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MARKETWATCHStates Allocations Of Funds From The Tobacco Master Settlement Agreement
This study assesses six states allocation decisions for funds from tobacco settlement agreements, using information from newspaper articles and other public sources. State allocation decisions were diverse; substantial shares were allocated to areas other than tobacco control and health, including capital projects and budget shortfalls. The allocations did not reflect the stated goals of the lawsuits leading to the settlements. This outcome reflects a lack of strong advocacy from public health interest groups, an unreliable public constituency for tobacco control, and inconsistent support from state executive and legislative branches, all combined with sizable budget deficits that provided competing uses for settlement funds.
In November 1998 four major tobacco companies signed the Master Settlement Agreement (MSA) with forty-six state attorneys general to resolve lawsuits brought on behalf of state Medicaid programs.1 Florida, Minnesota, Mississippi, and Texas settled separately. Providing $206 billion in payments to states over twenty-five years, the MSA also imposed restrictions on advertising and lobbying. In providing unrestricted monies from the MSA, the state attorneys general sought to give flexibility to their legislatures.2 In effect, the MSA provided unrestricted grants to states. How states have allocated funds from the settlements has been described elsewhere.3 Using information from six statesCalifornia, Florida, Massachusetts, Michigan, North Carolina, and North Dakotathis study evaluates alternative explanations of why states made the allocation decisions they did. The six were selected for geographic diversity and varied approaches to tobacco control and public health. Together the states contained 27 percent of the U.S. population in 2001.4 Attorneys general from four of the states represented the forty-six participating states in negotiating the settlements.5 Case-study states were slightly below the national mean for health and tobacco control spending from settlement funds. The change in tobacco spending from settlement funds during fiscal years 20012004 in the case-study states mirrored national trends. The decline in health spending from settlement proceeds was greater in the case-study states compared with national trends, which show a decline from FY 20022004 in total dollars spent and in terms of the amount spent as a percentage of the Centers for Disease Control and Prevention recommended minimum levels.
Conceptual framework. Several alternative, nonmutually exclusive theories may explain how states allocate settlement monies: voters preferences as depicted by the median voter model; elite factors, including political party control and special-interest groups; and effects of prior spending. In the median voter model, citizens preferences in the middle of the spectrum on an issue affect political outcomes. When an issue does not command much public attention, this model is deficient in that voters preferences are not likely to be well formed. Given the high costs of being informed on all issues, voters delegate responsibility for decision making to elected officials. Particularly on less visible decisions, such as how unrestricted funds from an external source are to be allocated by the state, elected officials can exercise considerable discretion. Nationally, of the two major parties, the Democratic Party has been more supportive of a government role in curbing tobacco use and in other forms of public health and prevention.6 Many decisions, including those concerning allocation of funds from the tobacco settlements, involve concentrated benefits for a few well-defined groups, with the costs being widely shared among the population at large. Under these circumstances, the incentives to influence policy design are much greater for the direct beneficiaries than for the public more generally.7 In the context of the tobacco settlements, such beneficiaries consist of groups that advocate on behalf of tobacco control, public health, tobacco growers, tobacco-dependent communities, and other special interests, such as education lobbies, which may view the settlement dollars as a new source of funding. Prior spending patterns may be important in that new money may "crowd out" existing spending on public programs. However, states with historical commitments to particular programs may use new funds to support existing programs to the extent that such support reflects voters preferences, commitments of public officials, or views of strong interest groups, or some combination. Information sources. Our main information source was newspaper articles from 1 January 1997 through 30 September 2003. Newspaper selection was based on name recognition, population of circulation area, and location. Since California allocated part of its MSA monies to the four largest cities and to each county, we also studied a California city, San Jose, and two counties, Orange and Imperial. Party platforms in each state (Democratic and Republican) were also reviewed for 1998, 2000, and 2002. We also searched Web sites of state health departments and interest groups actively involved in smoking issues.
California. Californias allocation of MSA funds has been largely controlled by the governors priorities, which were influenced by the states massive budget deficit. The legislature has had little influence on this issue, and health interest groups at the state level have been reactive rather than proactive. Gov. Gray Davis (D) dominated Californias initial allocation process for MSA funds; only after placing FY 2000 and FY 2001 MSA payments in the general fund did Davis designate $20 million from the MSA for Californias tobacco control program in FY 2002.8 He cut tobacco control funding while securitizing MSA funds for budget deficit reduction in FY 2003.9 California continued to use tobacco tax revenues to support tobacco control (funded by a 1988 $0.25 increase in the tobacco excise tax), which was considered a national model.10 Although Daviss budget proposal reduced the tobacco control program budget for FY 2003, the program remained the highest-funded in the United States. During the budget crisis of 200203, Davis proposed a cigarette excise tax increase.11 Although the tax increase was not enacted, Daviss proposal had political value in demonstrating his commitment to budget deficit reduction and to tobacco control. Several California cities and counties sued the tobacco companies along with the states. California later established a Memorandum of Understanding with its counties and largest cities, giving 50 percent of state MSA funds to the state, 45 percent to the counties, and 5 percent to the four largest cities.12 The use of local MSA funds for health care programs garnered intense public interest in Orange County and San Jose. Both allocated MSA funds to health care and have maintained these allocations. In Orange County an alliance of health care and labor groups proposed allocating 80 percent of the countys MSA funds to health care.13 The measure passed with 65 percent of the vote in November 2000.14 In San Jose a coalition including religious congregations, educators, and labor groups lobbied the city council to allocate MSA funds to childrens health insurance. The program was approved in late 2000.15 By contrast, the MSA received virtually no public attention in Imperial County. The only newspaper coverage was discussion of using MSA funds to close the countys budget deficit in 2002. Massachusetts. Influence over MSA fund allocation in Massachusetts has shifted between the legislative and executive branches. Interest groups were occasionally visible but have had a minimal impact, while spending on tobacco control has decreased. Immediately after the MSA was signed, the legislature took the lead in allocation decisions. Gov. Jane Swift (R) and Gov. Mitt Romney (R) later intervened to divert funds to other priorities. Swift and Romney had little prior involvement with tobacco control and cited fiscal concerns to justify cutting tobacco control funding. Massachusettss FY 2000 MSA funds were divided between a trust fund and health-related spending, including tobacco control. The states FY 2001 budget included $43.1 million for tobacco control ($12.4 million from the MSA).16 The FY 2002 budget allocated $48 million to tobacco control$16 million from MSA fundsbut Swift reduced the total to $31 million, citing anticipated revenue shortfalls.17 The FY 2003 tobacco control budget was $10 million, later reduced to $4.8 million.18 Massachusetts FY 2003 MSA funds were used for current expenditures with no allocation to the trust fund. Despite campaign promises to restore such funding, Romneys FY 2004 budget allocated only $1.7 million to tobacco control, citing the fiscal crisis.19 The legislature overrode his decision, restoring tobacco control spending to $2.5 million.20 Michigan. In Michigan the governor for much of the post-MSA period advocated spending MSA funds on an initiative other than tobacco control and public health. In 1999 Gov. John Engler (R) proposed using MSA funds to finance a merit scholarship program (available to high school students who passed a proficiency exam) at $2,500 per student for tuition at any community college or university in Michigan. Only when challenged did the administration attempt to frame this higher education program as a public health measure. Officials argued that the state had spent enough on tobacco control and that the public was sufficiently aware of smokings harms. No MSA funds were added to Michigans FY 2000 tobacco control budget of $7.5 million.21 The state has spent no MSA funds on tobacco control subsequently. The scholarship program was strongly supported by the legislature. In 2002 voters affirmed support of the program, rejecting a health interest group initiative by a two-toone margin.22 The initiative would have amended the states constitution to redirect 90 percent of MSA funds to health services and tobacco control.23 The initiative failed because of the popularity of a program providing direct benefits to many constituents and voters reluctance to amend the constitution. Conflict between the legislature and newly elected Gov. Jennifer Granholm (D) over a proposal to redirect FY 2004 scholarship funds to health programs showed that the legislature was strongly motivated to protect the scholarship program. Florida. Florida was chosen for this study because it did not participate in the MSA. Its settlement designated funds for tobacco control for an initial three-year period. Pursuant to its agreement, the state received $200 million for a youth antismoking pilot program.24 Interest-group support for this allocation was mixed. The American Cancer Society (ACS) supported the settlement, arguing that it would save a million or more childrens lives.25 However, the American Lung Association, historically aligned with the ACS on tobacco control, criticized the settlement on the grounds that it forfeited numerous legal rights (for example, it banned class-action suits and punitive damages).26 The Florida Pilot Program on Tobacco Control (FPPTC), which began in March 1998 with the "Truth" advertising campaign, focused on decreasing teen smoking. Five months later, 90 percent or more of Floridas youth were aware of the campaign.27 By 2003 the smoking rate among middle and high school students had declined by 35 percent and 50 percent, respectively; however, the greatest improvement was realized during 199899.28 Nevertheless, a combination of change in composition of the legislature, a new governor, budget deficits, and the end of the programs three-year pilot led to sizable cuts in program funding. The program began with $70 million in 1998 but over time was reduced to $1 million for operations in 2003.29 Gov. Lawton Chiles (D) had been an advocate for tobacco control. By contrast, his successor, Jeb Bush (R), proposed $39 million for tobacco control in FY 2004; the Florida House and Senate proposed much smaller sums ($10 million and none, respectively), arguing that other state agencies or programs had also received major budget reductions. There has been some voter support for tobacco control. In November 2002, 71 percent of voters approved the Smoke-Free for Health Amendment, the first statewide voter referendum in the country to approve an initiative for smoke-free workplaces.30 North Carolina. Considering the interests of many voters and the well-organized advocacy groups representing tobacco agricultural and manufacturing interests, there has been formidable opposition to tobacco control in North Carolina. In 1998, then Attorney General Mike Easley (D) argued that the proposed MSA would provide funding for tobacco growers and other industry-dependent workers. When MSA funds were first received, the state allocated more than half of the funds to tobacco growers and communities negatively affected by the MSA. Eventually, funds were also spent on health programs. The ACS and American Lung and Heart Associations requested 10 percent of MSA dollars for tobacco control in 1999, initiating the states first public spending on tobacco control.31 In 2002 Senior Care, which subsidized prescription drugs for seniors, received MSA funds. Facing a FY 2003 budget deficit, Easley (now governor) proposed diverting $65 million from MSA trust funds to reduce the deficit.32 He argued that even after taking money from the trust funds, the state could continue funding tobacco control program operations over the next three years. The programs survived; by FY 2003, funds had been allocated to tobacco control from the Health and Wellness Trust Fund to sponsor a teen-smoking prevention campaign at $6.2 million a year (for the next three years).33 Also, $3 million was allocated to an obesity prevention program for children.34 North Carolina has not increased its cigarette excise tax (currently five cents per pack) since 1991. Proposals to increase the excise tax were rejected in 2004, although a recent poll showed that 62 percent of North Carolina voters support an increase of fifty cents.35 And some advocacy groups, including teachers and state employees, have supported raising the cigarette excise tax, perhaps because of the added funds that would be generated. North Dakota. In North Dakota a major share of MSA funds has been used for infrastructure development. The state had no existing tobacco control programs as of MSA implementation. Although Attorney General Heidi Heitkamp (D) advocated funding tobacco control at the time, the legislature did not allocate funds for this purpose. A 1998 poll indicated that 89 percent of respondents supported using MSA funds for tobacco control.36 However, post-MSA, the state legislature approved allocating all MSA funds for 19992001 to water projects and bond paymentsand specifying that 45 percent of all funds would be spent on water project development in future years. Then Governor Ed Schaefer (R) and his successor, John Hoeven (R), supported this decision, listing clean water as a top public health priority. Interest groups supportive of tobacco control did not or perhaps could not influence MSA fund allocations. In 1999 North Dakotas House Natural Resources Committee voted not to limit the amount of MSA funds used for water projects. The American Heart and Lung Associations supported an amendment to limit funding to only critical water projects and to prevent allocating all trust fund monies. The amendment never passed. However, in 2000, citing a U.S. Centers for Disease Control and Prevention (CDC) report showing that the state held one of the lowest ratings for tobacco control efforts, Governor Schaefer proposed a tobacco control plan for the 200103 biennium. With this initiative, the legislature created the Community Health Grant Program, funded by $4.7 million from the MSA.37 One of the most successful projects funded by this program was a school and community curriculum plan to teach about the harms of smoking. For the 200305 biennium, $6 million was appropriated to tobacco control and prevention. Community Health Grant Program funding has been steady, and other grants are being allocated statewide.38 North Dakota has not directly allocated MSA funds to deficit reduction, although it has done so indirectly by funding water projects with MSA monies.
Spending patterns among the six states have been diverse, reflecting patterns among the states more generally, in that far less is being spent on tobacco control and health programs than would have been anticipated in view of the states tort claims against the companies. Yet some states with no prior tobacco control programs did initiate programs with MSA support. In effect, the MSA has provided an unrestricted grant-in-aid to the states, funded by increased cigarette prices.39 Given the inelasticity of demand for cigarettes, the cost of the MSA has been borne mainly by smokers.40 Revenue from smokers, through increased cigarette prices and substantial increases in state cigarette excise taxes since 1998, has been used to reduce burgeoning state deficits and initiate other state programs such as water projects and tuition subsidies. Public policy issues. Patterns of MSA revenues and spending raise important issues of public policy. It is clear that smoking is responsible for much mortality and morbidity and that tobacco manufacturers misled the public about smokings harms, which implies that tort litigation could perform an important role in deterring smoking. The evidence that smoking imposed a burden on state budgets in the amount of the MSA payments to states is much less compelling.41 To the extent that it increased the retail price of cigarettes, which in turn has reduced the smoking rate, the MSA has had a deterrent effect.42 However, using funds from smokers to pay for programs of general benefit raises issues of horizontal and vertical equity (the latter reflecting the relatively low incomes of smokers), especially since the MSA is probably overpaying states.43 When the MSA was reached, various health interest groups were critical of the lack of constraints on state spending it contained.44 But it is questionable whether such restrictions would have been effective for long. After the initial commitment in Florida to allocate monies to tobacco control for three years, tobacco control funding was severely reduced during a budget crisis. Even a successful program was insufficient to guarantee ongoing funding. Although beliefs about the effectiveness of tobacco control programs differ, empirical evidence on effectiveness is encouraging.45 Thus, some factors other than objective evidence must explain the apparent lack of support for the use of MSA monies for tobacco control and, to a lesser extent, other health programs. One explanation is that states faced a trade-off between spending on programs yielding near-term versus deferred benefits. It is unlikely that pressure from voters alone is sufficient to cause states to be oriented toward the long term. Especially in states with term-limited legislatures, such as in Michigan, legislators may not take a long-term perspective, either. Another explanation is that tobacco control lacks a strong constituency among voters and among interest groups, which leaves considerable latitude for elected officials to exercise their own preferences. The failure of Michigans statewide referendum suggests a lack of public support. Another manifestation of lack of public support for tobacco control and health programs is the broad concept of "health" used in MSA policy discussionswater (North Dakota) and education (Michigan). However, the case-study states provide some counterexamples, as do results of polls. State affiliates of national health organizations interested in tobacco control have publicly criticized the allocationsand even unsuccessfully sued some states (for example, Massachusetts)but typically have not affected allocations. The lack of interest-group influence may reflect deliberate choices. The interest groups may have had higher priorities. Or, lacking a broad base of public support, such groups may have attached low probabilities of success to intense lobbying efforts. We searched for party platforms in the six case-study states for 1998, 2000, and 2002. Of the four platforms we located, all were Democratic. Only one (Massachusetts) specifically mentioned use of MSA funds for tobacco control or health. This inattention to tobacco control suggests that MSA fund allocations were indeed not a major political issue. Of the two major parties, the Democrats have been more committed to tobacco control, although Democratic officeholders have often been reluctant to commit to tobacco control from MSA funds. However, among the six case-study states, Florida was the only state in which a change in the governors party from Democratic to Republican was associated with a change in how MSA monies were allocated. Tobacco manufacturers do not appear to have greatly influenced the allocations. However, the companies may have worked behind the scenes to influence such allocations, especially in states with substantial pro-tobacco constituencies (such as North Carolina). Especially when public support for a program is lacking, executive and legislative branches (such as in Massachusetts) have had considerable latitude in the allocations. Although plausibly favoring their own programs, state departments of health have been forced to abide by the decisions of their superiors. If the governors generally have not supported funding for tobacco control, the larger question arises: Why did so many states file lawsuits against the companies? Among the reasons are structural features of state government: U.S. attorneys general are often elected and may use involvement in litigation against companies engaged in conduct that appears contrary to the public interest as a platform to pursue higher public office. For governors, who have more general fiscal responsibility, the availability of unrestricted money for use in solving short-term problems is very tempting. One criterion by which states were selected for this case study was a history of public funding for tobacco control prior to the MSA.46 In the case-study states, spending from settlement proceeds was largely independent of prior spending patterns, a result consistent with a multivariate analysis of spending patterns in all fifty states.47 Our study included three localities in California, one of the few states sharing MSA monies directly with counties. In two of the three localities, patterns of spending on tobacco control and health were established early and have been maintained. In the third, a rural county, use of MSA funds has attracted virtually no attention. Tobacco control programs may have a greater likelihood of success at the local than at the state levels because tobacco companies cannot organize opposition to such programs as efficiently at local levels.48 Our case-study evidence for the counties, which in part contrasts with allocations at the state level, is consistent with this view. Study limitations. We acknowledge several study limitations. Findings from six states may not generalize to others or to the country as a whole. However, another six states would probably have differed on particulars, but the overall findings likely would have been similar. A second limitation relates to peculiarities of the first five years after the MSA, especially the recession and the large budget deficits that most states experienced. The real switch in state spending from particular programs to broad-scale deficit relief occurred at the height of budget crises in 2003. If the states had not experienced revenue shocks, allocations might have differed. Third, although the media often serve the role of "devils advocate," many aspects of behind-the-scenes negotiating are not available from newspaper accounts or public records. Thus, using a combination of publicly available evidence on process and the observed outcomes, we have had to fill in some blanks. The successes of tobacco litigation, much of which involves parties other than the states, are ongoing and have elicited interest in using litigation to achieve public health objectives in other areasfrom fast food to guns. The experience with the MSA offers the prediction that absent pressures from specific constituencies and without leadership from states executive and legislative branches, states spend the proceeds on a diverse range of priorities.
Frank Sloan (fsloan{at}hpolicy.duke.edu) is the J. Alexander McMahon Professor of Health Policy and Management and a professor of economics at Duke University, in Durham, North Carolina. Jennifer Allsbrook is a project coordinator at the Center for Clinical and Genetic Economics, Duke Clinical Research Institute. Leanne Madre is a project leader at the Duke Clinical Research InstituteOutcomes. Leah Masselink is a graduate student in the Department of Health Policy and Administration, School of Public Health, University of North Carolina at Chapel Hill. Carrie Mathews is member services manager at CXO Media in Framingham, Massachusetts. This study was supported in part by a grant from the Robert Wood Johnson Foundation administered by the Substance Abuse Policy Research Program, based at Wake Forest University.
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