REMEMBER - -the multibillion-dollar tobacco settlements?

States were supposed to spend the money on health care.

Guess– Come on!–Guess where your money is really going.

smoking settlement money wasted IT TAKES A LOT of cash to keep a golf course the color of money. That’s what Niagara County, New York, found out when it spent about $700,000 to put in a new irrigation system at its public golf course. But remarkably, in a county that is none too flush, the sprinkler system was paid off within a year--not from duffers’ greens fees, but with money that had been secured to care for people dying from lung cancer.

Facing an avalanche of lawsuits brought by 40 states, the tobacco industry agreed in 1997 and 1998 to pay all 50 states $246 billion over 25 years, financed through a hike in the price of cigarettes. The idea was for Big Tobacco to reimburse the states, and in turn, counties, cities and towns, for the cost of providing health care to people suffering from cancer, emphysema and other tobacco related diseases. The money would also finance state and local government anti-tobacco ad campaigns and prevention programs intended to discourage kids from getting hooked in the first place.

BUT MANY OF THOSE well-intentioned plans have seemingly gone up in

smoke. Unspent money is to politicians what an unlit cigarette is to a three-pack-a--day smoker. Today, only seven states— Arizona, Indiana, Massachusetts, Maine, Mississippi, Ohio and Vermont —are spending even the minimum amount suggested by the Centers for Disease Control and Prevention for anti--tobacco education. “Here is this windfall of money that came as a result of tobacco illness,” says M. Cass Wheeler, CEO of the American Heart Association. “It’s disappointing that more states aren’t investing it in saving lives.”

Indeed, for cash-starved state and local governments, the tobacco take was like winning a lottery. And like many who win the lotto, some in the government decided they could not wait for the annual payments. They’ve opted for smaller up-front lump sums, and generated immediate income by selling bonds backed by the windfall. In the case of Niagara County, legislators were in a hurry to get their hands on the settlement cash. So, instead of enjoying projected annual payments of about $5 million, for a total of over $100 million, the county took a fraction of that up-front. Thus, the county lawmakers found themselves with $42 million burning a hole in their collective pocket. Spending ensued. First, Niagara paid off the debt on a new county jail and office building to the tune of some $24 million. And don’t forget the golf course sprinklers. As for the remaining $19 million, says county legislator Dennis Virtuoso, “a lot of legislators wanted a road in their district.” And to keep up those roads, Niagara bought nine new dump trucks at $130,000 a pop to haul asphalt; then the local pols haggled over who got the old trucks. At one meeting, county legislator Renae Kimble yelled, “I’m not going to support any use of this tobacco money unless we get some of those raggedy old trucks!”

Having raced to spend its tobacco cash on anything and everything but health care, Niagara is now patting down its pockets, wondering where it will find the money to cover a $12-million shortfall in next year’s budget. The reason for the deficit? In part, the county’s rising health care costs. To BE FAIR, other states and localities aren't spending all their tobacco money on non-health-related expenses. Just some of it. Several southeastern states, for example, are putting hundreds of millions of cigarette cash into what amounts to an economic-development arms race. South Carolina is using $78 million of its tobacco take for rural infrastructure, chiefly water and sewer improvements. Georgia will put one-third—$62 million this year—of its annual settlement payment into a “development fund.” Some of it will be used to help rural communities woo corporations there.

In Alabama, at the behest of Gov.Don Siegelman, the legislature created something called the 21st Century Fund, and will transfer about ten percent of Alabama’s $130 million-a-year tobacco settlement into it. Controlled by Siegelman and two hand-picked allies, the fund backed $50 million in bonds as part of a $158million subsidy package to get Honda to build a minivan assembly plant in the state.

IN ALASKA, legislators used $76 million for school construction, $20 million for the University of Alaska (including $4 million for expanding a museum) and $14 million for the renovation of the state’s harbors. Wrangell, Alaska (pop. 2339), is anticipating $3.5 million for its docks, and harbor master David Mork already knows how he’s spending it. There are pilings to replace, new water pipes to lay. “But the first priority is rewiring the dock’s electrical system so we can handle fishing boats with freezer units,” says Mork. That’s not the sort of priority Eric Myers wanted to see for the settlement funds. While he’s pleased that the state recently decided to put a portion of the money toward tobacco-education programs, “It’s hard to sit back and watch the money be treated like a giant piñata,” says Myers, who sued the state over its use of the tobacco cash. Myers’s stake in the debate isn’t just a commitment to fiscal discipline: “Decades of smoking cigarettes killed my mother.” Oklahoma is one of the states that is living up to the intent of the settlement. “The purpose was public health,” says Oklahoma Attorney General Drew Edmondson, one of eight state AGs who brokered the deal with the tobacco industry. Indeed, Oklahoma voters amended the state’s constitution to require that most of the tobacco settlement money go into a trust fund. Only the interest on the fund can be spent, and it must go for health care.

THAT’S NOT THE WAY elected officials in Orange County, California, wanted to spend their tobacco cash. A disastrous foray into the bond market in 1994 left the county with such a staggering debt that it is still nearly $1 billion in the hole. No wonder Orange County’s board looked at their tobacco money as a lifeboat. “We’re all for health care,” says the county’s treasurer, John M. W Moorlach. “But if we reduce our debt we can save $450 million in interest over 40 years. And that would pay for a lot of health care.”

One local doctor was not happy with that logic. “For 25 years the county has been promising to put more money into health care when the money becomes available,” says Dr. Brennan Cassidy. It wasn’t just that the money was now there—it was that health care was the principle of the lawsuit. So when the Orange County Board of Supervisors voted to use most of the settlement for debt relief, Cassidy led an effort to let voters decide if it should be used largely for health care.   Moorlach, the treasurer, tried to broker a compromise by putting forward a ballot initiative that would have given 42 percent of the cash to health care, 40 percent to debt relief and 18 percent to the sheriff.

Cassidy’s proposal was labeled Measure H; the county government’ s proposal was Measure G. Thus was born the doctors’ winning slogan: “H is for Health; G is for Government.” Measure H was approved by 62 percent of county voters. But the lure of tobacco cash is great that even such a resounding vote didn’t resolve things. The county board challenged the referendum in court. It wasn’t until the board was slapped down by a superior court commissioner that it finally called it quits. Four- fifths of Orange County’s tobacco money will go to health care and tobacco education; the rest goes to the sheriff’s office.

“Our hope is that the success of Measure H will set a precedent for other states and counties around the country,” says Cassidy. IT’S A PRECEDENT that has come none too soon for supporters of the settlement’s original intent, who have watched many states frittering away the money. It’s “an extremely costly missed opportunity ” Francis Coolidge, past chairman of the board of the American Cancer Society, told Congress last year. “Unless more of the settlement money is devoted to addressing the scourge of tobacco, future generations will continue to needlessly suffer from tobacco-related disease and death.”

However, Orange County’s example comes too late for Niagara County, where there’s no shortage of regret for its spending. “We have a health care crisis and here is this windfall of tobacco money. But we didn’t spend it on health care,” says legislator Renae Kimble. “It’s frustrating and I’m still very angry about it.”


STATES AND COUNTIES are not the only ones enriching themselves with the tobacco windfall. Trial lawyers who were involved in the states’ litigation are slated to get payments that will ultimately total well over $11 billion. In New York alone, six law firms will reportedly split a $625-million kitty. In Maryland, Peter Angelos, who is the sole partner of The Law Offices of Peter G. Angelos in Baltimore, has demanded that the state pay him a contingent fee of 25 percent of its settlement. That would amount to an estimated $1-billion payday for his efforts on Maryland’s behalf.          —E.F.



          October 2001, (pgs. 90-94)

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