Are States Spending Tobacco Settlement Funds Wisely?

By Ronald L. Scott

States will receive over $206 billion over the next 25 years from the tobacco settlement funds under the agreement finalized in November of 1998. The Master Settlement Agreement covers 46 states. Texas and three other states (Florida, Minnesota and Mississippi) settled with the tobacco companies earlier for $40 billion. According to the Health Policy Tracking Service, 495 bills were introduced as of July 23, 1999 that deal with use of tobacco settlement funds, and 93 bills have been enacted into law in 1999.

There seems to be little agreement on how the money should be allocated. A central issue is whether states have a moral responsibility to use settlement funds to reduce smoking and to treat people with illnesses caused by tobacco. The American Cancer Society (ACS) believes that tobacco control should be the first priority of tobacco settlement dollars. Texas has allocated $10 million a year to tobacco prevention programs, in the form of a $200 million endowment with only the interest being available for the programs. The ACS believes that a fully-funded effective program would require about $60 million a year in a state the size of Texas (approximately $3 per capita).

Some states appear to have rejected any such moral arguments. For example, Alabama has authorized an entity known as the Alabama 21st Century Authority to issue $50 million in bonds (secured by a pledge of tobacco settlement funds) to create industrial development authorities. The objective of the authorities is to induce companies to locate manufacturing facilities in Alabama. Honda has been mentioned as one such company.

Some believe a portion of the settlement funds should be used to assist tobacco farmers in developing alternative crops. South Carolina has created a Tobacco Community Development Board to provide economic aid to tobacco farmers. A proposal in Virginia would allocate one-half of tobacco settlement funds to assist tobacco farmers and other workers who will suffer economically as a result of the settlement.

A proposal by the Governor of Rhode Island would use settlement funds to reduce taxes. The proposal is controversial because there is no connection between the use of the settlement funds and the harms that generated the settlement. Connecticut is considering leaving a majority of the funds in trust for several years, with modest spending on anti-smoking programs, and using some funds to freeze tuition costs at the University of Connecticut.

In fairness, a majority of the states appear to be allocating at least some settlement funds for health programs and anti-smoking programs. However, the amounts allocated to smoking cessation and prevention generally seem very inadequate if the purpose is to significantly reduce the toll taken by tobacco use. Further, some states that initially considered using all settlement funds for health care have retracted such position. For example, Georgia’s Governor Barnes initially favored devoting all these funds to health care, but has changed his position and now suggests that 33% of funds should be used to support alternative crops for tobacco farmers and other economic development.

States should rethink how to spend this money. There should be a clear nexus between the use of these funds and the human suffering that generated the settlement.