NEWS

Critics Feel States May Misspend Their Tobacco Windfall

Lou Fintor

Fresh from a $250 billion settlement with the U.S. tobacco industry, state governments may spend their windfall as they see fit — raising the hackles of anti-tobacco groups that want the monies spent primarily on tobacco control.

"We're very disappointed that a large number of the states are spending the money on anything but tobacco control," said Kathleen Scheg, legislative counsel for the Washington, D.C.-based anti-tobacco group, Action on Smoking and Health.



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Kathleen Scheg

 
Lawmakers anxiously awaiting the first installment of almost $250 billion in payments from U.S. tobacco companies have been busy trying to earmark their bounty for everything from school construction to new sports stadiums to flood control.

"It seems less than responsible to take money that the states received as a result of a tobacco settlement and fail to put a substantial amount of that money into controlling the most preventable cause of death in this country," Scheg contended. "It's not only morally questionable, it's economically short-sighted because we know that tobacco causes millions of dollars every year in health care costs and in lost productivity."Go



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Dilemma

"Our initial view is one of disappointment,"echoed Diane Canova, an attorney who is vice president for advocacy of the American Heart Association in its Washington, D.C. office. "We were hopeful that states would target a significant portion for tobacco prevention and control."



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Diane Canova

 
Seth Winick, the American Cancer Society's Washington, D.C.-based director of State Government Relations, says his group is also dissatisfied with where many states seem to be targeting their settlement payments.

"A `one size fits all' approach does not work; we simply want to make sure that the states adequately address the public health consequences of using these products," said Winick. "We're not looking for uniformity for the sake of uniformity. We're simply seeking to see that tobacco and cancer control objectives are met with these dollars."

The AHA and other advocacy groups argued that 25% of settlement funds should be set aside for tobacco control and related research, although they have since softened their stance on both how much money to target toward these efforts, and what programs are defined as "tobacco-related."

"Smoking education needs to take place as well as tobacco research and when you start straying from prevention-related programs we begin to have concerns," Canova said. "It's been difficult for our local advocates because they see the needs in their states — for new teachers, for increased numbers of people to get health insurance and so on."

Canova cites Florida, Oregon, and California for their funding of "model" anti-tobacco programs; in Maryland, state lawmakers have enacted comprehensive tobacco legislation that has raised cigarette taxes by 30 cents to 66 cents per pack and established a 15% tax on smokeless tobacco. In addition, $21 million of Maryland's settlement monies are earmarked for tobacco control and cessation including the establishment of a new Cigarette Restitution Fund.

Meanwhile, North Dakota's Governor proposed using 90% of settlement funds for water projects, property tax rebates, and education; Pennsylvania lawmakers will consider a proposal to use proceeds for new sports stadiums and other capital projects; Akansas may use its largesse to replace lost oil revenues; and Michigan has pledged $50 million annually of its $300-million-a-year share to boost the state's biomedical research.

And in the nation's capital, city officials are more interested in using their share of the settlement for school construction than battling tobacco marketing aimed specifically at that city's large African-American community, Canova said.

Calling some of these popular efforts "mostly worthy causes," Canova argued that states can fund these programs in ways that do not come at the expense of anti-tobacco initiatives. "Our concern is in the states that have decided not to devote any resources toward tobacco control programs and instead want to use the money for new roads, buildings, and to pay existing debt."

Many anti-smoking activists allege that tobacco companies themselves are lobbying lawmakers behind-the-scenes to divert settlement funds to non-tobacco-related uses. But tobacco industry spokesperson Steve Duchesne called these charges "absolute hogwash."

"It's quite the opposite . . . what you're seeing here is a large pot of money being committed to the states and the (state) politicians simply attempting to use those funds to support other popular programs," Duchesne said, adding that $1.7 billion of tobacco industry money has been earmarked for anti-smoking efforts and research while settlement monies "can be used as states see fit."

New Offensive

Nevertheless, according to Scheg, anti-tobacco groups are mounting a new offensive; this time aimed at pressuring states to use settlement funds for smoking prevention, cessation, and control as well as reducing growing tobacco exports.

For example, North Carolina, the nation's largest tobacco-producing state, last month proposed giving cigarette makers R. J. Reynolds Tobacco Co. and Philip Morris more than $9 million in tax breaks as an inducement to export cigarettes. The proposal was supported by 108 of 120 state House lawmakers as well as North Carolina Governor Jim Hunt.

Activist group goals include mandating coverage of comprehensive smoking cessation programs, expanded counter-advertising, and pursuing even more restrictions on smoking in public places. In addition, several anti-tobacco groups are pushing the Clinton Administration to pursue tobacco companies for reimbursement of tobacco-related Medicare expenditures as well as to establish export barriers.

Calling the North Carolina action "extremely disappointing," the ACS's Winick cautions that public health advocates should be mindful that tightening the reins on tobacco in the United States may lead to significant expansion abroad.

"There is no doubt that our domestic policy for tobacco control affects what happens in the international marketplace," he said.

"We do not wish to bankroll our public health prevention programs on the backs of underdeveloped nations and that creates a priority for us to make sure we are not overtly doing anything that encourages the marketing of these products abroad," he added.

According to Patrick Johnson, health policy specialist with the National Conference of State Legislatures in Washington, D.C., activists groups may have their chance. It is still unclear how most states will spend the windfall because state legislatures had adjourned by the time the amounts they would receive had been confirmed. Instead, they decided to place the money in trust funds, state general funds, or a combination of both, he said.

Thus far, fewer than 20 states have actually enacted laws appropriating the money they anticipate receiving; the majority have targeted the lion's share of payments toward existing health care programs such as indigent care, anti-smoking, and child welfare programs.

Cashing In

Although many states were initially portrayed as dark horses when they took on powerful U.S. tobacco interests, their stunning success has resulted in a virtually perpetual multi-billion dollar windfall that seems to be pitting former anti-tobacco allies against one another. While some groups are attempting to influence spending priorities, or share in the largesse by applying pressure to states through lobbying and the media, others are relying on even more potent forces — Congress and the courts.

First, the Clinton Administration claimed a portion of settlement spoils to recoup the average 50% federal matching funding of state Medicaid health program expenditures. This more than $18 billion rebate was included in the proposed fiscal year 2000 federal budget and only through a successful Congressional amendment introduced by U.S. Senators Kay Bailey Hutchison (R-Tex.) and Robert Graham (D-Fla.) blocking any federal claim, did the Administration reluctantly back off.

In June, a coalition of 20 Native American tribes filed suit to block tobacco company payments, arguing that they have been left out of the settlement. In July, California Medicaid recipients suffering from smoking-related illnesses joined those in Florida, Wisconsin, and Colorado who have filed lawsuits demanding a share of state tobacco settlement payments. Also in July, a New York state Appellate Court dismissed a lawsuit lodged by New York City and Erie and Westchester Counties over how much those localities would receive under a state-county settlement formula.

According to Matt Salo, senior policy analyst with the Washington, D.C.-based National Governors Association, those staking claim to a share of the bounty are little more than eleventh-hour opportunists hoping to cash in on the hard work of state attorneys. During the early stages of the tobacco battles, many were pessimistic that states would prevail and offered little assistance.

"When you lay $250 billion on the table, you're bound to generate a lot of interest," Salo said. "We fought very, very hard to make sure that spending decisions are left up to the states so there is enough flexibility of each state to address their own needs."

States don't consider legal claims by Native Americans and others to be "legitimate" because these groups have the ability to challenge tobacco interests "on their own," Salo added. Moreover, states such as Utah with relatively low rates of smoking and tobacco-related illness should not be forced to devote large percentages of settlement money for tobacco programs, he contends.

"It's almost inconceivable for some states to spend 25% of the money on smoking cessation because there is not that much smoking going on in [some] states, " Salo said. "For many years states have cut back in other areas to pay for cancer control activities and so this is a chance for states to reinvest in health care for kids, drug assistance for the elderly, and other programs."

Complicated Agreement

According to the NCSL's Johnson, the complicated master settlement agreement provides that states will receive varying annual payments for at least the next 25 years based on population size, health care costs, inflation, and domestic tobacco revenues.

The approximately $206 billion Master Agreement applies to 46 states, Washington, D.C., and the territories of Puerto Rico, American Samoa, Guam, and the Northern Mariana Islands. Four states — Minnesota, Florida, Mississippi, and Texas reached separate settlements totaling approximately $40 billion with the five largest U.S. tobacco companies that control more than 90% of domestic tobacco sales.

The agreement would supplement the more than $7 billion states collect annually in cigarette taxes. In addition, some states, such as Washington, will receive larger "bonus" payments based on the degree of participation of their state Attorney General in pursuing the settlement.

Payments will begin by June, 2000 or when either 80% of states participating in the settlement or the number of states representing 80% of total payments have the agreement affirmed by a judge ("state-specific finality"). As of July, 40 states and territories have met the criteria for payment, and the two largest states, California and New York, are poised for approval, according to Johnson.

Tobacco companies will pay monies into an escrow account which currently contains an initial 1998 transfer of $2.4 billion; 1999 is the only year no payment is scheduled to be made. States will receive payments from the fund as long as cigarettes continue to be sold in the U.S. provided they enact "model statute" legislation designed to protect companies participating in the settlement from a "competitive disadvantage." Companies not participating would be required to forfeit a portion of their U.S. sales revenues to states.

Payments would be reduced only if U.S. tobacco sales decline or if the federal government would bring a suit against the companies, which Johnson said is unlikely. While companies look to larger overseas markets such as those in Central Europe and Latin America to make up for declining U.S. sales, nothing prevents foreign governments from also attempting to negotiate their own settlements, he added.


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