Tobacco Settlement: Where's the Money?

Graphic: Leza Berardone Everybody wants a piece of the pie, especially when that pie is worth $206 billion. That is the total amount the states won from the tobacco companies last November in the largest civil settlement in U.S. history. Florida, Minnesota, Mississippi, and Texas had settled individually for a combined amount of $40 billion earlier. The payments will be made over the next 25 years, and even though the money is still not available to the states, a scramble over how to spend it is

By | November 8, 1999

Graphic: Leza Berardone
Everybody wants a piece of the pie, especially when that pie is worth $206 billion. That is the total amount the states won from the tobacco companies last November in the largest civil settlement in U.S. history. Florida, Minnesota, Mississippi, and Texas had settled individually for a combined amount of $40 billion earlier. The payments will be made over the next 25 years, and even though the money is still not available to the states, a scramble over how to spend it is in progress.

Initially, many legislators were concerned that the federal government might attempt to recoup some of the states' tobacco settlement by claiming the payments from the tobacco companies were essentially third-party Medicaid reimbursements. However, in late May of this year President Bill Clinton signed a bill with an amendment that denies the federal government access to any of the money. With the recoupment concern settled, states have turned to allocating funds.

The initial payment of $2.4 billion is in escrow accounts until the terms of the settlement are met. The money will not be available to the states until July 1, 2000, or until 80 percent of the states with 80 percent of the settlement dollars have reached state-specific finality, a stage at which any outstanding litigation against tobacco companies has to be settled. As of late October, states with 78 percent of the settlement dollars had reached finality. With Virginia just weeks from finality, settlement dollars could be available before the end of this year.

States at Different Stages

Spending the settlement money has become a state-to-state issue. Heidi Heitkamp, attorney general of North Dakota, points out that the attorneys general involved in the tobacco litigation did not feel comfortable designating how the individual states should spend the settlement money. So the money is going into the states as general revenue, and state legislatures have ultimate authority over how to spend it.

Allocation of power and authority to the governor or the legislature varies among states. In Maryland there was consensus about how to spend the money; the governor proposed a plan and it passed the legislature. They have actually numbered their priorities and estimated how the money will be spent in dollar amounts. On the other hand, the governor of Oregon made a proposal the legislature did not pass. Instead, the legislature decided to have a ballot initiative next year, asking the citizens how they want the money spent.

At least one state has decided to budget the money on a yearly basis instead of making one lifetime decision. Joan Henneberry, deputy director of the health policy studies division at the National Governors' Association, thinks this will happen in more states. This is one of the reasons that a number of governors want to establish trusts and endowments with a set purpose. Minnesota has set up three endowments with three different health-related goals.

"The states are at all different stages of planning, so you can't really [speak about spending] trends yet," comments Henneberry. According to Lee Dixon, program manager for the health policy tracking service at the National Conference of State Legislatures, most states have not yet decided what they want to do with the settlement money. In fact, of the $8.8 billion that will be available to the states in FY 2000, only about $1.1 billion has actually been allocated for specific purposes, about 15 percent. "The opportunity is still out there for health advocates to push for their priorities. However, the people will have to take the initiative to be heard," Dixon comments.

Legislatures and governors of about 27 states have not decided how to allocate settlement funds. These states are collecting public input and weighing competing demands before the legislatures reconvene in 2000. Public task forces or governor-appointed commissions have been organized in Ohio, Pennsylvania, Illinois, Iowa, New Mexico, and Arkansas. In Pennsylvania, town meetings around the state are producing information about how the people want the money spent. People also will have the opportunity to testify through their state legislatures' regular appropriations process.

Adapted from information provided by the National Conference of State Legislatures Web page

Campaigning for Dollars

Many public health groups have taken this opportunity to educate legislators about the health impacts of smoking. Eric N. Lindblom, manager for policy research at the Campaign for Tobacco-Free Kids, explains, "We are doing pretty much anything we can think of to inform the states in the debate on how to spend the money from the settlement." An example of this is extensive fact sheets that compare the toll of tobacco use in each state to the investments that may reduce the toll in lives and health care costs.

Seth Winick, national director of state government relations for the American Cancer Society (ACS), indicates the ACS is also involved in every state, encouraging legislators and executive branches to fund tobacco use prevention and education. "We should make certain that the public health reasons that these lawsuits were filed by the states' [attorneys general] be addressed first," comments Winick. States such as Vermont, Washington, and Maryland are going to spend at least what the Centers for Disease Control and Prevention (CDC) recommends as the basic requirements for a good, comprehensive tobacco-use prevention program. The ACS, along with other national health advocates, has set these figures as targets for states. Winick feels that even after reaching the CDC target, there will be millions of dollars available for other priority projects.

The attorneys general of several states have been campaigning for particular uses of the settlement money. "In general it is safe to say the [attorneys general] have been supportive of the public health issues," says Heitkamp. The attorney general of Utah, Jan Graham, actually went on the radio on behalf of the public health community to encourage funding of antismoking programs. Her involvement almost cost her the powers and duties of her office. Christine Gregoire, attorney general of Washington, has been successful in her efforts to have funds allocated for health care and tobacco prevention.

A number of states with large universities and research hospitals have argued that some of this money should go to cancer research, but that does not seem high on the agenda of most states. Michigan, Florida, and Maryland have put some money into research, and Texas has indicated it wants to do the same. In states that have made health issues a priority, a sprinkling of opportunities exists for research money. Governor Tom Ridge of Pennsylvania has said 100 percent of the settlement money will go toward health-related issues. Most likely, some of the money will support programs involving the underinsured or uninsured, cancer research, and cancer prevention.

Jay McKay, executive vice president of Fox Chase Cancer Center, Philadelphia, says the center got involved early in the debate on money allocation. "We developed a program with all of the cancer centers in the state, and then each of us in turn used individual efforts to bring this to the attention of the legislature." McKay and his colleagues have proposed that the allotment be distributed to each cancer center in proportion to the amount of funds it receives from the National Cancer Institute. This way, an existing peer review system is incorporated into the process. "My guess is they are going to put some money into heart and lung research also, because it is appropriate to do that," adds McKay. New York may follow this model.

Legacy Foundation

While the vast majority of the money is going to the states, a relatively small amount, $1.45 billion, is going

to set up the national Legacy Foundation. The first payment of $250 million came in 1999 with four subsequent $300 million annual payments to follow. A sizable amount of money is set aside to create smoking cessation programs and to make grants to state and local government agencies. The foundation will also deal with addiction, the only research mandated in the settlement itself.

To find out what is going on in your state:
However, many states are using the foundation as an excuse for not investing in their own tobacco prevention programs. Lindblom emphasizes, "The national foundation and the national public education funds in the settlement agreement are not enough to make a major difference [in decreasing tobacco use]." Though the National Cancer Institute is playing a passive role in the debate, it supports the view that the majority of the money should be spent on programs targeting youth and adult smoking.

State Priorities

While there have been suggestions and even bills introduced to spend the money on roads and tax cuts, none of those have

passed the legislatures. North Dakota is the only state that has put a significant amount of money into anything other than health or education to the disappointment of Heitkamp: 45 percent of its settlement dollars will go toward flood control. Some southern states have allocated funds from their state settlements for tobacco farmers in addition to settlement money specifically designated for farm communities.

Of the money that has been allocated, more than half will go toward health care. Edu-cation is proving to be important to the states also, with more than 20 percent of the funds going toward childhood development, K-12 education, and college scholarships. Only 10 percent will be spent on tobacco control and smoking cessation programs, and 6 percent on services for the elderly. The rest, approximately 11 percent, will be spent on assorted state needs.

There seem to be proposals to spend 500 percent of the settlement money. Though most of them are relatively good causes, they may not be related to tobacco use, the reason the states have this money. The legislatures must keep this in mind as they choose priorities based on what is most needed in their states.

Nadia S. Halim can be contacted at

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