TOBACCO WINDFALL BEGINS TUG-OF-WAR AMONG LAWMAKERS
By Barry Meier
As state legislatures nationwide start new sessions, lawmakers are
beginning to debate how to spend their biggest windfall in recent years:
tens of billions of dollars from tobacco settlement deals.
While some elected officials are calling for the money to be spent on
health care efforts and antismoking campaigns, others are urging that it
be used on projects unrelated to tobacco, including new schools or
jails, and even sidewalk repair. Still other lawmakers say the tobacco
windfall should be used to eliminate state debts or be given to
taxpayers as rebates.
Over the next 25 years, all 50 states and some cities will receive
almost $246 billion from cigarette producers as a result of the lawsuits
brought against the tobacco industry to recover Medicaid money spent
treating smoking-related illnesses. But while public officials unified
those actions under the theme of reducing the ranks of underage smokers,
the question of how to spend settlement dollars has taken on a fractured
look that reflects the financial and political peculiarities of each
Lawmakers in Alabama have earmarked $85 million, the first installment
of its tobacco payout, for a variety of youth-related programs,
including the building of boot-camp-style detention centers, and will
spend only $500,000 of that sum on antismoking efforts. Gov. Jane Hull
of Arizona has proposed using her state's share for financing
tobacco-reduction programs and rebuilding health facilities, including a
psychiatric hospital. And Mayor Richard J. Riordan of Los Angeles wants
to use the city's share to meet a Federal requirement that sidewalks be
more accessible to the disabled.
Because most legislatures will treat the tobacco payments like any other
revenue, interest groups varying from antismoking advocates to business
associations to tobacco farmers are gearing up to lobby lawmakers on how
to spend the money. "Right now, it is a free-for-all," said Dr. David A. Kessler, former
Commissioner of the Food and Drug Administration. "It is a fight over money."
Only Florida, Minnesota, Mississippi and Texas -- the four states that
resolved their lawsuits before the recent $206 billion tobacco
settlement -- have received the first installments of their payments,
which together will total $40 billion over 25 years. The other states
expect to get their first payments next year.
The money will vary widely. California and New York, the two largest
states, will each receive $25 billion over 25 years, and sparsely
populated states like Alaska and Idaho less than $1 billion each. It is
still unclear how much of that money the states will keep because the
Federal Government, which contributes to each state's Medicaid bill,
wants its share.
State officials have said they plan to fight any Federal move to recoup
money or put conditions on its use. But Arturo Perez, a policy research
specialist with the National Conference of State Legislatures in Denver,
said the prospect of Federal action had caused some states to move
cautiously because they did not know how much tobacco money they would
have to spend.
Many state legislatures are expected to put the tobacco settlement issue
high on their agendas. Mr. Perez estimated that for most states the
tobacco settlement windfall would be a sum equivalent to 1.5 percent of
revenues in 1997, the most recent year for which data are available.
That figure is equal to the amount most states collected that year in
tobacco excise taxes, he said.
Tobacco companies have already passed along the cost of the settlement
to smokers by raising prices. All states will probably use at least a
part of their settlement windfall to finance antitobacco measures like
programs to encourage smokers to quit, advertising campaigns to reduce
the number of young people who smoke and stepped-up efforts to prevent
retailers from selling cigarettes to underage buyers.
But the states are free to do with money as they choose. And as a
result, proposals have reflected not only each state's financial
condition but local political and spending demands, as well.
Nebraska, for example, has created a tobacco settlement trust fund and
will use interest from it to underwrite measures like converting nursing
homes to assisted-living facilities. On the other end of the financial
spectrum, Gov. Mike Foster of Louisiana has proposed raising cash to pay
off the state's debt by selling off its tobacco settlement to the
highest bidder. A spokesman for Governor Foster said the state could
then use the $300 million it was now paying in interest to finance
raises in teachers' salaries.
A number of tobacco-growing states, like North Carolina and Kentucky,
are likely to use part of their settlements to help tobacco farmers.
Several states are also expected to emphasize health coverage for
In New York State, Gov. George E. Pataki has not announced a position on
the issue. Democratic legislative leaders are urging that tobacco money
be used to provide health coverage for the uninsured, while Republicans
are calling for a lowering of property taxes and a paying down of the
In New Jersey, which will get $7.6 billion, Gov. Christine Todd Whitman
has called for increased spending on antismoking efforts and public
health programs, including charity care, which pays hospital bills for
the uninsured. And in Connecticut, which will get $3.7 billion,
legislative leaders have only just begun discussions about how to spend
Dr. Kessler, who is dean of the Yale University Medical School, said
that without significant reductions in smoking, the settlement would
prove worthless because the costs of treating tobacco-related illnesses
would not decrease. And antismoking groups are lobbying lawmakers to
spend significant amounts.
Matthew Myers, a lawyer with the Campaign for Tobacco-Free Kids, an
advocacy group in Washington, said his group believed that each state,
depending on the scope of current anti-smoking programs, needed to
earmark 25 percent to 45 percent of settlement proceeds to mount an
Some states are expected to spend sizable sums on anti-tobacco programs,
but the prospects that such spending will occur nationwide may prove
unlikely. For example, even in Minnesota, which won the highest
settlement on a per-capita basis, spending on antismoking measures is
likely to fall far below initial expectations.
Under the $6.1 billion settlement reached last year by Minnesota, $202
million, or 3 percent of the proceeds, was set aside to finance programs
over the next decade to help smokers quit and also to support research
on ways to reduce underage smoking. The settlement also recommended that
an additional $650 million be put into an endowment to finance added
tobacco prevention campaigns, a move backed by Hubert H. Humphrey 3d,
the state Attorney General who brought the suit against the industry.
But Mr. Humphrey lost his bid to become the state's Governor to Jesse
Ventura, the Reform Party candidate. And now with Mr. Humphrey out of
office local antismoking groups are without an important ally just as
lawmakers begin to discuss how to spend the money.
In recent days, the Minnesota Smoke-Free Coalition has begun to run
newspaper and radio advertisements urging the state's lawmakers to add
the $650 million to anti-tobacco programs, said Judy Knapp, the group's
executive director. And Dr. Richard D. Hurt, director of the nicotine
dependence programs at the Mayo Clinic in Rochester, Minn., said the
additional money was essential.
"The money right now is not enough to mount an aggressive marketing
campaign" against tobacco use, said Dr. Hurt, who is also chairman of
Minnesota Partnership for Action Against Tobacco, a foundation created
by the settlement.
But such a move is facing opposition from business groups like the
Minnesota Chamber of Commerce. It has contended that spending $202
million on tobacco programs is plenty for now and that settlement
dollars should be used to reduce health insurance taxes paid by
companies and others.
In addition, Governor Ventura, who has suggested using tobacco money to
create an endowment that will finance medical research, does not plan to
advocate added spending on antitobacco measures beyond the $202 million
already earmarked, said Teresa McFarland, a spokeswoman for his office.
Most states will not decide how to spend their windfalls until the end
of the current legislative sessions. But in recent decades, state
legislatures have often used windfalls for purposes unrelated to the
circumstances that produced them.
Hal Hovey, the editor of the State Budget and Tax News, a newsletter,
said that in the early 1990's many states used Federal, rather than
state, money to pay for Medicaid services. But rather than spending the
money on added health care service, it was used by lawmakers to plug
budget gaps and avoid politically damaging tax increases.
Mr. Hovey, who was previously a state budget director in Illinois and
Ohio, said that in discussing the tobacco money with state officials, he
had been advocating a go-slow approach. He said that unresolved claims
on tobacco money by cities and hospitals might slow down payments, and
that if the Federal Government recouped a share, state revenues would
"I have expressed the view," Mr. Hovey said, ''that in substance you
should not count on this money until you can run your fingers through