Tobacco monies reduced, but officials say that's good
Minnesota's winnings from the estimated $6.1 billion tobacco settlement in 1998 haven't quite come up to snuff, according to state figures.
Endowments to support antitobacco health and education programs -- including some prominent teen-focused advertising -- have received about 4.5 percent less money than anticipated when the Legislature set them up in 1999. A separate flow into the state's general fund is more than 6 percent lower.
But this is a rare case in which less money is viewed as a good thing, even though that means less funding is available for state programs. That's because the payments depend in part on tobacco sales nationwide, and those sales have been declining.
"If we're being super effective in reducing sales, bless our hearts," said Jeanne Weigum, executive director of the Association for Nonsmokers-Minnesota.
Price increases of about 37 percent per pack on cigarettes in the past two years also may have decreased sales.
In sheer dollars, the price of smoking reduction on the Minnesota settlement appears high: a difference so far of about $63.8 million between actual payments and what was originally projected to go to the state. And state Department of Finance figures show the gap growing to an estimated $136 million by the end of 2004.
But to put that in context of the size of the settlement, those gaps are in the 5 to 6 percent range. In the meantime, the endowments are generating $28.5 million in usable earnings this fiscal year. After the final endowment payment is made in 2003, earnings are expected to jump to $48.9 million, and to $55.4 million in 2005. Only the interest from endowments can be used for funding.
Legislative and state Health Department officials say they anticipated the reduced inflow, and have avoided establishing programs that could be stranded by a shortage of money.
As originally outlined, the settlement of the state's lawsuit against the tobacco industry -- designed to recover tobacco-related health care expenses -- required tobacco companies to pay the state an estimated $6.1 billion over 25 years. First, $1.3 billion was to be given in six payments through Jan. 2, 2003. And just under $1 billion of that $1.3 billion was to be divided among tobacco prevention and public health initiatives, and medical education and research, including the University of Minnesota's Academic Health Center.
Gov. Jesse Ventura has proposed that the remaining money, now about $334 million, be divided between a general "healthy kids" program and medical education.
Even so, Scott Leitz, director of the Health Department's health economics program, said that on the health education side, the reduced income could mean that teaching hospitals and clinics won't have enough money to compete with more efficient institutions.
"Every dollar lost is a dollar they were counting on," Leitz said. "Would it solve the problem? Nope. Does it help? Absolutely."
Also as part of the settlement, tobacco companies were to make annual payments to the state's general fund, beginning with $102 million in 1998 and increasing annually for an indefinite period of time. After three installments, that amount stands at $323 million, about 6 percent short of projections.
The impact on the general fund, which supports a vast array of public operations, is virtually invisible against a $26 billion biennial budget and during the current run of annual surpluses, said Rep. Matt Entenza, DFL-St. Paul, a co-sponsor of the bill establishing the distribution of tobacco settlement money.
Entenza cautioned that if tax cuts and an economic downturn eat up the surplus, the shrinking amount of tobacco money could be more apparent.
But House Speaker Steve Sviggum, R-Kenyon, said the prospect of reduced health expenses for the state should instead ease any budget worries.
"It was certainly my hope that those monies would have been less -- that means less people are smoking -- and not to have the state worrying about the general fund," he said.