States Burning Up Litigation Funds; Where there's smoke there's fire when it comes to state misuse of the tobacco windfall which includes paying down deficits and even buying tobacco-company stocks

0 Comments | Insight on the News, May 11, 2004 | by John Pike

Byline: John Pike, INSIGHT

The cost of the 1998 billion-dollar tobacco-settlement agreement has been put at approximately $246 billion for the first 25 years, or an average of $10 billion annually. To get to this windfall a number of states went so far as to change their laws of civil procedure to tap into the wealth of a politically incorrect group: the U.S. tobacco manufacturers, a worldwide, economy-building industry that goes back to the English colonies of North America and the Native Americans before that.

What the manifoldly mendacious states attorneys general (AGs) did in the 1990s was announce that, for the good of the people, they were suing the cigarette manufacturers to recover Medicaid expenses to pay for smoking-related illnesses and fund smoking-cessation programs. Within five years most of the money the states were receiving from the tobacco settlement was defraying their general budget costs that had nothing to do with tobacco. The plaintiffs' lawyers who cooked up the deal, meanwhile, had received their billions from the settlement.

Former Massachusetts attorney general Scott Harshbarger made antitobacco efforts a prominent theme of his administration, and he was the fifth AG to file suit against the tobacco companies. The main reason Harshbarger gave for the lawsuit was to fund smoking-cessation programs. But although Massachusetts soon received $689 million from the manufacturers (excluding the tax on packs), it virtually shut down its celebrated tobacco-control program, say antismoking activists, cutting the funding. According to the Boston Herald, it was funded at $48 million at its height, an amount that quickly fell to $5.7 million, with the program exhausting its annual stipends. Massachusetts now uses less than 1 percent of its tobacco money for tobacco-prevention programs. Much of the tobacco-settlement money in the Bay State is paying for budget expenses unrelated to tobacco.

Other venues that misused the funds include Los Angeles, where, according to the American Medical Association, former mayor Richard Riordan planned to use $100 million in tobacco-settlement funds to deal with lawsuits involving police corruption. In one year the tobacco state of Virginia spent about $15.5 million of these funds to cover its budget deficit. By 2001 just six states, according to the U.S. Centers for Disease Control and Prevention, were spending enough money on antitobacco programs to be effective, despite the fact that many of the states received hundreds of millions of dollars from the settlement for that purpose.

In 1997 former surgeon general C. Everett Koop commented for CNN on the tobacco companies and the master settlement, declaring: "It's a big concern for all those of us who worked three decades with the tobacco industry and find you can't trust them. I am sure they will take every effort they can to find loopholes." But as it developed, the states were even more untrustworthy than the demonized tobacco companies.

The government already was taking plenty from the tobacco companies to care for the casualties of tobacco use. In 1999, Alabama Attorney General Bill Pryor said that a study by Harvard Law School professor Kip Viscusi "proved that cigarette-tax collections more than offset the cost to government for treating tobacco-related illnesses." He explained that "The main objective of the tobacco lawsuits was to raise revenue. Using lawsuits to raise revenue is far easier than raising taxes the old-fashioned way. This method bypasses the need for representatives of the voters to approve the tax. It shifts the awesome powers of the legislative bodies commercial regulation, taxation, appropriation and the power to change law to the judicial branch of government."

Although Alabama was not actively involved in the tobacco-settlement agreement, the manufacturers funded a trust to compensate adversely affected venues that grow tobacco, which include that state, North Carolina, Virginia and others.

As a result, some states have gone so far as to take money from the tobacco settlement funds that are supposed to fight tobacco use and addiction and put it toward growing tobacco or into the tobacco companies themselves. According to one published report, the tobacco state of North Carolina spent almost three-quarters of its settlement money on tobacco marketing and production, although some was used to help farmers adjust to growing other crops. One tobacco farmer received $25,000 to help pay for curing bins he installed in 2001. The state used $43 million on items such as constructing a tobacco auction house and $15,000 for a video of the history of the crop. Critics consider it likely that much of the rest of the $4.6 billion North Carolina was expected to receive within 25 years also would help the blindsided tobacco interests, in direct opposition to the declared purposes of the suit.

And according to a March 2002 study by the Washington-based Investor Responsibility Research Center (IRRC), tobacco-settlement money even has been used by states to purchase tobacco stocks. "Texas, Connecticut, New Mexico, North Carolina, North Dakota, Utah and West Virginia are among the states which invested a portion of their tobacco-settlement proceeds in tobacco companies. Much of these state investments ended up in index funds, tracking indexes like the S&P 500, which have tobacco-company representation. For each dollar invested in such funds, usually only about a penny goes into tobacco stocks. But given the huge size of the settlement pool, it still adds up to tens of millions of dollars flowing back into the tobacco industry."