State Tobacco Settlement Dollars
Offer Regional Opportunities

By Kelly Novak, Research Manager, NADO Research Foundation

In today’s tight economy, many regional development organizations are creatively combining funding sources to provide essential community programs and economic development opportunities. One funding source that has the versatility to support healthy community programs and to expand economic diversity, via state allocations, is the settlement delivered from the 1998 tobacco industry multi-state settlement.

Settlement Terms

In fiscal year 2003, each of the 46 settling states and the District of Columbia (Florida, Minnesota, Texas and Mississippi won $40 billion in earlier negotiations) received $8.7 billion as a result of tobacco industry multi-state settlement. (This does not include $11.6 billion per state allocation in tobacco taxes). The settlement called for participating tobacco/cigarette companies to pay $246 billion in installments over 25 years to states and the District beginning in June 2000.

The settlement goals imply that spending be directed to promote public health via prevention, by reducing tobacco advertisements and marketing to youth and by reimbursing states for tobacco-related illness. However, there are no restrictions on how states must spend the settlement funds beyond percentage recommendations by the Center for Disease Control (CDC).

CDC’s flexible guideline recommends a certain percent of each state’s allocation be directed to tobacco prevention programs. Four states – Maine, Minnesota, Mississippi and Maryland – funded tobacco prevention programs at the minimum CDC recommended levels, which usually amounts to 20 to 25 percent of the state settlement proceeds.

The Spending Pool

Potentially each of the 46 states and the District annually have access to a portion of $9.8 billion provided that:

Installments are not reduced (due to federal statutory claims on Medicaid expenditures for tobacco- related healthcare and/or if tobacco companies’ combined US cigarette sales; or

Their percentage share of the US cigarette market goes down).

Many states are not depending on the settlement as a future funding resource and are opting to use it now. At least 15 states and the District have sold (“securitized”) all or part of their future settlement payments to investors in return for a smaller up-front lump-sum payment or have passed laws to enable the state to do so, according to the National Center for Tobacco-Free Kids.

In addition, many states like California are now slated to use the settlement dollars to offset future state budget shortfalls even though their currently funded programs have provided a great impact. California’s tobacco control program is estimated to have lowered tobacco use by 38 percent, according to the National Center for Tobacco- Free Kids.

12 percent of NADO’s regional members reported using tobacco settlement funds between the fiscal years of 1999 to 2002. Seventy percent of those who reported using settlement funds are located in the Southeastern United States.
(Source: NADO Research Foundation Membership Survey 2002)

According to the National Conference of State Legislatures, one dollar in 20 of the settlement money will be spent on tobacco control. Only three states – Michigan, Missouri and Tennessee – and the District have committed none of their settlement money to tobacco prevention programs.

A 1999 USA Today survey reported that most of the money is likely to be used for health care e.g. anti-smoking programs. In some cases, portions of the proceeds were slated for other purposes, such as public school financing in Ohio, compensating North Carolina farmers devastated by hurricanes, flood prevention construction in North Dakota and new roads in Virginia.

Despite the fact that many states are redirecting settlement proceeds to cure budget shortfalls, many regional development organizations have been and still will be able to implement health prevention and economic diversification projects with settlement funds.

Virginia Region Uses Settlement Funds for Clusters

LENOWISCO Planning District Commission’s Rural Area Network Broadband Initiative (RAN) in southwest Virginia is preparing the region for future cluster-based developments. The initiative proposes to ensure regional, reliable and affordable broadband services by developing a local private-based, high-speed telecommunications network.

Thus far, 14 miles of fiber-optic cables were laid inside water trenches with initial funding ($500,000) from the Virginia Tobacco settlement E58 initiative to expand broadband. An additional $200,000 in tobacco settlement funds was used to pay for the regional master plan engineering that provides seamless connectivity to partnering regions in Tennessee and Virginia’s Cumberland Plateau Planning District.

Glen “Skip” Skinner, LENOWISCO’s deputy director said, “The project offers a feasible way to connect the region and make it a contender in the high-tech cluster development market.” Skinner added that future settlement funding for the project would be sought.

Minnesota Region Reaches Out with Youth Tobacco Prevention

Not only has the Region Nine Development Commission’s Saludando Salud (English translation, “Greeting Health”) program reduced tobacco use among the region’s Hispanic youth, but the program has also been named a Rural Healthy People 2010 Model for Practice by the Texas A & M University System Health Science Center.

Saludando Salud began in 1994 in response to the region’s growing Hispanic youth population, which now averages 20 percent of each school district’s enrollment. As a health prevention outreach initiative, Region Nine established a Tobacco Prevention Project for Hispanic Youth in 2001 with funding from Minnesota’s tobacco settlement dollars ($250,000 over two-years).

Two school districts in the region participated. Region Nine’s Prevention and Healthy Community Network program director, Lisa Hoffman-Wojcik commented, “According to the Minnesota Youth Tobacco Survey, tobacco products use dropped by 11 percent in the past two years among middle and high school students. I think our programs have definitely contributed to those numbers.”

Although Minnesota will not continue to fund tobacco prevention in the coming fiscal year, because the state will use the endowment’s tobacco prevention allocation (eight percent of $6.1 billion) to help fill the state budget deficit, the Commission is pursuing other funding. Hoffman-Wojcik said, “We have had such great feedback from the community that it makes sense to continue. Ultimately, for every dollar invested in smoking prevention the state could save three dollars in health care costs.”

For more information contact:

Glen “Skip” Skinner, LENOWISCO PDC, 276/431-2206 or email info@lenowisco.org;

Lisa Hoffman-Wojcik, Region nine Commission, 507/389-8880 or email lhoffman@rndc.mankato.mn.us

The Settlement Established the Following New Advertising and Marketing Restrictions:

Eliminates tobacco billboards and transit ads.

Prohibits the use of cartoon characters for tobacco product promotion.

Prohibits tobacco brand-name merchandise (e.g. t-shirts), except at tobacco-sponsored events.

Prohibits tobacco brand-name sponsorship for concerts, events in which any contestants are under 18, or for football, baseball, soccer or hockey (except for Brown & Williamson’s continued sponsorship of the Kool Jazz Festival or the GPC Country Music Festival).

Limits other tobacco brand-name sponsorships to one event or series (such as the Winston cup race tour) annually per manufacturer.

Permits free tobacco-product distributions only at locations where children are not permitted.

Restricts offers of non-tobacco items or gifts based on proof of purchase to adults.

Prohibits the use of non-tobacco brand names (such as Harley Davidson Cigarettes) on tobacco products.

Reaffirms the previously agreed upon prohibition on tobacco product placement in movies and on TV.

Source: Campaign for Tobacco-Free Kids 1999 Summary of the Multi-state Tobacco Settlement.

Additional Information Sources

www.naag.org/tob2.htm. Tobacco settlement page of the Web site of the National Association of Attorneys General (NAAG), which has the full text of the settlement.

www.ncsl.org/statefed/tmsasumm.htm. National Conference of State Legislators (NCSL) Web site page on the tobacco settlement. The site has a summary and analysis of the settlement.

www.nga.org/Health/Tobacco.htm. National Governors’ Association (NGA) tobacco settlement Web site page offers a variety of information and different anti-tobacco-use strategies.

www.tobaccofreekids.org. The Campaign for Tobacco-Free Kids Web site has a lot of state-specific tobacco data and fact sheets, and links to numerous other relevant Web sites.

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