Little of $246b deal fights tobacco
AUSTIN, Texas - It was the richest payday in US legal history, and it came with a promise as bright and broad as a cloudless prairie sky.
By the time all 50 states had agreed to drop lawsuits or waive claims against the tobacco industry in 1998 in exchange for a $246 billion settlement, the architects of the deal were convinced that they had forged a legal spike they could drive through Big Tobacco's heart. The industry would pay for antismoking programs that would ultimately deny it customers.
''It's about saving our children from the jaws of death that we know as the tobacco industry,'' Dan Morales, then the Texas attorney general, said in the months before the colossal deal was sealed.
But today, here in Texas and in almost all other states, that grand promise has withered, as lawmakers have allocated only a puny portion of the settlement for tobacco control.
While the preface to the 1998 settlement agreement spoke of delivering ''tobacco-related public health measures,'' it does not require states to spend money for them.
In fact, most states have been cast as strange bedfellows with the industry, becoming increasingly reliant on the tobacco money to cut taxes, fill potholes, build schools, and pay for generic health programs. Just six states, including Massachusetts, are spending enough money to mount what the US Centers for Disease Control and Prevention considers effective antitobacco programs.
Tomorrow, at its annual meeting in San Antonio, the National Conference of State Legislatures is expected to confirm what a coalition of public health advocates has been saying for months: Only a fraction of the settlement money, less than 8 percent, is being used to try to deny young replacement smokers to the tobacco companies.
''The tobacco companies counted on the greed and shortsightedness of politicians when they handed them billions of unexpected dollars, and they were right,'' said Matthew L. Myers, president of the Campaign for Tobacco-Free Kids, who worked with state attorneys general against the cigarette industry.
Here in Texas and around the country, officials say that prospects are not good for more spending on tobacco prevention. Just Tuesday, for example, the Tennessee Legislature voted to use four years of its tobacco settlement money, $560 million, to help balance the state's budget.
Decisions like that infuriate the principal negotiators of the deal, such as Christine O. Gregoire, Washington state's attorney general, who argues that the states are violating the spirit of the settlement.
''The cure is there, and we're walking away from it?'' asked an incredulous Gregoire. ''What would the American people think if we were walking away from the cure for polio? They'd kill the politicians.''
Even as the tobacco industry recruits new smokers, it is calling on the states to spend some of the settlement money on tobacco control. ''It is our wish and our desire that the states spend a portion of the money on youth smoking prevention,'' said Tom Ryan, manager of media relations for Philip Morris in New York.
Indeed, the story of the three-year-old landmark tobacco settlement is one of broken promises, misplaced expectations, squandered opportunities, and unforeseen consequences.
Viewed at its worst, the settlement was a deal that enriched the lawyers who brokered it - ambitious men, many of whom now ride on gleaming yachts and private jets - while frustrating public health officials, whose hopes have been dashed by states that do not share their passion to stamp out smoking.
The tobacco companies, which had fretted publicly that a costly settlement might mean financial calamity, have simply passed on the cost of the deal to their customers. Industry leader Philip Morris reported last month that its domestic tobacco profits for the second quarter rose 8.6 percent to $1.4 billion, due to higher cigarette prices and lower costs.
What's more, the tobacco firms are now spending more than ever, about $8 billion annually, to promote their products. That's more than 10 times the amount states are spending to underscore the hazards of smoking.
Critics of the deal say the attorneys general who helped broker it were unrealistically optimistic that the states would spend money to discourage tobacco use, even if the agreement didn't explicitly require them to. And, the critics charge, the agreement has in effect made the states partners with tobacco firms that are supplying the cash upon which states are becoming increasingly dependent, in what is surely one of the most ironic consequences of any public interest litigation.
Because the amount of money the states receive under the settlement is linked to tobacco sales, the states lose money if tobacco firms do.
''The perverse result of what we did was essentially put the states in bed with the tobacco companies,'' said Richard F. Scruggs, the Mississippi lawyer who made millions for his work with the states against tobacco firms. ''What we did was give the states a financial incentive for tobacco sales. I don't like it at all.''
In deal, leverage shifts
Scruggs was the point man at the negotiating table in 1997, when a phalanx of attorneys general announced they had reached a comprehensive, $368.5 billion legal settlement with the tobacco companies, who agreed to pay the states for the costs they incurred in treating smoking-related illnesses.
But that deal, which required congressional approval, unraveled on Capitol Hill. From its wreckage emerged something far less ambitious.
Negotiators concede that it was a flawed agreement. But, they insist, the so-called Master Settlement Agreement went as far as anyone should have expected.
Emboldened by a string of incremental court victories, the tobacco companies - which had earlier and separately settled out of court for a total of $40 billion with Mississippi, Florida, Texas, and Minnesota - moved to reach accord with the 46 other states. Sensing that legal leverage was slipping away from the attorneys general, the tobacco companies moved to negotiate with states whose weaker cases made them more eager to settle.
''These solutions were the best that anyone could have gotten,'' said James E. Tierney, a former Maine attorney general who was a chief strategist for the states. ''So are there mistakes? Are there compromises? Of course there are.
''But those were the best cards we could play. I've got kids and grandkids, and I'm not going to wait forever for the perfect world.''
The agreement, eclipsing all previous US legal settlements, was not without impact. It banned outdoor billboards, merchandise with brand-name logos, and advertisements on taxis and in subways. It created a national foundation with $1.45 billion to create and run an antitobacco media campaign. It restricted tobacco sponsorship of sporting events. It outlawed the use of cartoon characters such as Joe Camel in tobacco ads. And it put damning internal documents from the tobacco companies onto the Internet.
The price of Marlboros, the Philip Morris brand that makes up 37.7 percent of the US cigarette market, is up 85 cents per pack since the final agreement was reached in November 1998.
''The price hike has produced something like a 10 percent drop in consumption,'' said Richard A. Daynard, a Northeastern University law professor and chairman of the Tobacco Products Liability Project, a public health advocacy group. ''So just from the price increase, you're saving 40,000 or 50,000 people's lives. Not bad.''
But not great, say Daynard and others, whose chief complaint with the agreement is that it has allowed the tobacco companies to escape virtually unpunished, because they have been able, for the most part, to pass on the financial pain to their customers.
''The tobacco guys are sitting there laughing at us,'' Michael Moore, Mississippi's attorney general and the tobacco industry's most conspicuous opponent, said during a recent interview. ''Because they're saying: `We raised the price on our product. All our smokers that we're killing, they're paying for it. We passed some money on to the states, and they're building highways with it. No threat to us.' It's just nuts.''
For the supporters of the deal, ''the whole hope was that these states would take this money and spend the money on what this fight was about,'' smoking prevention, said Moore, whose state ranks second in the country in the percentage of settlement funds spent on tobacco control, according to the Campaign for Tobacco-Free Kids.
Moore and his colleagues should have known better, contends John F. Banzhaf, a George Washington University law professor and executive director of Action on Smoking and Health, an antismoking group.
''Anybody with any political savvy would have known what would happen when the states got that money,'' Banzhaf said. ''I think the states have a strong moral and ethical obligation [to fund antismoking programs], but not a legal one.''
Washington state's Gregoire said that any effort by the attorneys general to dictate to the states how they spend the tobacco money would have ignited protracted court battles ''for who knows how long in every state potentially.''
''We got very clear messages, particularly from the state legislative national body and, to a lesser degree [from the nation's governors], saying: `Remember, that's our money to appropriate. That's not yours,''' said Gregoire, whose state ranks 19th in the nation in the percentage of settlement money spent on tobacco control.
Instead, Gregoire and her colleagues said, they relied on the public promises made by elected officials who took the tobacco firms' money.
''I never heard anything but: `Here's our opportunity. We're going to use it for tobacco control and public health,''' she said. ''All I heard was the right thing. I don't get it. We're asking them to save lives.''
In 1999, when the federal government said it should get part of the settlement money because it sends Medicaid money to the states to help pay for smoking-related illnesses, the states made clear commitments that defused that effort, Gregoire said.
''Congress was told it could trust the states,'' she said in an interview. ''The states are going to spend this money for tobacco control, prevention, and public health.''
Richard Blumenthal, Connecticut's attorney general and a Democrat, said he was deeply torn about settling his state's case with the tobacco industry. Before he did, he said he sought assurances from Governor John G. Rowland, a Republican, and legislative leaders that Connecticut's portion of the settlement money, about $150 million a year, would help fund strong antismoking programs.
''And they said yes,'' Blumenthal said.
But today, Connecticut ranks near the bottom of all states in its commitment to tobacco prevention, according to figures compiled by the American Lung Association.
''It's an outrage and an embarrassment,'' Blumenthal said in an interview. ''We're virtually dead last.''
Rowland's budget chief, Marc S. Ryan, said the state is paying for some antitobacco programs with ''several hundred thousand dollars'' in interest from a $40.7 million trust fund fed by settlement dollars. The bulk of its money is being spent on generic public-health programs, for education, assisted living, and early-childhood education programs.
''We use some of the tobacco money to expand elderly health care,'' Ryan said. ''I don't think people would say that's not a wise use of the money.''
The money in Michigan, about $260 million a year, is being used chiefly to pay for scholarships for high school graduates and university research grants. About $40 million of the tobacco settlement funds is being used for ''essential services'' in the fiscal year that begins Oct. 1.
Kelly Chesney, a spokeswoman with Governor John Engler's budget office, said: ''Are we investing our monies differently? Yes, we are. Do we make apologies for it? No.''
In Texas, where the state's out-of-court settlement netted an initial $1.8 billion out of a total payout of $17.3 billion over the next 25 years, leading officials aren't very interested in investing heavily in tobacco control because they aren't convinced that it works.
''There is not a track record of long-term success in smoking-cessation programs,'' said Kathy Walt, press secretary for Governor Rick Perry.
But when Perry's own Health Department used the $9 million appropriated by the Legislature - less than 1 percent of the state's total allotment - to help pay for an antitobacco pilot program in suburban Houston, smoking rates among sixth- and seventh-graders plunged 40 percent, compared with children of similar ages in the rest of the state.
''We try to do the best we can with the money appropriated to us,'' said Dr. Phil Huang, who runs the Texas Health Department's tobacco-prevention division.
Other public health officials said that those who believe that antismoking initiatives don't work need look no further than programs in Massachusetts and California, the nation's petri dishes for tobacco-control programs.
In 1992, Massachusetts voters approved Question 1, an antismoking ballot question that called for a 25-cent-per-pack tax on cigarettes. In 1988, California voters approved Proposition 99, which called for an identical cigarette levy. Anchored by aggressive media campaigns, the programs have produced strong results.
In California, per-capita tobacco consumption is down by 50 percent since 1988, compared with a nationwide dip of 30 percent in that period. The state's lung cancer rates have dropped 14 percent from 1988 to 1997, compared with a 2.7 percent reduction in five other states examined by health officials.
In Massachusetts, smoking rates among youths have plummeted, down 70 percent among sixth-graders from 1996 to 1999. The state's per capita tobacco consumption since 1993 is down 40 percent. Adult smoking in Massachusetts has fallen from 23 percent to 18 percent since 1993, compared to 23 percent nationwide.
Some public health officials say that states need only allocate a quarter of their settlement funds to obtain strong results. When new figures for 2002 are announced next month, health advocates say the number of states doing that will decline from six to five.
''If you can get 25 percent, that's great,'' said Gregory Connolly, director of the tobacco control program in Massachusetts, which spends $45.5 million a year. ''That's all you need. If you can get 25 percent, you can change the world.''
Because of the funds generated by Question 1, Massachusetts spends only about 5 percent of the approximately $240 million it is receiving from the tobacco settlement this year on antitobacco programs.
Big Tobacco moves on
Critics of the 1998 settlement say that when the industry settled the states' lawsuits, tobacco executives knew that the states would do little to change their world.
''Let's give the devil his due,'' said John R. Seffrin, chief executive officer of the American Cancer Society. ''They've been a step ahead of us most of the way through this journey. They predicted in advance that this would happen.''
Jeffrey A. Modisett, the former Indiana attorney general, said the industry is probably ''clinking the champagne glasses'' over the states' performance.
Today, the tobacco firms themselves are saying almost nothing.
''One thing I don't want to do is criticize specific states on the ways they are spending the money,'' said Ryan, the Philip Morris spokesman in New York. ''States have very difficult decisions to make.''
The United States spends $89 billion yearly to treat tobacco-related diseases. About 430,000 people die annually from them. Each day, public health officials say, 3,000 children under 16 try smoking for the first time, and their habit will ultimately kill 1,000 of them.
''The horrible and unfortunate fact is that the longer the states wait, the more people will die; the more it will cost,'' said Dr. Terry F. Pechacek, associate director for science in the CDC's office on smoking and health. ''These are the unescapable consequences.''
In the year after their settlement with the states, the tobacco firms increased their marketing budget by 22 percent, spending $8.24 billion, according to the Federal Trade Commission. Their new target audience, public-health watchdogs say, is college-aged adults.
''They're drawing the line,'' said Connolly. ''It's not right to sell to kids. But it's OK to kill young adults.''
Brendan McCormick, a Philip Morris spokesman, said the company's increased marketing budget is chiefly due to increased promotions in retail stores, such as two-for-one deals or 50-cent-off specials. ''The audience for our marketing messages are adults who have made the decision to smoke,'' McCormick said.
An unlikely pairing
Critics who contend that states are more concerned about pocketing money from tobacco firms than using it to drive them out of business acquired some evidence for that argument early last year.
Governor Jeb Bush of Florida signed legislation that protected cigarette firms from having to post financially ruinous appeals bonds in a huge class-action case. Six other states have followed suit: West Virginia, Georgia, Kentucky, North Carolina, Virginia, and Oklahoma.
''Any state which does that is certainly putting the health of the industry over any other concern,'' said Northeastern's Daynard. ''Just watch how the states reacted. They were freaked out that the money might not be coming.''
Frank J. Vandall, a law professor at Emory University who has studied the settlement, said the tobacco companies recognized that inclination before anyone else did.
''Some people have said this has worked out as if the tobacco companies designed it,'' Vandall said. ''Well, the tobacco companies did design it. They spent millions and millions of dollars over 50 years lobbying the legislators and the people of America.
''And now it's paying off.''