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Four years ago Ohio, learning it would receive a windfall of billions of dollars, promised to invest the money in public health programs that could save thousands of lives. Instead the money is being frittered away for other purposes.
Ohio has the fifth-highest rate of smoking in the United States, according to the Centers for Disease Control; more than 26 percent of adults in the Buckeye State are smokers. The state’s smoking death rate is 17th of the 50 states.
Yet despite promises by Gov. Bob Taft and the Republican-controlled state legislature, Ohio is 31st in the country in spending on anti-smoking programs.
The result will be deadly, according to Larry McAllister, president of the American Lung Association of Ohio. Furthermore, the failure to spend on smoking-prevention now will only prove more expensive in the long term, he says.
“More kids are going to start smoking, more people are going to have health issues because of tobacco use and Medicaid costs are going to continue to skyrocket,” McAllister says.
In November 1998 Ohio joined 45 other states, the District of Columbia and five U.S. territories in a settlement ending lawsuits against the nation’s five largest tobacco companies. Brown & Williamson, Lorillard, Philip Morris, R.J. Reynolds and Commonwealth Tobacco agreed to collectively pay what was then estimated to be $206 billion over 25 years and to accept significant marketing and lobbying restrictions.
The reason for the lawsuits was to protect youth from tobacco marketing and to improve public health, according to Ohio Attorney General Betty Montgomery.
“The reason we got in this fight was to protect public health and prevent underage smoking,” she said then, announcing Ohio would join the settlement. “A significant portion of this money should go toward these causes.”
In remarks to the Tobacco Use Prevention and Control Foundation, Taft said Ohio would target its tobacco settlement funds on programs to reduce smoking.
“I’d also like to thank the members of the Ohio General Assembly who worked with us to give the highest priority to smoking prevention and cessation when allocating the tobacco settlement dollars,” he said.
Less than expected
But when it came time to split the pot, dozens of groups joined in a feeding frenzy, each claiming rights to a portion of the windfall.
· Tobacco growers sought money to help them weather the downturn in cigarette sales that followed settlement-induced price hikes and to ease their transition into non-tobacco crops.
· The American Association of Retired Persons, arguing cigarette consumption had disproportionately affected low-income elderly people, sought funds to subsidize prescription drugs for that group.
· Because taxes had ultimately funded much of the increased costs for smoking-related illnesses, tax watchdog groups fought to have the money returned to taxpayers.
· Minority activists argued their communities needed funding to overcome the intensive tobacco marketing targeted at them.
· Because smoking-related health-care dollars had flowed out of budgets at most levels of government, public entities joined the private sector in scrambling for dollars. Counties sought reimbursement for money they spent treating tobacco users at free clinics and county hospitals.
· The federal government, pointing out that much of the Medicaid money spent on sick and dying smokers came to the states from federal coffers, briefly grabbed for a handful of money before being rebuffed by popular opinion and by rhetoric from statehouses around the country.
But the size of the jackpot over which these groups were battling was overstated from the beginning. Ohio’s share of the settlement was consistently — but inaccurately — reported to be around $10.1 billion over 25 years.
The tobacco settlement payments, however, are primarily a function of U.S. cigarette sales. As domestic cigarette consumption fluctuates, the settlement payments follow lockstep.
Sales of cigarettes in the United States have decreased from 636.5 billion cigarettes in 1981 to 413.5 billion in 2000, an average annual drop of 2.18 percent, according to the Federal Trade Commission. This two-decade decline has followed a consistent downward trend, with consumption increasing from the prior year only four times.
Coincident with the creation of the original tobacco spending plan, the Legislative Service Commission — a state agency responsible for forecasting the economic impact of legislation — estimated that a 2 percent annual reduction in U.S. cigarette sales would slash Ohio’s celebrated $10.1 billion prize by nearly 22 percent to $7.9 billion.
From the outset, it was clear Ohio would receive far less than $10.1 billion from the tobacco settlement.
Economic data on the price sensitivity of cigarette smokers indicate tax rate hikes will probably further decrease cigarette consumption, thereby reducing the tobacco settlement payments even more. According to the National Bureau of Economic Research, numerous studies conducted over more than three decades have repeatedly found that every 10 percent increase in the price of cigarettes reduces overall cigarette consumption by 3-5 percent.
To close budget gaps, five states hiked cigarette taxes during 2001. Eleven states, including Ohio, raised them in 2002; and more than 20 are currently considering such increases.
Only three years into the 25-year payment schedule, decreased cigarette consumption has already significantly lowered Ohio’s tobacco settlement payments. For the fiscal year ending June 30, 2000, the state received 7.1 percent less than originally predicted. Payments were down 9.5 percent for 2001 and 11.9 percent below expectations for 2002. Following this trend of increasingly large reductions, revised estimates for 2003 payments are 13.3 percent lower than the original forecast.
Smoke more — for the schools
Ohio’s legislature established a bipartisan task force to develop a strategy for allocating the settlement payments, whatever its size. In his first State of the State address, Taft told Ohioans the goal of this task force should be “reducing the number of underage smokers in Ohio.”
The allocations under this initial spending plan seem to indicate, however, that the task force focused mainly on resolving the education finance fiasco triggered by DeRolph v. Ohio. In that lawsuit, the Ohio Supreme Court ruled Ohio’s public school system could not be “thorough and efficient,” as required by the state constitution, until crumbling and decaying school buildings were repaired or replaced.
Under the plan signed into law by Taft, the largest piece of the tobacco pie, by far, went to offset current and past legislatures’ under-funding of school buildings. Based on the $10.1 billion estimate of Ohio’s tobacco settlement, 50 percent of the first 12 years of Ohio’s estimated payments would have gone to school construction and maintenance.
But because the tobacco payments rolling into Ohio’s treasury have been much lower than initially reported, the percentage targeted for school construction and maintenance grows. With few exceptions, allocations to the two school building trust funds were the only absolute dollar amounts in the original spending plan. The remaining six trust funds were expressed as percentages of the total payments received, minus the amounts going to school construction.
As tobacco payments decrease, therefore, the amount allocated to school buildings doesn’t change, but the amounts allocated to the remaining trust funds decrease accordingly. If the $10.1 billion settlement estimate is adjusted downward to $7.9 billion, based on the conservative assumption of a 2 percent annual drop in cigarette consumption, the percentage of the payments going to school buildings climbs to 57 percent.
Taft and the Ohio General Assembly dedicated such a significant percentage of the tobacco money to education because they’d been otherwise unable to develop a school building plan that the Supreme Court would find constitutional. In 1998 voters defeated a 1 percent sales tax increase that would have raised $1.1 billion and a proposed constitutional amendment, which later passed in November 1999, that would have allowed the state to issue general obligation bonds to fund school building construction.
In February 1999, Judge Linton Lewis of the Perry County Court of Common Pleas ruled Ohio’s education finance plan was still unconstitutional. So in March 2000, three weeks after the enactment of the tobacco settlement spending plan, Montgomery submitted it to the Supreme Court, hoping its generous allocations to school construction would elicit a favorable ruling. For this same reason, the initial spending plan allocates funds to school construction for the entire 25-year settlement payout period, while allocations to the other six trust funds cover only the first 12 years.
No way to treat a priority
This focus on using tobacco money to fix the state’s education woes left less money for anti-smoking and healthcare programs. During the 12-year period ending 2012, the original plan allocates just over 25 percent of Ohio’s estimated tobacco payments for that period to the Tobacco Use Prevention and Cessation (TUPC) Fund.
The stated purpose of this fund is to reduce tobacco use by Ohioans, with emphasis on groups that might be disproportionately affected by tobacco, such as young people, certain minority groups, regional populations and pregnant women.
The amount actually allocated to the TUPC fund, however, decreases when the consistently dropping cigarette consumption rate is taken into account. While the original spending plan allotted nearly $235 million to the TUPC during the fiscal year ending June 30, 2000, the fund actually received less than $213 million, a 9.5 percent drop. The actual allocation for 2001 was 15.4 percent lower than expected, and revised estimates for the 2002-2003 biennium were down by nearly 25 percent.
The Ohio Public Health Priorities Trust Fund was to have received just over 5 percent in the first 12 years of the original settlement spending plan, with at least 25 percent of this fund dedicated to minority health programs, 5 percent to emergency assistance for elderly Ohioans adversely affected by tobacco usage and the remaining 70 percent to underage tobacco law enforcement, alcohol and drug prevention programs and payments to hospitals and clinics that provide free health care to the general public.
The original plan also appropriated nearly 10 percent to developing Ohio’s biomedical research industry, 4.4 percent to advancing technology in schools and universities, 0.5 percent to improving law enforcement facilities and 4.6 percent to alleviating the effects of economic impact of the settlement on Ohio’s tobacco growers.
Due to the decreases in tobacco consumption, the actual allocations to each of these funds generally dropped in amounts proportionate to the TUPC fund decreases.
But even though well more than half of the spending plan was dedicated to counterbalancing the Ohio Legislature’s history of neglecting school buildings — and less than 30 percent was steered toward smoking-related healthcare and anti-tobacco programs — it was widely considered one of the best in the country.
By examining successful efforts around the country, the Centers for Disease Control (CDC) determined the cost to each state of sponsoring effective anti-smoking programs. The agency calculated that Ohio must spend at least $61.7 million annually on such initiatives in order to effectively cut tobacco usage.
The Campaign for Tobacco-Free Kids, a group dedicated to eradicating underage smoking, used the CDC’s recommended funding levels to analyze the tobacco settlement spending of each state.
In the first edition of this study, published in early 2001 and based on projected fiscal year 2001 anti-tobacco spending, the campaign determined that Ohio spent $60 million, 97.2 percent of the CDC’s minimum funding requirement, ranking it eighth among all states in the campaign’s study. Of Ohio’s tobacco producing neighbors, Indiana, the country’s eighth largest grower, met the minimum anti-tobacco spending levels set by the CDC and ranked sixth in the campaign’s report. Kentucky, the nation’s second largest tobacco producer, spent only one-fifth of the amount recommended by the CDC and ranked 36th.
Shortly after the announcement of the acclaimed spending plan, Taft addressed the TUPC fund’s board of directors. He reinforced the importance of improving the health of Ohioans by investing in programs to reduce tobacco usage.
“I think [the TUPC allocations] will help hundreds of thousands of Ohio teen-agers never to start in the first place,” Taft said. “You have the opportunity to improve the health and quality of life for millions of others.”
In testimony before the U.S. Senate, where Ohio’s plan was held up as model for other states to follow, Montgomery also spoke of the importance of anti-tobacco programs.
“We brought our lawsuit against the tobacco industry because of their unscrupulous business practices of specifically targeting minors,” she said. “This historic settlement gives us the unique opportunity to start protecting not only our children, but also our communities as a whole.”
But Ohio’s dedication to cutting tobacco usage ended with the first signs of an economic downturn. Faced with a budget deficit that would eventually balloon to $1.9 billion, the legislature has so far siphoned $240 million from the TUPC fund, $120 million each in fiscal years 2002 and 2003. This redirection results in no settlement allocations to smoking prevention for those years.
While lawmakers later swiped $345 million from the school building funds and $3.9 million from the public health fund to plug the budget gap, the first tobacco money targeted by the state as being available to remedy financial woes was the TUPC fund — which both Montgomery and Taft highlighted as being vital to the health of young Ohioans.
“Payments four and five were simply taken by the legislature for a one-time fix,” says McAllister, of the American Lung Association of Ohio, who also is chairman of the TUPC fund’s strategic planning committee.
Although this same bill provides for the repayment of the TUPC funds lost to budget stabilization, it would not come from the state’s funds but from tobacco settlement payments made in 2013 and 2014.
Furthermore, many are skeptical that future lawmakers will honor this promise.
“Technically, this General Assembly cannot require that future general assemblies pay the money back,” says Caris Post, government affairs director for the American Lung Association of Ohio. “We’re skeptical that the money is going to be repaid.”
In January 2002 the Campaign for Tobacco Free-Kids updated its report on states’ plans to spend tobacco money. Due primarily to the siphoning of money from the TUPC fund, Ohio’s spending on tobacco prevention dropped from $60 million in 2001 to $21.7 million in 2002, just 35.1 percent of the CDC’s minimum funding level.
While many states used tobacco settlement money to resolve budget issues, few decimated their anti-smoking programs to the degree that Ohio did. Just a year after the campaign ranked Ohio eighth among all states for tobacco prevention and cessation spending, the state fell to 31st, the biggest drop in the study. Kentucky, meanwhile, climbed four spots to 32nd and Indiana held onto sixth place.
As the kids light up
The use of the tobacco settlement money to fund budget shortfalls solves short-term financial problems, perhaps at the expense of the future fiscal health of the state.
The $345 million transferred from the school building fund will be replaced by general revenue bonds, which will cost taxpayers an additional $262 million in interest payments over the 20-year life of the bonds.
Data from other states indicates Ohio might be increasing future healthcare costs by cutting spending on anti-smoking programs. Well-funded smoking cessation and prevention programs around the country have consistently reduced smoking rates — which, several studies have shown, just as consistently leads to reductions in smoking-related health-care costs.
In 1988, Californians passed Proposition 99, which hiked cigarettes taxes by 25 cents per pack. The proposition dedicated one-fifth of these proceeds, approximately $100 million annually, to comprehensive anti-smoking programs. According to a 2001 report issued by the California Department of Heath Services, these initiatives resulted in a 57 percent drop in per-capita cigarette consumption from 1990 to 1999. In comparison, the nation’s per-capita cigarette consumption dropped only 27 percent in the same period.
In 1993, Massachusetts instituted an anti-smoking campaign, which was also funded by a 25-cent cigarette tax increase. The CDC reports the state has subsequently experienced a drop in cigarette consumption of 30 percent, with a 15 percent decrease among high school students and a 50 percent reduction among pregnant women.
Florida launched a program to discourage smoking among young people in 1997, resulting in a 40 percent decrease in smoking among middle school students and an 18 percent reduction among high school students before Gov. Jeb Bush’s funding cut.
According to McAllister, Ohio’s diversion of tobacco prevention money to stabilize the budget will, at the very least, postpone the state’s achievement of such significant reductions in tobacco usage.
“If we would have followed the original spending plan, we would have reached the low end of CDC [recommended funding] by 2006 or 2007,” McAllister said. “Now that they have taken these payments, it’s probably going to be, if additional payments aren’t taken, 2009 or 2010 before we get to that level.”
Tobacco settlement payments allocated to the TUPC fund are not spent directly on programs. The fund generates investment income, which is then used to finance anti-smoking advertising campaigns and other programs geared toward cutting tobacco usage. By slicing $240 million from this income-generating principal, lawmakers have greatly reduced the amount that can be spent annually on these initiatives.
McAllister sees this delay as dangerous to both the physical and fiscal health of Ohioans.
Several reports have highlighted this link between smoking rates and Medicaid costs. The American Legacy Foundation, a public-health organization created by the tobacco settlement, issued a report earlier this year that predicts Ohio could save nearly $31 million annually on Medicaid costs by cutting smoking rates 25 percent — a seemingly obtainable goal, given the successes achieved by Florida, Massachusetts, California and others.
A report commissioned by the American Lung Association of Ohio predicts even more dramatic savings. This study determined the state could achieve long-term savings of $10 million annually for each percentage-point reduction in Ohio’s smoking rate. A 25 percent reduction in Ohio’s current smoking rate of 26.2 percent translates into a drop of 6.55 percentage points and eventual savings of $65.5 million per year as those who stopped or never started smoking grow old without tobacco-related illnesses.
Ohio’s adult smoking rate, as well of those of its tobacco-growing neighbors, is among the worst in the country, according to CDC data. While Ohio’s 26.2 percent is the fifth highest, Kentucky has the highest at 30.5 percent and Indiana ranks fourth with 26.9 percent.
The use of tobacco in these states translates into smoking-related sickness and death rates well above the national average. Ohio’s smoking death rate is the 17th highest among all states. Only Nevada exceeds Kentucky, and Indiana is ninth.
Post, with the American Lung Association of Ohio, believes the funding of short-term budget problems with money once dedicated to improving Ohio’s smoking problem — and consequently to reducing long-term health care costs — was not necessary.
“During the budget process, we offered alternatives to just pulling all of the money from the [TUPC] foundation,” Post says. “That just wasn’t something that [lawmakers] were interested in.”
Alternatives offered by the American Lung Association of Ohio and other anti-smoking groups included filling the budget gap with tobacco money from all of the state’s settlement trust funds, instead of taking money only from the TUPC and school building funds. Another alternative, according to Post, was merely pushing back the payments for one or two years instead of making an unenforceable promise to repay the money in 10 years.
Additionally, if legislators had carefully analyzed the state’s fiscal situation years ago, Ohio might have been spared the recent budget crisis altogether. The Center on Budget and Policy Priorities, a nonpartisan public-policy research organization, issued a report in 1999 warning the rainy day funds of many states, Ohio among them, would not withstand even a mild recession. Instead of shoring up this fund, lawmakers sent nearly $2 billion back to Ohioans as tax rebates. With this money, plus interest that would have accrued on it, Ohio would have easily weathered the most recent slowdown.
A larger state cigarette tax hike could have also helped resolve Ohio’s budget problem while simultaneously discouraging smoking. In the latest budget repair bill, lawmakers raised the tax from 24 cents to 55 cents per pack — far less than the originally proposed increase of 50 cents. The Legislative Service Commission estimates the larger increase would have raised $135.5 million more annually than the 31-cent hike, even taking into account that, due to price sensitivity, more smokers would have quit.
The tobacco settlement windfall presented Ohio with a tremendous opportunity to reduce the death and illness caused by smoking. Other states provided the blueprint to achieve this goal, and state lawmakers needed only to follow them.
Initially, much of the money that could have gone toward such goals was commandeered to offset lawmakers’ decades-long neglect of the buildings within which Ohio’s children are educated. Now it appears that much of the remaining money, at least for the next two years, will be siphoned away to fill gaps left by lawmakers’ budgetary decisions. ©
Stand and Be Counted
It might be a relatively small allotment, but a portion of the tobacco settlement is now being used to fight tobacco usage. Appearing on billboards, movie screens, television, radio and in youth-oriented magazines, the “Stand” series of ads encourage teens to stand up and speak out against tobacco use and envisions a world where smoking turns teens into social pariahs.
The campaign, developed by Northlich, the Cincinnati-based advertising company, began in February and runs through 2006. The total cost for the four-year run is $50 million, all of which is funded by the Tobacco Use Prevention and Cessation Fund.
The foundation overseeing this fund is also in the process of issuing $9 million in grants to community-based anti-tobacco programs, $2 million of which are set aside for programs focused on minority groups and under-served regions.
More information on “Stand” can be found at www.standonline.org. More information on the TUPC foundations plans is available at www.tupcf.org.
This article appears in Aug 7-13, 2002.