State Tobacco Settlement Funds Go Up In Smoke
In 1998, 46 states and five U.S. territories signed onto the Master Settlement Agreement (MSA) in order to recover taxpayer dollars lost to the treatment of tobacco-related health issues, which would then be used to fund anti-smoking campaigns and public health programs. As part of the settlement, the states and territories will receive an estimated total of $246 billion over the first 25 years.
However, the settlement agreement did not stipulate where, the funds should go, leaving it up to the states to appropriate the money how they desire. This subtle ‘loophole’ in the MSA created an unintentional windfall to use tens of billions of dollars to fund projects that have no relation to tobacco prevention and cessation.
For example, New York decided to utilize its MSA payments in an elaborate scheme that would have made Bernie Madoff proud. New York receives approximately $800 million every year from the MSA and spends about $40 million on tobacco education, or 5 percent. On top of that scam, instead of creating a separate fund for the settlement money, the state government decided that it would be a terrific idea to disperse the settlement money into its general fund. New York then granted Wall Street the power to begin issuing risky bonds backed by the MSA settlement money. The only problem is that the settlement money continues to decrease every year as the number of cigarette users decline.
Unfortunately, New York is not the only state engaging in this type of spendthrift misconduct. New Mexico is another example of a brilliant scheme to shift the settlement money among various funds.
In 2000, New Mexico passed a law requiring 50 percent of the nearly $40 million annual payment to be appropriated to the Tobacco Settlement Permanent Fund (TSPF), primarily for investment purposes, while the other half of the money was to be placed in the Tobacco Settlement Program Fund. However, in only four of the last 12 years has the TSPF been receiving its mandated 50 percent. Instead, the settlement money was used to replace general fund revenues that the state had lost in previous years. If New Mexico had been appropriating the money as defined by the 2000 law and the MSA, the Tobacco Settlement Permanent Fund would have roughly $300 million rather than its current balance of $150 million.
Despite the massive sums of money from the tobacco settlement, along with the billions of dollars more from tobacco taxes, the states continue to underfund tobacco prevention and health programs. The CDC recommends that states should spend approximately $3.3 billion per year on tobacco prevention and education, but the states have budgeted a little less than 2 percent of that money, or less than $500 million, for tobacco prevention and health programs. That means that for every dollar the states get from the tobacco settlement, a meager two cents is spent on preventive programs.
Responsible budgeting and appropriating the money as intended would have helped mitigate the loss in settlement revenue while cigarette sales continue to decline. With that being said, what the settlement money was intended to go toward is very different from how some of the states have actually spent it. And if the states were serious about tobacco prevention, the settlement money would not have been used as a handout by the tobacco industry to pay for unfunded liabilities and risky investments.
