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Copyright © 2005
Tobacco Outlet Business
Updated September 24, 2005

Then in subsequent years—including this one—bills for raising tobacco excise taxes were proposed. Each year, state legislatures reiterated their grand proposals to fund tobacco control and health-related programs. They talked convincingly of using the money for public health and protecting our kids.

And now that more than five years have passed since all this began, there’s one thing that still rings true—the states sure know how to talk a good game. Their ploy has been likened to the classic "bait and switch" scheme where advertisers lure people in with one great deal—only to sell them something else—typically half as good and twice as expensive. In this instance, smokers are being reamed with taxes and all constituencies are being taken for a ride—sometimes on new golf carts that were purchased with the MSA money (such as in the state of New York, see "Found" chart, page 60).

For a while now, we’ve seen it coming. Two years ago, the National Conference of State Legislatures (NCSL) analyzed state plans for spending MSA funds during fiscal years 2000 through 2003. Of the total $33.1 billion in MSA funds that states were to receive during this period, the NCSL found that more than half of the money was earmarked for projects totally unrelated to smoking.

More recently, on the MSA’s fifth anniversary last November, a coalition of public health organizers, including the Campaign for Tobacco-Free Kids, released a report entitled "A Broken Promise to Our Children: The 1998 State Tobacco Settlement Five Years Later." The study found that only four states—Maine, Delaware, Mississippi, and Arkansas—currently fund tobacco prevention and cessation programs at minimum levels recommended by the U.S. Centers for Disease Control and Prevention (CDC), which usually amount to only about 20 to 25 percent of a state’s annual settlement payments. "Thirty-eight states and the District of Columbia fund tobacco prevention programs at less than half the CDC’s minimum level or provide no state funding at all," according to the report.

The summary highlighted that "five years after the November 1998 state tobacco settlement, we find that most states have failed to keep their promise," and that "the states lack credible excuses for their failure."

And just this March, the United States General Accounting Office (GAO) released a report after surveying the 46 states that signed the MSA (Mississippi, Florida, Texas, and Minnesota negotiated separate settlements with the tobacco industry before the MSA was signed in November, 1998). The GAO found that the states used the largest portions of the fiscal year 2003 payments to address budget shortfalls. What’s worse, the portion allocated to meet budget shortfalls is expected to increase from 36 percent in fiscal year 2003 to 54 percent in fiscal year 2004. And the portion allocated to health-related programs is expected to decline from 24 percent in fiscal year 2003 to 17 percent in 2004, according to the GAO.

So how can the states get away with this? How can they keep breaking their promises when the tobacco companies have upheld theirs? Simple—nowhere is it dictated, neither in the MSA nor in tax bills—how the states must spend these monies. Sure, the Recitals under Roman Numeral I of the MSA (the Whereas clauses) refer several times to the use of the funds to "further the Settling States’ policies regarding public health, including policies adopted to achieve a significant reduction in smoking by Youth." Roman Numeral VI of the MSA also established a foundation to fund public education and research to further the states’ goals.

So although the MSA repeatedly mentions "implementation of tobacco-related public health measures," each state gets to decides how its MSA funds are spent. In fact, the 9th U.S. Circuit Court of Appeals, based in San Francisco, two years ago ruled that the states have no legal restrictions on how they spend the tobacco money. Other federal courts made similar rulings earlier.

And because of this, many tobacco companies do not want to go on the record with their state-bashing. But off the record, comments run rampant:

"It certainly seems like they agreed to the MSA under false pretenses," states one. "At least we thought we went into this agreement with both sides shaking hands on how the money was going to be used. What a joke. They duped us; they duped everyone."

"When the MSA was signed, never before had we achieved such a step in addressing the health needs of this country," says another tobacco manufacturer executive. "And yet now, they’re using less and less of it for these purposes. It seems like the classic bait and switch."

What’s even more infuriating to the tobacco industry is how states just keep raising tobacco excise taxes, again citing the need for tobacco prevention and health-related programs. Then, excise tax year after excise tax year, they completely ignore the fact that they haven’t spent the money supposedly already earmarked for these purposes.

"The MSA is what it is—we all agreed to it and it’s part of business," says a spokesperson for a major tobacco company. "But the bottom line is that the states are already getting a lot of money that is coming from adult smokers through excise taxes. And year after year, they keep coming back for more—and yet they don’t explain where the money they already received is going. And yet we all know the answer—to try and balance their obscene budgets, which they obviously have no clue how to do."

"And what’s with tying this kind of revenue into roads and such?" asks another tobacco representative. "Shouldn’t that be the responsibility of every citizen and not just the majority of those who choose to smoke? Smokers didn’t cause the states’ budget problems and excessive taxes on them aren’t going to solve them."

While there is no quick solution, the industry urges retailers and their smokers to contact their state legislators and directly ask them the tough questions, such as where is this money going? And how much longer do they plan on penalizing smokers? NATO’s S.T.O.P. program is one outlet to do this; RJR’s just launched business-to-business web site, businesstobaccoalliance.com, is another. It provides tobacco outlet owners and operators who are looking to oppose cigarette excise taxes and smoking bans with a new way to get information on who their elected state officials are, and how to contact them. There is even a "tax calculator" on the site that enables retailers to figure out the proposed tax impact on their profit margins. •

Copyright © 2005 Tobacco Outlet Business