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Tobacco Settlement Millions Drifting into General
Fund
By Earl Brechlin
Part 2 of 2 (click
here for part one)
ELLSWORTH—Anti-tobacco groups in Maine
celebrated in 1998 when the state was awarded $1.5 billion over 25
years to help offset smoking-related health-care costs.
And, while an
increasing amount of money has flowed into the state over the last
three years, some advocates who initially praised Maine as a
national leader in spending the tobacco windfall on health
programs now worry that the amount earmarked to help Mainers kick
the habit and address smoking-related costs is shrinking.
In Maine and in
many states, other budget priorities are nibbling away at the
edges of the tobacco settlement.
In 2000,
officials of the Campaign for Tobacco-Free Kids listed Maine as
first in the nation in the amount of money dedicated to tobacco
prevention and smoking cessation. The Fund for a Healthy Maine,
the pool established to disburse tobacco settlement revenue,
allocated nearly $18 million, or $15.16 per capita.
That, according
to Andrew Hysell of the Campaign for Tobacco-Free Kids, is equal
to 168 percent of the Centers for Disease Control (CDC)
recommended minimum.
Projections for a
reduced funding commitment in upcoming years, however, have
prompted the group to downgrade Maine’s
rating. The new rankings will be released on the group’s Web site
later this month.
“We had been
using Maine
as an example, but by our calculations, it has gone down
considerably,” said Hysell. “It has dropped from around $18
million to $12.5 million, although it is still above the CDC
minimum.”
Since other
states also are backing away from their initial commitments,
Maine’s ranking may drop but still be near the top, Hysell noted.
Governor Angus
King said he was not yet aware of the new rankings and would
reserve comment. “We have been one of the top states in the
country in the way in which we use the tobacco settlement money.”
According to Joe
Ditre, executive director of the Augusta-based Consumers for
Affordable Health Care, the use of levies on tobacco to swell
state coffers is increasing.
“The settlement
fund is coming under increasing attack as legislators look for
dollars to balance the budget,” said Ditre. “Everyone looks at
these cuts as a very serious threat to the public health.”
“Together we have
a stronger voice in Augusta,”
Ditre said. “When the tax per pack was raised in 1997, it proved
that a coalition of public health groups such as health-care
access organizations, tobacco control groups and smoking
prevention advocates could come together and get results. Because
of those efforts Maine had the number one tobacco settlement strategy in the
nation.”
Money from that
settlement now funds the efforts of 31 local anti-tobacco groups
in 30 cities and towns in Maine.
In the most
recent legislative session, officials pushed for a 50-cent
increase in the tax on a pack of cigarettes. Lawmakers settled on
a 26-cent hike. Six cents of that was earmarked for health care.
Ditre credits the
coalition of anti-tobacco groups, which joined forces in 1997 with
preventing the siphoning of more money from from tobacco control.
“When money is
short, it is no secret groups will end up being pitted against
each other,” Ditre said. “Without this cooperation the cuts would
have been much greater.”
Follow the Money
Last year, the
consortium of large tobacco companies signing a $206 billion
Master Settlement Agreement (MSA) with attorneys representing 46
states and five U.S. territories sent Maine checks totaling $48
million.
The MSA did not
preclude firms from raising their prices to generate the money
needed; therefore the settlement money does not come out of
tobacco company profits. Instead, the amounts that states receive
is directly tied to cigarette sales, plus an inflation escalator
clause.
Tobacco giant
Philip Morris raised its wholesale price 45 cents per pack the day
after the MSA was signed in 1998. Nine months later the price went
up another 18 cents and has continued to climb.
The price of a
pack of 20 cigarettes in Maine ranges from just under $3 to nearly
$6 depending on brand. Maine
levies a total of $1 a pack in excise tax. Another 26 cents per
pack is tacked on at the distributor level. The retail markup
ranges from 15 to 18 percent on each pack.
All major
cigarette manufacturers which agreed to the settlement put money
into a national master account that is doled out to the states.
Companies that declined to do so must pay a per-pack levy to each
state to assure they do not gain a competitive advantage.
The precise
status of tobacco settlement money in Maine is unclear. Officials
don’t know how big the check will be until it arrives, so figures
for upcoming years are only projections. Also, the payment
schedule does not necessarily coincide with Maine’s budget year,
creating cash flow difficulties. Transfers into and out of special
reserve accounts from one year to the next make comparing annual
allocations confusing.
When the tobacco
funds first started to roll into Maine, officials worried that the
agreement might disintegrate or that legislation on the federal
level might reduce future payouts.
To hedge the bet,
the legislature created a special trust fund and required that 10
percent of all Fund for Healthy Maine revenues be directed to that
account. Once the threat of federal action evaporated and
lawmakers were convinced the checks would keep coming, the special
trust fund was dissolved and that 10 percent was rolled back into
the Fund for a Healthy Maine.
“The legislature
was new to the payment scheme and didn’t trust it would continue,”
explained Maine State Treasurer Dale McCormick. “Over time they’ve
become more comfortable with that.”
The primary
challenge for McCormick’s department is to provide solid estimates
of payments.
“We have to take
into account the question of price impact on demand and the
inflation factor,” she said. “The bottom line is that the amount
of money Maine, and every other state, gets is based on the amount
of cigarettes shipped. So far our estimates of the amount coming
to the State of Maine
have been amazingly accurate.”
Maine
received approximately $63 million the first year, $48 million
last year, $57.5 million this year and is expected to receive $58
million next year. After the end of the 25-year period, the state
should continue to receive approximately $60 million a year in
perpetuity.
The Law
In creating the
Fund for a Healthy Maine, the 119th Legislature found that
“cigarette smoking presents serious public health concerns to the
state and to the citizens of the state; cigarette smoking also
presents serious financial concerns for the state. Under certain
health-care programs the state may have a legal obligation to
provide medical assistance to eligible persons for health
conditions associated with cigarette smoking, and those persons
may have a legal entitlement to receive such medical assistance.
Under these programs the state pays millions of dollars each year
to provide medical assistance to these persons for health
conditions associated with cigarette smoking.”
“Allocations from
the fund must be used to supplement, not supplant, appropriations
from the General Fund,” the law states.
Likewise, the law
prohibits transferring any Fund for Healthy Maine program costs to
the General Fund.
The enabling
legislation restricts fund allocations to eight narrow areas. They
include: smoking prevention, cessation and control activities,
including reducing smoking among children; prenatal and children’s
care, including home visits and parental support; child care for
children up to age 15; general health care for children and adults
with an eye toward maximizing federal matching funds; prescription
drugs for elderly or disabled adults, with the same federal
proviso; dental and oral health care for low income Mainers;
substance abuse prevention and treatment; and comprehensive school
health programs, including school-based health centers.
Last year, Maine
spent $12,526,011 on smoking cessation and prevention, according
to information released in October by the Legislature’s Office of
Fiscal and Program Review.
The state spent a
little over $5 million on Medicaid initiatives, $11.7 million on
child care and development projects and $10 million on
prescription drugs for the elderly.
Other health
initiatives received $1.4 million from the Fund for a Healthy
Maine and $5.8 million went to substance abuse programs.
The Attorney
General’s Office received $299,989.
Payments to
clerical personnel in the AG’s office, along with some peripheral
funding in other accounts, have drawn the most criticism from
lawmakers and advocacy groups. The clerical position paid for by
the fund is listed as directed at enforcing nonparticipating
manufacturers into paying into the escrow account so they don’t
gain a competitive advantage over other cigarette-makers.
A $260,000
one-time line item under the AG’s office was classified as
administrative expense.
Other items that
have drawn fire from lawmakers and advocacy groups include the use
of $150,000 in Fund for Healthy Maine money to pay for three
additional fire inspectors and some clerical help in the State
Fire Marshal’s Office, and the allocation of $400,000 annually for
family planning grants to community agencies.
The largest
amount included in annual allocations not specifically authorized
by the enabling legislation is a total of $15 million transferred
to the state’s General Fund for what the Office of Fiscal and
Program Review classifies as “other uses.”
While the figure
varies from year to year, the amount designated for the General
Fund as a percentage of allocations has increased annually.
According to
Maine Senator Jill Goldthwait of Bar Harbor, who chairs the Legislature’s Appropriations
Committee, each legislature begins the budget process with a clean
slate. There is nothing to stop lawmakers in any subsequent
legislature from changing where the tobacco money goes.
“In theory, the
next legislature can do whatever they want,” said Goldthwait. “In
the last session Governor King proposed reducing the Fund for a
Healthy Maine significantly.”
The Governor also
wanted to use tobacco money to help subsidize Medicaid, which is
paid for out of the General Fund.
“It didn’t pass,”
Goldthwait said. “The committee worked to restore about half the
money the Governor proposed to cut.”
“Last year we
were in a very tight budget situation. One-third of the money went
to taxpayers (General Fund) and the rest to health programs,” said
Governor King.
He asserted that
the overall thrust of the lawsuit settlement was to reimburse
states for Medicaid expenses, all of which are funded out of the
state’s general fund.
“In that case you
could argue that all of this money should go towards Medicaid,” he
said.
Senator
Goldthwait, who is a nurse, says “the settlement was a godsend in
a lot of ways and brought a lot of opportunity to do good.”
She is
particularly impressed with the effectiveness of the smaller
smoking cessation programs at the local level.
In Hancock County
those groups include Healthlink at the Maine Coast Memorial
Hospital, Healthy Acadia at Mount Desert Island Hospital and the
Health Education Center at Blue Hill Memorial Hospital.
“They are the
most needed and successful. This is the last money we should be
touching,” said Goldthwait.
With
first-quarter revenues off by as much as $30 million since July,
officials already are looking for ways to cut back state spending
in the current fiscal year.
Goldthwait
contends it would ethically wrong to raid the Fund for a Healthy
Maine to balance the state budget.
“I understand
that all items will be on the table,” she said. “But we have
contracts with these small programs all over the state. To pull
the rug out from under these efforts just when they are showing
results would be very wrong.”
The Future
The types of
funding reductions tobacco programs face in the next year remain
unclear.
“All the
advocates act like this is their money,” said Governor King. “It’s
not. It’s the taxpayers’ money.”
The Governor said
the Fund for a Healthy Maine is not a “likely” target for budget
cuts, but added that decisions won’t be made until the true
dimensions of the budget shortfall are known.
As the debate
about how to best address any budget shortfall ramps up, Ditre
worries that some policymakers might shuffle expenditures so there
will be no choice but to tap into Fund for Healthy Maine money.
“If you underfund
Medicaid, which is paid out of the General Fund, and try to make
up the difference with Fund for a Healthy Maine, you just end up
pushing the money around from one to the other,” Ditre said.
From the start, Maine established a solid reputation for devoting the lion’s share
of its windfall to health programs.
“So much progress
seemed to have been made that we hate to see states moving in the
wrong direction,” said Hysell. “More and more of this money is
sliding into general funds. It just goes to show that states can
get addicted to tobacco money.” |
