Tobacco Money Goes to Multiple Projects

States experiencing growing holes in their yearly budgets are turning to money they received from the largest legal settlement in history to pay for the shortfalls.

Analysts say only $1 billion of the record-breaking $246 billion deal with tobacco companies has been spent on tobacco-related prevention or health programs which the settlement was meant to address. 

State representatives say the money is going where it is most needed.

"We're not pleased at all," said Sara Hutchinson, a researcher for the Campaign for Tobacco-Free Kids. "The spirit of the settlement was to alleviate the epidemic. By not dedicating any or just minimal funding to it is not in the spirit of what those funds were supposed to do."

The Campaign for Tobacco-Free Kids, which lobbies to get settlement money in youth smoking prevention programs, issued a report in January that finds that only five out of 46 states have put the prescribed minimum 20-25 percent of settlement funds into tobacco prevention programs.

Michigan, Tennessee, North Carolina, and the District of Columbia have put none of the settlement money into tobacco-related programs, according to the campaign. Nineteen states, including Massachusetts, Arizona, Maine, and Mississippi, are using a "substantial" amount of the money for health programs, though they are still funding at "minimum" levels.

"Certainly, there are states that are using the tobacco settlement money to shore up their fiscal situations, but the settlement says they can spend it however they want," said Lee Dixon, a health policy analyst with the National Conference of State Legislatures.

NCSL found that from 1999 to 2001, 45 percent of the total funds were being used for some sort of health care costs, 24 percent were being spent for endowment funds in which the interest was going toward general health and education programs, but only 5 percent of the total amount was going to programs or health care costs directly related to smoking.

"The dollars are being spent as the states see fit," he said.

After a protracted battle with the federal government, which for the first time sued an industry for knowingly marketing products with harmful health effects, the big four cigarette makers and 28 smaller labels promised in 1998 to give the states $246 billion over 25 years to make up for health costs to the states as a result of cigarette smoking.

There was no directive to the states on how that money would be spent. After the settlement was signed, the Centers for Disease Control and Prevention recommended how much each state should spend at a minimum on anti-smoking programs.

In Tennessee, tobacco money went to bolster the general budget so the state Legislature wouldn't have to raise taxes — a hotly debated issue in Tennessee, which officials say was never affected by the economic boom of the 1990s.

"It breaks his heart that we have to use that money," said Alexia Levison, press secretary to Gov. Don Sundquist, who added that Sundquist wanted to use the money for smoking cessation programs, but was vetoed by the Legislature.

In Michigan, the state already put money into tobacco prevention programs, said Susan Shafer, press secretary for Gov. John Engler, so the Legislature put its allocation into youth scholarships, a major science education project for the state's universities and a program encouraging private sector investment in education.

"We've actually seen a decline in our teen smoking — we are continuing to make strides in those areas," Shafer said. "But as far as the tobacco settlement dollars are concerned, it was basically to recoup the money that had been spent on smoking-related health care costs. We had been spending money from the general fund to cover those costs," she said.

According to a study by the National Taxpayers Union, 10 percent of all the money paid out thus far has gone straight to "general purposes and reserves." Illinois and Connecticut gave back substantial portions of their settlement share as a tax cut. Ohio put money into infrastructure costs, the NTU report said.

"Our consistent thought was that those who expect politicians to suddenly act like angels around that much money should have known better," said Pete Sepp, a spokesman for NTU.

States now suffering from budget deficits may also find the money source tapped out sooner than they thought. 

Payments are based on the yearly revenues to the cigarette manufacturers. The Council of State Governments estimates that because smoking is actually in decline, payments to states may prove to be $14 billion less than initially anticipated, forcing states to cut the few tobacco-related programs they established before the money came along.