State use of tobacco settlement draws fire
AUSTIN - Three years after Texas settled with tobacco companies for billions of dollars, analysts say three primary objectives of the original lawsuit are not being met: reducing teen smoking, producing safer cigarettes and changing how cigarette makers d
Public health advocates and legal scholars say the settlement agreements reached by Texas and 40 other states ended up "extremely weak" in addressing public health and anti-smoking efforts and instead tilted toward cash payments.
To date, cigarette makers have paid more than $2 billion to state and county officials in Texas. Yet, the state has spent only $9.3 million â€“ or less than one-half of 1 percent â€“ to fight youth smoking.
The Texas Legislature, which controls how state money is spent, will decide during the next two months how the next tobacco payments â€“ more than $750 million over two years â€“ will be allocated.
Acting Lt. Gov. Bill Ratliff says the Legislature "did a pretty good job" of allocating the initial $2 billion in tobacco settlement funds. He points out that all of it went to special health-care projects, though not anti-smoking efforts.
Mr. Ratliff says the decision to put $200 million in an escrow account to fund future anti-smoking programs, instead of spending it all at once as some other states did, will help Texas in the longer term. By allocating the interest to pay for anti-smoking programs, he says, the state has a "continual stream of money" that will have a greater impact.
Former Texas Attorney General Dan Morales, who filed the tobacco suit and negotiated the settlement in January 1998, defended the deal as "the best we could under the restrictions we faced."
Mr. Morales said it is "disappointing" that only $1 of every $215 paid to the state by the industry goes to prevent youth smoking and adult cessation programs.
By contrast, Mississippi has spent four times more money to combat teenage tobacco use during the last two years, though Texas' settlement was five times more money than Mississippi's, or about $17.3 billion.
"Texas has not lived up to the promises it made in settling the tobacco lawsuit," says Mississippi Attorney General Mike Moore, who led the fight against the industry. "For Texas officials to not use the spoils of victory to fight teen smoking is nothing short of moral treason."
Legal experts and financial analysts say the state attorneys general overstated their goals in the litigation in order to obtain public support, but then cut deals that were too favorable to the industry.
"Everyone involved â€“ the state attorneys general, the trial lawyers, state politicians â€“ were overwhelmed by the huge amounts of money the tobacco companies were throwing around, and I think they just lost sight of their real mission," says Emory University law professor Frank Vandall.
Texas and 40 other states sued the industry, seeking reimbursement from the cigarette makers for the costs of treating sick smokers.
Mr. Morales and the lawyers in the other states repeatedly stated that the cases were about improving public health through the reduction of tobacco use. "This lawsuit isn't about money," Mr. Morales said in 1997. "It's about saving our children from the jaws of death that we know as the tobacco industry."
When the state attorneys general originally tried to settle their cases in 1997, the deal focused primarily on reducing youth smoking and forcing the firms to develop safer cigarettes. However, the settlement failed when Congress refused to approve it.
In the meantime, Mississippi, Florida, Texas and Minnesota individually settled their lawsuits for a combined $40 billion to be paid over 25 years. And the remaining states ended their cases in November 1998 in a deal in which the industry agreed to pay the states $206 billion. But none of the settlements included significant tobacco prevention elements.
"The state lawsuits were supposed to be about protecting public health by reducing youth smoking; they were not supposed to be about money," said anti-tobacco attorney J.D. Lee of Knoxville, Tenn.
"In the end, the tobacco companies just bought their way out of trouble," he said.
Matt Myers, general counsel of the Campaign for Tobacco-Free Kids and a lawyer who worked with several states in their cases against the industry, says the state attorneys general "played right into Big Tobacco's strength."
"Money doesn't matter to the companies, because making and selling cigarettes is like printing money," he said.
The result, Mr. Myers said, is that the state settlements have "caused no fundamental change in how the tobacco companies operate."
Sales of cigarettes have declined slightly during the last two years, continuing a trend that began even before the agreements. However, industry profits are at an all-time high.
Philip Morris' profit on domestic tobacco is estimated to be $5.3 billion in 2000, up from $5 billion a year earlier, Wall Street analysts say. R.J. Reynolds Tobacco Co. also experienced growing profits â€“ albeit much smaller â€“ from $1.27 billion in 1999 to $1.28 billion last year.
The stocks of the two companies have also fared well. Philip Morris shares closed Friday at $51.75, up from a low of $19 a year ago, while R.J. Reynolds stock closed at $60.07, four times the low of $15 last year.
How can that be when the companies are paying billions of dollars annually to the states?
Because the settlements require the cigarette makers to raise the money from increased prices to smokers, not from the companies' bottom line.
"Clearly, the settlements were a great deal for the companies," says Martin Feldman, a lawyer and tobacco investment analyst at Solomon Smith Barney in New York. "The overall price tag to settle the state suits was considerably lower and less damaging to the industry than we all feared."
Mr. Myers and other anti-smoking advocates say the states are magnifying the already weak settlements by choosing to spend settlement dollars on items other than tobacco prevention.
Even industry officials agree that more money should go to programs fighting teen smoking. "We believe that states should develop effective, comprehensive youth smoking prevention programs and fund those programs fully," says Philip Morris vice president David Nicoli.
Mr. Morales says he tried to have large portions of the settlement targeted at anti-smoking programs. He notes, however, that state legislatures control spending, not attorneys general.
The federal Centers for Disease Control and Prevention released a study in 1999 showing that Texas needs to spend at least $103 million annually to effectively combat youth smoking. The CDC put the optimum amount at $285 million â€“ more than 30 times the $9.3 million allocated by Texas officials.
Federal reports show that no state is spending a smaller portion of its settlement money on fighting teen smoking than Texas. Studies show that more than 90 percent of people who smoke regularly started when they were teenagers.
But Mr. Ratliff says that no one "has ever proven that throwing that kind of money at the problem will have any kind of impact." He says the Legislature must spend the money on the priority areas, which he says include child health-care insurance. In 1999, the Legislature put more than $300 million of the tobacco money toward the program, and Mr. Ratliff says that amount is likely to grow this year.
Public health advocates say the evidence is overwhelming that comprehensive tobacco prevention programs work. A Baylor University/University of Texas study released in January says that to be effective, the state must spend at least $3 per person on anti-smoking efforts, not the 48 cents currently allocated.
Smoking among Texas high school students dropped 1 percent since the settlement and 6 percent among sixth- and seventh-graders.
By contrast, Florida spent $120 million of its tobacco money in 1998 and 1999 on youth tobacco prevention. As a result, state health officials say, smoking among high schoolers dropped 18 percent and the rate for middle school students fell 40 percent.
"No one is saying that the health programs the tobacco money is funding aren't worthy projects," says Kelly Headrick of the American Cancer Society of Texas. "But the failure to spend this money to prevent teen tobacco use will cost Texas billions of dollars in future health-care costs due to smoking.
"If we don't spend this money to reduce youth smoking, the state lawsuits and the settlements will end up having no impact whatsoever," she says.