Little of Tobacco Money Goes to Kicking Habit

Tobacco companies, under court order to reimburse states for the expense of treating smoking-related illness, have paid out more than $21 billion so far. But less than half of it has gone to fund health care. And only 5% has been used to help Americans kick the cigarette habit.

Instead, lawmakers in state after cash-strapped state have tapped the money for needs deemed more pressing: college scholarships in Michigan, new schools in Ohio, flood-control projects in North Dakota. Illinois used part of its money to give a tax rebate last year. Tennessee is spending every penny of its bounty to plug a budget gap.

The trend alarms health care experts who say most states should be spending three to four times as much on anti-smoking campaigns if they hope to bring future tobacco-related medical costs under control. And it depresses those who fought a legal battle for years to get the settlement, only to see the funds, in their eyes, squandered.

“Spend the money on what the fight was about,” pleads Mississippi Atty. Gen. Mike Moore, who was the first to file suit. “Only five or six states are doing that. The rest are acting like this money fell out of heaven, and they’re spending it on whatever pet projects they have. It’s crazy. It saddens me. It leaves a hollow place in my belly.”

In the face of such critiques, state lawmakers can only throw up their hands. Their bridges are crumbling. Their classrooms, too crowded. They have long lists of projects they would have invested in years ago if only they had not had to spend so much money on health care for sick smokers.

In theory, some agree with James Forrester, a state senator from North Carolina, that “the money should be there for what we said it would be there for”--namely, curbing smoking and bolstering Medicaid funds.

In practice, though, the needs are so many. And the tobacco windfall is so handy.

“It is a great temptation,” sighed Austin Allran, another North Carolina senator.

A study released this month by the National Conference of State Legislatures documented just how the tobacco money has been spent in the first three years of payouts. In addition to the 5% allocated for smoking cessation, 4.5% has funded medical research, though not necessarily on diseases linked to smoking.

And 32% has gone to health care programs of every imaginable type. Hundreds of thousands of low-income families now have health insurance funded with tobacco money in a half-dozen states, including California, Arizona and Washington. There are hospitals being built with settlement money and newborns being screened for illnesses. Several states have pledged tobacco money to help poor senior citizens pay for their prescriptions. And there are new funds for breast cancer treatment, mental health and juvenile diabetes.

Relatively few states, however, are using the money to bolster their Medicaid programs--even though the original lawsuit against the tobacco companies was based on the huge expenses Medicaid incurred treating the health problems of low-income smokers. The federal Centers for Disease Control and Prevention estimates that tobacco use costs the nation more than $50 billion a year in medical bills.

Under the terms of the lawsuit’s settlement, tobacco companies must make payments in perpetuity to 46 states to help subsidize those costs. (The other four states reached individual settlements with the companies.) The exact payments vary according to a complex formula that takes into account the number of cigarettes sold. But crude estimates put tobacco’s obligation at $205 billion over the first 25 years.

It is an unprecedented bounty, especially now, when many states are struggling with their first serious budget crises in six years.

More than 500 bills dealing with tobacco revenue were introduced in state legislatures in each of the first two years of payouts. This year looks to be even busier: By July, there had been 458 bills proposed.

Because the pot is so large, most states are dividing their money among several different programs. Some, such as California, have tucked away significant chunks in a rainy-day fund. Others have spent on idiosyncratic pet projects: Upgrading public television stations with DVD technology in Nevada, for instance. Or building boot camps for juvenile delinquents in Alabama. A few have lavished nearly all their money on a single cause: In Michigan, it’s college scholarships. In New Hampshire, public education.

In the tobacco belt, states such as Kentucky and the Carolinas are setting aside up to half their money for programs to help rural areas break into new economic endeavors. Maryland is paying tobacco farmers to try new crops. Virginia is stringing broadband cable across the countryside in an attempt to woo high-tech jobs to tiny towns. There are grants to help community colleges train farmers for new work. And there are direct payouts to farm families hit hard by slumping demand for tobacco.

There is not, however, much money in these states going to curb tobacco use--except in Maryland, which has a program that the CDC cites as exemplary.

Kentucky, which has the nation’s second-highest adult smoking rate, is spending less than 3% of its windfall to cut tobacco use. North Carolina has not yet spent any money for that purpose, though it has set up a fund for health-related projects. Virginia has allocated 10% of its money for tobacco use prevention; those who administer that fund are mindful that they must tread carefully.

“If we went out and said tobacco is evil and everyone who has their hands involved with tobacco is evil, I don’t think that would go over well,” said Steve Danish, a psychologist heading Virginia’s anti-smoking effort. “We have to be sensitive to our culture and our history.”

Even in states without any cultural ties to tobacco, funding for smoking prevention is so low that officials at the advocacy group Campaign for Tobacco-Free Kids bluntly call it “criminal.”

Only eight states--California among them--meet the minimum guidelines for anti-smoking programs set out by the CDC.

Such programs are expensive; the formula varies from state to state, but they would require, on average, 15% to 20% of the tobacco settlement revenue. Funded at that level, though, they work. States with comprehensive programs can drive down their smoking rates two to three times as fast as states with less vigorous outreach, according to the CDC.

California was able to cut its per-capita consumption of cigarettes in half during the 1990s, no doubt aided by its aggressive campaign, funded by a cigarette tax, that included anti-tobacco advertising, indoor smoking bans, classroom education and even a “quit hotline” staffed by counselors who talkedcallers through nicotine cravings.

Mississippi has seen impressive results as well: Just one year into an all-out anti-tobacco blitz (funded by $30 million of settlement money), the smoking rate has dropped 10% among high school students and 20% among middle schoolers.

“We know what to do to fight this disease [of tobacco use],” Moore said. “We got this money to do it. And most of the states are just whimsically throwing the money away.”

Moore is proud of his state’s discipline: Every penny of the settlement goes into endowment funds to fight smoking or bolster health care. Mississippi spends only the interest so that there should be a steady stream of money for decades.

In Idaho, which has a similar system, gubernatorial spokesman Mark Snider explained: “We will have this fund long after the tobacco settlement [payments] are gone. Long after the tobacco companies themselves may be gone.”

But long-term security can be a hard sell to constituents who need cash now.

In Mississippi, for instance, politicians are under mounting pressure from rural health-care providers who want the state to break into the endowment.

“The tobacco fund is almost sacred around here. But the money is piling up in it while we’re out here in the country hurting,” complained George Harris, who chairs the board of trustees of a tiny hospital in Winona, Miss.

His 49-bed hospital faces so much red ink that it has had to drop health insurance for its staff. Another nearby hospital used its lone EKG machine so long and so hard that the manufacturer finally had to break the news that it was a dinosaur: No more spare parts were being made for the model. Administrators in such dire straits can’t wait for the endowment to earn interest.

“We can’t stand here hoping and praying much longer,” Harris said. “We think they should share [the tobacco money] with us.”

In Indiana, Gov. Frank L. O’Bannon faces similar pressure. He has made a point of committing nearly all tobacco revenue received so far to specific health programs, including smoking cessation. “I thought it was important to recognize the source [of the revenue],” he explained. “Money put directly into the state treasury could too easily be spent for other reasons.”

Yet O’Bannon cannot count on lawmakers to agree to his priorities again next year.

“Under the current economic forecast,” said Pat Rios, the governor’s deputy chief of staff, “it’s fair to say that this money will all be on the table [next year] for dealing with budget shortfalls.”

Wisconsin had to plug its budget shortfall with tobacco money. The state was one of five to sell off its rights to some future tobacco payments in exchange for a lump sum upfront. About $450 million of the take will be used for “a onetime injection into the general fund,” said Frank Hoadley, state capital finance director. In other words, it will be used to cover such routine costs as keeping prisons open and social workers paid.

Anti-smoking advocates view such decisions as betrayal.

“States have spent this money on anything but tobacco control,” said Stan Glantz, a medical professor at UC San Francisco. “As a result, a lot more people are smoking than have to. And a lot more people are dying.”

But at the CDC’s Office on Smoking and Health, associate director Terry Pechacek is inclined to cut lawmakers a break. He recognizes that states have many competing needs, including other health care imperatives. And he’s pleased that the tobacco settlement money has, at the least, gotten politicians talking about the high cost of smoking.

“Are many states at a spending level we consider less than optimum? Very definitely, yes,” Pechacek said. “Are states spending more now than they did in the early 1990s? Very definitely, yes. Are we making progress? Very definitely, yes.”

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Spending by Top Smoking States

The five states with the highest adult smoking rates are spending their tobacco settlement money on a variety of projects--many unrelated to health care.

Nevada: 31.5% of adults smoke

* 40% on college scholarships

* 30% on services for the elderly

* 10% on children’s health

* 10% on disease prevention

* 10% on smoking prevention

Kentucky: 29.7%

* 50% to help tobacco-growing counties find other sources of income

* 25% on such early childhood programs as day care and immunizations

* About 17% on health insurance programs

* 5% for lung cancer research

* Under 3% for fight on smoking

Ohio: 27.6%

* 50% on public schools

* 25% on anti-smoking programs

* 25% divided among medical research, law enforcement and public health programs

Arkansas: 27.2%

* About 20% on smoking prevention

* About 80% on various needs, including insurance coverage for the poor, capital improvements at the state university and medical research

Alaska: 27.2%

Has sold the rights to 80% of its future tobacco payments in exchange for upfront cash. It’s using that money for education and harbor facilities. The remaining revenue will be spent mostly on Medicaid and debt service, with less than 5% going for smoking prevention.

Source: Centers for Disease Control and Prevention, National Conference of State Legislatures