After Wisconsin's $5.9 billion settlement in the national tobacco lawsuit four years ago, Attorney General James Doyle said his state could afford $100 million a year to fight smoking -- $99 million more than it was spending.

His colleagues around the nation agreed: The $246 billion cigarette makers would pay the 50 states over 25 years could finance a sustained war on America's deadliest habit. Although some state officials favored other uses for the money -- school construction, medical research, tax cuts -- few disagreed when Doyle called the tobacco litigation funds ''the chance of a lifetime.'' But in January when Doyle was sworn in as governor, Wisconsin's billions were already gone. That's because the state, facing the worst fiscal crisis in its history, had sold 25 years of tobacco payments for $1.3 billion upfront to balance a single year's budget. Wisconsin, where four in 10 high school seniors smoke, isn't the only state to cash in its ''chance of a lifetime.'' Faced with unprecedented budget gaps, many have sold or are thinking about selling years of future tobacco payments to pay this year's bills. It's called securitization: By issuing bonds backed by future tobacco settlement payments, a state can effectively act like the lottery winner who chooses to take a lesser, lump sum now instead of an annuity spread over 20 years. Most governors and legislators say that while they want to control tobacco use, they also need money immediately to avoid higher taxes, layoffs and program cuts. So they eye the tobacco money, which many of their constituents have forgotten or never knew about in the first place. But Washington State Attorney General Christine Gregoire, whose state tapped part of its tobacco settlement last year to balance the budget, says it's a disastrous policy. ''Never in my wildest nightmares did I think we would give up this settlement for cents on the dollar,'' says Gregoire, who was lead negotiator for 46 states in the tobacco litigation talks and who objected vociferously to her own state's (and party's) securitization plan. ''It's selling our children's future.'' As more than 30 states fight to close budget gaps, she's afraid the selling isn't over: ''The money in the tobacco settlement is as addictive to states as the nicotine in cigarettes is to smokers.'' She has a seemingly improbable ally -- the tobacco companies. They have no say in how the tobacco settlement is spent, and no stand on securitization per se. But Philip Morris USA, for instance, agrees with the anti-smoking lobby: Not enough of the tobacco settlement is going to fight youth smoking. A widespread strategy Although Wisconsin is the only state to sell the rights to its entire tobacco settlement, an additional half-dozen states have borrowed against a portion to help close budget gaps. Among them: * California, traditionally a leader in the fight against smoking, is selling about 10 years' worth of settlement payments to raise $4.5 billion. * New Jersey, where then-governor Christie Whitman said in 1998 that ''every penny'' from the settlement should be put in trust for public health, instead used it to raise $1.1 billion last year for its operating budget. It could tap up to $2 billion more this year. * Washington, over Gregoire's protests, sold more than a quarter of its tobacco settlement last year to raise $450 million. At least eight other states are thinking about using their future tobacco payments to balance budgets. * In New York state, where cigarettes are highly taxed and New York City and several counties have voted to ban smoking in bars and restaurants, Gov. George Pataki is pressing legislators to authorize $4 billion in tobacco bond sales. * Colorado officials rejected that idea in 2000 and 2001. But now that the state has a projected $850 million shortfall, it's again under consideration. * Missouri legislators have authorized sale of about 30% of the state's settlement, and officials plan to raise about $300 million this year. In Wisconsin, however, tobacco securitization is no longer an issue; despite the protests of then-attorney general Doyle, the money's gone. As one legislator put it, ''We reached into the cookie jar.'' A bright promise The tobacco agreement of 1998, the largest legal settlement in history, grew out of lawsuits by individual states against the tobacco industry to recoup the costs of caring for poor and uninsured people with illnesses caused by smoking. The companies agreed to change some of their marketing practices and to reimburse each state based on a complex formula that included many factors, including how far the state's own lawsuit had progressed. In 2001, for instance, California received $759 million; North Dakota, $14.7 million. Despite assurances from the attorneys general who negotiated the settlement that much of the $246 billion would be used to fight smoking and promote public health, the agreement did not require the states to do so. Still, many of those who negotiated or supported the states' settlement with Big Tobacco expressed an optimism bordering on euphoria. In Washington state, Gregoire called it ''the single-biggest opportunity in the history of public health.'' She had a personal stake in the issue. Her father and stepfather were smokers who died young; her mother had long smoked unfiltered Camels, despite young Christine's attempts to get her to quit. ''You have no idea how hard I tried to convince her,'' she recalled in 1998. As the states' lead negotiator in the tobacco talks, Gregoire was aggressive and intense. Mississippi Attorney General Mike Moore nicknamed her ''the tiger lady.'' She spent the second half of 1998 commuting each week between New York and Olympia, Wash. She'd fly home Friday night to see her husband and two daughters, then back via the red-eye in time for negotiations Monday morning. She says she logged more air miles than the flight attendant next door. The settlement made Gregoire a hero. Good Housekeeping put her first on its list of ''Women Who Made a Difference in 1998,'' and Working Mother magazine named her one of the 25 most-influential working mothers. She was elected president of the National Association of Attorneys General. There was talk of higher office, including a Cabinet post in the Clinton administration. A dire prediction come true In Wisconsin, then-attorney general Doyle's optimism was tempered by caution. He warned that if the settlement money got ''into the revenue stream of the state,'' it would be ''squandered on pet projects. . . . We'll never get it back.'' He was right. Although no one imagined the states would or could spend all their settlement money on tobacco control, they have spent far less than recommended by the national Centers for Disease Control and Prevention . North Carolina, for instance, used about three-quarters of its yearly tobacco payments to improve the production and marketing of the state's leading crop -- tobacco. Columnist Dave Barry compared it to ''using war-on-terrorism funds to buy flying lessons for al-Qaeda.'' A study last year in the New England Journal of Medicine concluded that the states have spent only 6% of the annual tobacco-settlement payouts on smoking prevention, instead of the 20% to 25% minimum recommended by the CDC. As a result, some anti-tobacco activists regard securitization as merely a final skirmish in a battle that's already lost. ''It's not a case of robbing Peter to pay Paul,'' says Peter Bach, an epidemiologist at Memorial Sloan-Kettering Cancer Center in New York. ''Peter was robbed a long time ago.'' But states that have used some of their tobacco money to expand their anti-smoking campaigns with telephone hotlines, television commercials and school programs say they've gotten results. Wisconsin traditionally has a relatively high rate of youth smoking. But since the state targeted the problem three years ago, there's been an 18% decline, according to David Ahrens, a researcher at the University of Wisconsin Comprehensive Cancer Center. In Mississippi, one of the few states to spend the CDC-recommended minimum against smoking, a Mississippi State University study released this month showed that the percentage of adults who smoke has dropped from 25.3% in 2001 to 20.2% last year. The national rate is 22.7%. 'A complete waste' The evolution of tobacco securitization is not a complex story. It was first used to raise funds for capital improvements or special trust funds -- South Dakota started one for education -- not operating expenses. But then the economy sagged, budget gaps opened and politicians started looking for cash. Although most elected officials had nothing against smoking prevention, they didn't value it as much as a tax cut or a pet program. And it seemed to some that educating people that smoking is unhealthy is like educating them that the sky is blue. Don Benton, a Republican state senator in Washington, called anti-smoking programs ''a complete waste of (the tobacco settlement) money. You'd be hard-pressed to find any citizen who does not know smoking is hazardous to your health.'' He said public health would be better promoted by spending on highway construction, because less traffic congestion means less stress. In fact, he said, ''Sitting in traffic for two hours would make you want to smoke.'' Anti-smoking groups reply that their programs actually save the states money by reducing smoking-caused health care costs. The Campaign for Tobacco-Free Kids says society saves up to $3 in medical costs for every $1 spent to fight smoking. And they say that even if one is ambivalent about the utility of smoking prevention efforts, securitization still isn't a good idea, for two reasons: * It is a one-time fix that merely postpones a budget crisis. There'll be another budget gap next year, but the tobacco money is gone forever. * Because of brokerage fees and interest costs, the state gets a fraction of the long-term value of its settlement. In Wisconsin, the brokerage fees were almost as much as the state spends each year to fight smoking -- $15 million. Some opponents of securitization have predicted that the market for tobacco-backed bonds will become glutted. The yields that states get for these bonds have dropped since New York City got about 90 cents on the dollar in 1999. But Lee Dixon, an analyst for the National Conference of State Legislatures, says that so far there seems to be a healthy market for tobacco bonds. A personal loss As states search this year for money to balance their budgets, their future tobacco payments will be tempting. In Washington state, which faces a shortfall of more than $2 billion, Gregoire says she hopes the governor and legislature won't tap the rest of the tobacco settlement -- her political legacy -- and will continue to fund tobacco control. But she's already lost another battle. Her mother died three years ago at age 84 of emphysema. The obituaries said how proud she was of her daughter the attorney general -- and that she was never able to stop smoking. Gregoire says her mother started smoking when she was a teenager -- when there were no ''quitlines'' or school programs, when the commercials were for smoking, instead of against it -- and got hooked. ''It used to make me so angry,'' Gregoire says. ''Finally, I realized that no matter how hard she tried, she just couldn't quit.'' Unspoken is the fact that still, in her state, every day an average of 55 teenagers start to smoke.

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