States are using their tobacco settlement money to balance their budgets

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Posted 8:47AM on Tuesday, April 2, 2002

OLYMPIA, Wash. - Less than four years ago, Washington state's attorney general helped win billions of dollars from the tobacco industry for 46 states -- money she saw as a bonanza for smoking-prevention programs and other health measures. Now she is watching in dismay as states around the country -- including her own -- borrow heavily against their shares of the settlement to plug holes in their budgets. States are not just spending the yearly checks on something else; they are spending decades of settlement payments all at once. "This was the single biggest opportunity in the history of public health to address the most preventable cause of death in America," Attorney General Christine Gregoire said. "I sure hope I don't look back and say it was the biggest lost opportunity." Since the settlement dollars started flowing in, anti-tobacco forces have battled with lawmakers about how the money should be spent, and have mostly lost. Only five states meet the Centers for Disease Control and Prevention's recommendation that 20 percent to 25 percent of the settlement be spent to fight tobacco use, according to the Campaign for Tobacco-Free Kids. Even in Washington state, where Gregoire's influence had helped keep the money earmarked for tobacco and public health programs until now, anti-smoking spending did not meet the CDC benchmark. Elsewhere, moral claims on the settlement ran up against the cold statehouse fact that money is just money when it is time to balance the budget. Compared to raising taxes or cutting spending, borrowing against the settlement -- known as "tobacco securitization" -- is easy money politically. Washington plans to sell off the rights to about 20 percent of its settlement payments for the next 20 years to cover $450 million of its $1.6 billion budget shortfall. In California, Gov. Gray Davis has proposed selling off 40 percent of his state's settlement share to raise $2.4 billion to help close a gap of $12.4 billion. Similar proposals are in play in other states, including New Jersey and Rhode Island. In Wisconsin, Republican Gov. Scott McCallum and GOP lawmakers are set to go whole hog: The entire settlement for the next two decades could soon be sold for about $1.3 billion, compared with the $5.9 billion the state expected to receive in payments over 25 years. All or nearly all of the proceeds would go toward balancing the current budget. Critics -- most vocally Gregoire and other anti-tobacco forces -- liken the practice to taking out a second mortgage to buy groceries. The move costs the states interest and fees, and saddles them with debt payments that will long outlast the balanced budgets they helped achieve. But budget-writers say they have few choices. In Washington, Senate Ways and Means Chairwoman Lisa Brown turned to tobacco as the least offensive of three unpleasant options. "In this case, the alternative is $500 million in additional cuts or in general tax increases," said Brown, a Democrat. At least 17 states or counties, including Alaska, Alabama, South Carolina, and counties in New York and California, have already sold off parts of their settlements. At first, it was done mostly to pay for building projects, a widely accepted use of such borrowing. Alaska was among the first, selling off part of its settlement share in 2000 to replace and repair crumbling schools. But as budget problems worsened, states began to see tobacco settlement money as a way to balance the books.