State's tobacco settlement money may be diverted
| • | Bills that are alive, or failing, at the Capitol |
By Lynda Arakawa
Advertiser Capitol Bureau
With the state budget situation expected to worsen, some lawmakers are considering the Tobacco Settlement Fund as a source of money to pay for more state programs, from drug treatment to afterschool youth programs.
The Legislature in 1999 passed a law that designated a majority of the tobacco settlement money — an estimated $1.3 billion over 25 years ending in 2025 — for tobacco prevention and programs to promote healthy lifestyles.
Since then, lawmakers have adjusted the tobacco settlement law to include paying for a University of Hawai'i medical-school facility, and other attempts have been made to steer the money elsewhere.
Legislative leaders say they want to avoid tapping the fund, but the anticipation of steep budget shortfalls and a war make the millions of dollars in regular tobacco payments a tempting revenue source.
"I think that with war looming we've got to look at absolutely every option and realize that at this point there are no sacred cows," said House Majority Whip Brian Schatz, D-25th (Makiki, Tantalus). "We've been exemplary in the way we've spent tobacco settlement moneys and we hope to be able to continue that, but this year and this budget is extraordinary so it's going to be a challenge."
Hawai'i was among 46 states that were part of a $206 billion agreement with tobacco companies in 1998, settling claims for medical spending on sick smokers.
Tobacco fund The $1.3 billion settlement fund paid over 25 years is divided this way: • 24.5 percent of the money goes to a "rainy day" fund • 12.5 percent to the tobacco prevention and control trust fund • 35 percent to the state Department of Health, with up to 10 percent of the fund to the Children's Health Insurance Program • 28 percent to pay bonds for a new medical-school facility at the University of Hawai'i
Some health advocates are wary of proposals to tap the money, and are quick to offer a reminder that the focus should be on tobacco prevention. They say Hawai'i should not follow the pattern of other states, some of which use their tobacco money for highways.
"We can't forget that one of the main purposes is to either prevent people from smoking or help them to quit ... and to promote a healthy lifestyle," said House Health Committee Chairman Dennis Arakaki, D-30th (Moanalua, Kalihi Valley, Alewa). "I hope that we don't lose sight of those objectives and what the purpose of the fund is for, because we can easily lose sight of it because of the budget shortfall."
Dr. Virginia Pressler, former state Department of Health deputy director and a member of the tobacco trust fund advisory board, said she sees no problem with lawmakers tapping the rainy day fund, but that she hopes the rest of the money stays intact.
"The tobacco money is there because (tobacco companies) caused so much hurt to so many people and this is their pay for all the harm they've caused, so to use this money for purposes other than primary prevention of tobacco use and other major causes of chronic disease and illness in the population is just a shame," she said. "I admire the courage of the Legislature and the administration who have preserved these dollars to date for its intended purpose. I hope that they can stay the course even in hard times."
Some lawmakers say the "rainy day" fund, which has a balance of about $43 million, appears to be an easier source to tap. Just less than 25 percent of the money the state receives from the tobacco settlement goes into the rainy day fund. Lawmakers tapped $10.4 million from it last year to pay for public health, safety and welfare programs.
The House last week approved using a portion of the tobacco settlement money to help pay for a "drug strike force program" that would include drug prevention, enforcement and treatment. A "drug czar" would be established in the lieutenant governor's office.
The Senate also passed a handful of bills that would affect the tobacco settlement fund, including adjusting the rainy day fund allocation to pay for community health centers, afterschool youth programs and efforts to develop healthcare and biomedical technology to detect cancer.
Senators also approved an administration proposal to transfer tobacco settlement money allocated for the Children's Health Insurance Program to help pay for children's health programs.
Gov. Linda Lingle's plans for the money also include freeing up about $5 million in general funds by replacing Healthy Start general treasury funding with tobacco settlement dollars.
Senate Ways and Means Committee Chairman Brian Taniguchi, D-10th (Manoa, McCully), said he wanted to keep a number of measures alive in case they become necessary. He said tapping the tobacco settlement fund may be an option, although not the preferred one.
"I would think we'd try to avoid that, but I think given the gravity of some of the possible shortfalls and what this might mean for some of the human services groups, youth type services, maybe we might have to look at some of that stuff," he said.
When asked about the possibility of tapping tobacco settlement money to help balance the budget, House Finance Chairman Dwight Takamine said: "We'll have to cross that bridge when we get to it."
He said it would make sense to preserve the money, adding that the money in the rainy day fund helps the state's bond rating.
"But should war occur, that would definitely have an impact," said Takamine, D-1st (N. Hilo, Hamakua, N. Kohala). "Given those circumstances we're going to have to respond in a way that addresses the needs of the people. And so at that point we may have to look at doing things differently than we've done in the past."
At the same time, tobacco settlement payments received by the state have routinely fallen 10 percent to 13 percent below projected amounts, said Susan Jackson, tobacco settlement project manager with the state Department of Health.
Hawai'i was supposed to have received $161 million so far, according to settlement projections, but actual payments totaled $143 million, about 11 percent less, Jackson said. The state received a payment of $12.8 million in January, less than the projected $16.2 million, she said. The state is projected to receive $34 million in April, although officials expect it to be less as well.
The discrepancy is a result of a complex system of "offsets and reductions" that were worked into the master settlement. One of the many formulas used in the payment calculation is based on national tobacco sales. If sales are down, payments to the states are also reduced, Jackson said.
Jackson also said tobacco companies can dispute each payment calculation. When that happens the tobacco industry puts its payment into a "disputed payments account" and has up to four years to settle the dispute. Until the dispute is resolved, the states don't receive the money.
"It is an amazingly complex and cleverly crafted agreement," Jackson said.
Advertiser staff writer Gordon Y.K. Pang contributed to this report. Reach Lynda Arakawa at larakawa@honoluluadvertiser.com or at 525-8070.
