Illinois 1 of 2 states giving tobacco money to taxpayers
When state leaders decided to allocate $280 million from the windfall tobacco settlement to property-tax relief, Illinois joined Connecticut as the only states to return any of the new revenue to taxpayers.
Connecticut sent $50 million from its share of the nationwide legal settlement with tobacco companies to local communities in fiscal year 2000, expecting the money to be used for property-tax relief. They planned to spend another $50 million, but now Gov. John Rowland has suggested directing the tax break to hospitals instead of local governments.
State and national anti-tobacco advocates are disappointed with Illinois' plan for the tobacco money. State Rep. John Fritchey, D-Chicago, was one of the leading legislative voices in favor of spending a majority of money on health-related or tobacco-cessation programs.
"We blew it," he said in the final days of the legislative session. "I think that, with respect to the tobacco-settlement funds, 2000 will go down as the year that health services lost out to election-year politics."
Illinois expects to receive more than $686 million in tobacco money in fiscal year 2001. Of that, $280 million will be used for the property-tax rebate, $225 million for a budget reserve account, $35 million for pharmaceutical assistance for senior citizens, $35 million for a new tax credit for low-income workers, and $29.5 million on smoking prevention programs.
The remaining $81.6 million will be spent on medical research, medical technology and state administrative costs.
Peter Fisher of Washington, D.C.-based Tobacco Free Kids said taxpayers would benefit more from increasing anti-smoking programs than by giving out a one-time tax rebate.
"It's incredibly short-sighted," Fisher said.
Sen. Steve Rauschenberger, R-Elgin, argues that the state is being fiscally responsible for putting its tobacco money on one-time spending options, including the tax rebate.
"It's very difficult to begin long-term human service or health-related programming on a resource you can't depend on," he said. "It's a reasonable switch for us to have moved the health-care programming into general revenue and take the one-time tax relief out of the one-time resource."
When dozens of special interest groups, legislators and others were proposing spending plans for tobacco-settlement money last year, state Comptroller Dan Hynes said he thought taxpayers should share in the state's windfall.
Hynes reasoned that the state was being reimbursed for Medicaid costs paid for tobacco-related illness - costs already paid for by taxpayers. He wanted the state to send a $50 check to single taxpayers earning less than $100,000 a year. Families would have received more under Hynes' plan.
"I am pleased that they adopted my suggestion to rebate the tobacco money because I believe the money belongs in the pocket of the taxpayers," he said. "But I do think it could have been distributed more fairly and more broadly by not basing it on property but instead on your income."
Lee Dixon, chief policy analyst for the National Conference of State Legislatures, said many states are concerned about the tobacco companies' solvency.
"They are very leery of starting new programs. What they are doing is enhancing current programs," said Dixon. "But starting a whole new program - they are being very cautious about that."
Dixon said a recent $12.7 million Florida court decision against the tobacco companies has state leaders throughout the nation nervous. Although individual damages have been ordered, larger punitive damages for a related class-action suit have not yet been determined. Dixon said court watchers are predicting punitive damages to be "in the billions of dollars."
Pending lawsuits are not the only threats to the tobacco-settlement funds. Declining cigarette sales already have reduced the original settlement award and could possibly reduce future payments to the states.
Most states have not decided how to spend their tobacco-settlement funds, but many have set up special accounts in which to deposit the new revenue.
According to a report by the National Conference of State Legislatures, 26 states have set up trust funds - or separate accounts in the state treasury - for the money. Some states are spending only the interest from the trust fund, and others are simply spending the trust fund money each year, much like the way general funds are annually appropriated.
Four states have set up endowment funds, which generally preserve the state's settlement for the long term. Those states plan to spend the interest earned on health-related programs.
Here are some programs on which states are spending their tobacco money:
Smoking cessation and prevention programs: Nearly every state has put some money into anti-smoking programs.
Other health-care programs: Children's health care, Medicaid expansion, health care for the uninsured and biomedical research are among the programs receiving state tobacco dollars.
Pharmaceutical assistance: Illinois joins five other states giving senior citizens and disabled people relief with high prescription drug bills. Some states are paying for long-term care and home-based care for the elderly with their money.
Education: Eleven states are investing or plan to invest their money in K-12 or higher education. Connecticut, for example, is using $2.6 million to freeze tuition at the University of Connecticut.
Savings accounts: Illinois joins two other states - Hawaii and Mexico - in creating a budget reserve with a portion of the tobacco money.
Programs for tobacco farmers: Ten states are debating using the money to help communities and farmers that are economically dependent on tobacco cultivate new industries and crops.