States plan for tobacco windfall

Whether it's for tax cuts or health care, new settlement means big bucks for states

Even before the first check has been written, states are laying plans to spend the vast sums they expect to receive from tobacco companies in the wake of a landmark settlement.

The amounts are prodigious: some $206 billion spread over 25 years - more than the annual gross national product of Sweden. It's as if the states opened their doors to find Ed McMahon standing there holding a check.

Everyone from local business groups to youth activists is suggesting ways to spend the booty - or holding out their hands.

* In Rhode Island, the governor is hoping to expand health coverage for the poor and make improvements in child care.

* In Alabama, the state legislature has already set aside $85 million from any settlement to fund youth programs.

* In Los Angeles County, part of the $126 million it will get from the settlement each year has been tabbed to fight teen tobacco use and enforce smoking bans in bars and restaurants.

"This will be one of the biggest issues for legislators in the 1999 session," says Arturo Perez, a research analyst at the National Conference of State Legislatures in Denver.

On Friday, 46 states accepted the tobacco industry's offer to pay $206 billion and agree to some marketing restrictions. In return, the states will drop their lawsuits asking the companies to pay for past Medicaid expenses and consumer fraud charges. Four states had previously settled for $40 billion.

For most states, the deal is the largest single settlement they have ever received. Now, those that signed on are starting the debate over how to spend the "no strings attached" money. It's a question that has come up before.

The US Department of Health and Human Services has intimated that it may want a chunk of the settlement money as reimbursement for Medicaid expenses. But during this year's federal budget negotiations, Sen. Bob Graham (D) of Florida introduced legislation that would have prevented the US government from taking a portion of the tobacco settlement. The legislation, which was opposed by the White House, failed. Yet it is one of the highest priorities of the National Governors' Association, and Senator Graham plans on reintroducing the legislation next year.

Indeed, many people are hoping to influence the debate on where to spend the money. Almost immediately after the agreement was announced Nov. 16, the Campaign for Tobacco-Free Kids in Washington released a poll showing that 84 percent of the respondents wanted the money spent on reducing tobacco smoking among children. "If the states don't spend a substantial portion of the money they receive for effective programs to reduce tobacco use, these cases will not have accomplished their purpose," says Matthew Myers, general counsel for the group.

Mr. Myers is bound to be disappointed with many localities. In anticipating that it might get some money from the settlement talks, Alabama - which hadn't even sued the industry - passed legislation to spend the money on youth programs for at-risk children and health care for uninsured children. Only $500,000 of $85 million will go toward youth antismoking efforts.

Some states might use the money for tax relief. In Ohio, a taxpayers' group wants the money refunded, although there is some discussion about using part of the $350 million per year toward anti-alcohol and drug programs. In Albany, N.Y., the Business Council, a lobbying group, argues the money should be sent back to the taxpayers since it is for Medicaid money already expended.

For several states, the money comes at an opportune time. Oklahoma might spend some of the $80 million per year to bail out a teacher-retirement system that has run into difficulties. Hawaii, which is in a deep recession, is talking about putting its $14 million per year in its general rainy-day fund designated specifically for civil defense and disaster relief.

Other states and localities expect to spend the money on their health-care systems. San Francisco, which will receive $586 million over 25 years, is planning to earmark some of its funds on a major renovation of the Laguna Honda nursing facility, a structure that doesn't meet federal standards. "The tobacco settlement will now appropriately be spent for public-health purposes," says Mark Slavin, a spokesman for the city attorney.

The state with the biggest bonanza is California, which will receive $25 billion over 25 years. Half of the money is already earmarked for the counties and the state's four largest cities: Los Angeles, San Diego, San Jose, and San Francisco.

The money comes on top of another $700 million per year that will come from passage of a November ballot initiative, which added a 50-cent per pack tax. That money is set to go to child-development programs, and smoking prevention for teens, pregnant mothers, and parents.

The extra money from the new deal; will be free of the entitlements that require 60 percent of the state's surplus to go directly to education. "The governor and legislature can do anything they want with it," says H.D. Palmer of the California Department of Finance.

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