Calling the agreement reached last year a "settlement" may have been a gross overstatement. States will soon begin to reap the financial reward, but as appropriation infighting continues, it's obvious that very little actually seems to have been settled.

by Bob Ashley

The 50 states, which will receive $246 billion from five American tobacco companies over the next 25 years for settling health-related cigarette lawsuits, may find that figuring out ways to spend the money is more difficult than collecting it.

In the early going, deciding what to do with the tobacco settlement money, which will begin flowing to the states next year (2000), has caused political acrimony in some state legislatures, pitted at least one governor against local anti-smoking groups, and resulted in nearly half of initial appropriations being directed at non-smoking and non-health related programs.

What is clear is that most legislatures intend to establish their own spending priorities. Competing interests, ranging from highway lobbyists to local schools officials to the heads of state-operated universities to economic development gurus want a piece of the pie. And they are getting it, even though the lawsuits that led to the settlement were aimed at recovering money the states claimed they spent on caring for smoking-related illnesses among the nation's poor.

Legislators, though, are not apologetic.

"I'm not against using some of the money, say, to persuade kids not to smoke," State Sen. Lawrence Borst, the Republican chairman of the Indiana Senate Finance Committee, told State Legislatures magazine, published by the National Conference of State Legislatures (NCSL). "On the other hand, state health costs have risen steeply over the past 20 years. That's diverted money from other priorities. Why not treat this settlement money in that context? Let the legislative process determine what the priorities are." Indiana will receive $40 billion of the settlement and adjourned its budget session in April without establishing priorities for spending the money.

A report prepared by the NCSL staff showed that in the early stages only a little more than half of the money that will be received in the next two years has been appropriated to health-care programs.

In Oregon, the legislature opted to let voters decide whether to set up a health care trust with the $180 million it will receive during the next two years, although Gov. John Kitzhaber proposed spending the tobacco money on schools, which put him at odds with local anti-smoking organizations. Nothing in the settlement outlines what the states may or may not spend the money on, and the wrangling over how to spend it was predictable.

The February issue of State Legislatures magazine compared the history-making settlement to an individual winning the lottery.

"You quickly discover friends you had long forgotten, cousins whose addresses you lost years ago, financial advisers promising to double your winnings in a year, and charities you never, ever heard of," journalists Carl Tubesing and Joy Johnson Wilson wrote in their article.

The November 1998 settlement resulted from a spate of lawsuits by the states against major United States cigarette manufactures that sought to recover the medical costs associated with treating smoking-related diseases. Tobacco companies agreed to settle four suits for $40 million over 25 years, and reached a broader deal in November that will divide $206 billion among the other 46 states.

According to an NCSL report, 21 states had authorized the spending of $1.3 billion of tobacco settlement money through July, with a little more than half being directed at health-care services. Only 10 percent had been directed toward tobacco control and smoking cessation programs, while more than 20 percent was being directed toward childhood development, K-12 education and college scholarships. Six percent had been approved for services for the elderly.

More than $130 million had been earmarked for other state needs, including roads and economic development. Some states are treating the tobacco settlement as a savings account. Kansas, Louisiana, and Minnesota have established endowments and plan only to spend the interest on the money they received. Three states, New Hampshire, Wyoming, and Maine, decided to put the settlement money into the General Fund, where it will be mingled with other taxes and subject to the legislative appropriation process.

In Missouri in August, legislators were arguing about whether the state's $6.7 billion share of the settlement money should be spent on school buildings, long-promised highway projects, or direct or indirect tax cuts. That so little is being directed at prevention programs has drawn the ire of some anti-smoking groups. The NCSL's accounting of early tobacco-settlement spending generated criticism from anti-smoking groups.

"(This) report dramatizes how little the states are doing to combat the pediatric epidemic of smoking in the United States," said William D. Novelli, president of the Washington, D.C.-based Campaign for Tobacco-Free Kids. "Although the states will receive more than $246 billion from the tobacco companies...only seven states have allocated significant amounts for tobacco prevention." Novelli would like to see a greater portion of the windfall directed toward comprehensive tobacco prevention programs, which he says would "save billions of dollars in smoking-caused health-care costs."

In Indianapolis in late July to speak at the NCSL national convention, Health and Human Services Secretary Donna Shalala urged state legislators to spend more on smoking prevention. "State leaders now have a unique opportunity to provide the resources that can help keep young people from ever starting to smoke, while helping others to quit," Shalala said. "We shouldn't let this opportunity slip through out fingers. If we do, the future of too many of our nation's children will simply go up in a puff of smoke." Manufacturers: Out of Our Hands The tobacco companies aren't saying much about how the money should be spent because the settlement prohibits them, and imposes other restrictions.

Beside providing the states with a budget windfall, the settlement required companies to stop targeting young people in their advertising and limited corporate sponsorships of sporting and other events. It banned billboard and transit advertising and product placement in movies. Companies are prohibited from selling apparel, such as T-shirts and backpacks, with brand name logos.

Notably, cigarette makers are also prohibited from lobbying state governments on where the settlement money should be spent and on rules regarding vending machines and proof-of-age laws.

Settlement payments to the states will be reduced if Congress approves a new tax on tobacco products and earmarks the money for health-care or gives it to the states on an unrestricted basis.

Legislators are being cautious about earmarking the money for spending because they may not get all of it. There is a question whether the federal government will file its own lawsuit against the tobacco companies or seek to take a portion of the settlement money from the states for itself, since most of the medical costs the states were trying to recover were paid by federal Medicaid reimbursements.

Attorneys involved in the tobacco litigation are at odds about whether the federal government has missed its chance to file a suit. Some feel the statute of limitations expired in August, while others, including Justice Department attorneys, contend that it has not.

In another twist, a handful of attorneys representing cigarette distributors in different parts of the country are attacking the settlement as an anti-trust violation because it granted special status to the major cigarette companies. "The settlement agreement was designed to, and has thus far succeeded in, destroying the free market for cigarettes," plaintiffs alleged in a Pennsylvania lawsuit. Two similar lawsuits are in planning stages in California.

All this turbulence surrounding the tobacco settlement makes one thing certain: nothing has been settled, nor will it be for a very long time.

SMOKESHOP - October/November 99