out) GIGO; you must deal with the data you gather and applying advanced statistical techniques can clarify but not reinterpret the facts, i.e. there has been an economic slowdown in the face of vastly increased (non-smoking) local restaurant competition. Regession techniques are powerful and persuasive only if the data on which they are applied is powerful and persuasive, and not just suggestive. This study is deficient in its accounting of that confounding reality (not to mention the limitation of its time frame as as acknowledged by its author) and a definitive study has not yet been designed, nor executed, to effectively separate the effects of the smoking ban from the overall downturn of the economy exacerbated by the explosive growth in local (nonsmoking) restaurant competition.

Again, all of this is, of course, public discourse, though I may choose to add to that discourse in the future (probably likely, given my inclinations)."

(Report Comment)
Michael Vaughn December 13, 2007 | 9:45 p.m.

With everyone being so concerned about the smoking ban, how many non-smoker have thought about the increase in drunk driver due to smoker having to travel outside the city to enjoy a smoke with their dinner and drinks. Thanks to the smoke ban I feel that my life is more at risk of being killed by a drunk driver. Non-smoker have a choice of going to a place that allows smoking but smoker don't have that choice and I feel that this is not fair. What other rights are the city going to take from smokers. The right to smoke in your own home?

(Report Comment)
John Schultz December 14, 2007 | 1:44 a.m.

Mr. Skala, how does restaurant competition factor into the discussion at all when Mr. Pakko's report looked at the aggregate sales tax collected by the city? I think that particular reasoning is a non-starter. If the population of Columbia only has X dollars for eating out, the city will see those tax dollars, regardless of how dispersed they are over the various establishments.

(Report Comment)

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