Tobacco-settlement monies up in smoke?
State coffers could wind up $7 million short, jeopardizing social programs
It's a waiting game for the State of Nevada, which in less than a month, will find out if it's going to be $7 million short on this year's scheduled $40 million tobacco-settlement payout. The shortfall will impact social and health programs for seniors and the disabled if the tobacco companies decide to cut their payments based on declining market shares. Despite the warnings, the state has yet to formulate a "Plan B" if the funds don't arrive.
"During the interim, there is no way to supplement them (the programs)," explained Andrew Clinger, the director of the state's department of administration, which monitors Nevada's budget. Some tobacco settlement-supported projects could suffer while others will feel little short-term impact. Clinger excluded from the at-risk list the Millennium Trust Fund scholarships, which were shored up during last year's legislative session with $35 million from the state's general fund. The educational fund also receives 40 percent of the total tobacco money.
"We think it has enough money to make it through the biennium," he said of the education fund. "We are looking at the Senior Rx, and it has some reserves. But for any additional funds (for any programs), it would have to be approved by the Legislature."
That body meets every two years and isn't scheduled to convene again until February 2007. Despite the nearing deadline, Gov. Kenny Guinn would be "unlikely" to call a special session, according to his press secretary, Steve George.
"If they withhold, we look to be about $7 million light," said State Treasurer Brian Krolicki of the possibility of Philip Morris USA, R.J. Reynolds Tobacco Co., Lorillard and others withholding a total of $1.2 billion in annual payments to 46 states due April 17. "I think it is a flip of a coin."
SMOKING AT 55-YEAR LOW
Under the Master Settlement Agreement signed in 1998, the states were scheduled to receive $246 billion over 20 years from the participating tobacco companies. The yearly payment amounts are based on cigarette sales volume from the previous year. With smoking reaching a 55-year low nationwide and market share declining, justification is being given by the tobacco giants for reducing payments. "They could be told that their withholding money is inappropriate by the National Association of Attorneys General, but it could take a year to get that money back," Krolicki said.
While the state takes a wait-and-see approach, Mary Rodriquez worries about what will become of the people she feels most desperately need those tobacco dollars. The program director of the non-profit Helping Hands of the Vegas Valley assists people like Leon Wilson. The Las Vegas senior, who is wheelchair bound, can now get to his doctor's appointments and go shopping for groceries because of this service. Settlement money pays "almost 100 percent" for the disabled and senior transport services used by Wilson and others like him, according to Rodriquez. It is among the independent living assistance options offered by the Las Vegas Helping Hands, which receives support from the Fund for Healthy Nevada's half of the annual settlement allocation.
Tobacco prevention programs, health services for children and people with disabilities, and the Senior RX benefits are also tobacco-money recipients through the fund. This year, that fund's portion would have come to around $20 million, but that could be seeing a 20 percent cutback in funding. "About $3.5 million is what is potentially not going into the fund," said Krolicki.
SENIORS ON THEIR OWN
Dim prospects may face such programs, said Laura Hale, the chief of grants management for the State's Department of Health and Human Services. "We'd go back to the old way it was done: You would beg, borrow or steal. It falls on relatives or neighbors. Some people don't have other resources. They fall through the cracks and when that happens, their health deteriorates and they have to go into nursing homes."
Among the other benefits almost solely dependent on the tobacco dollar is a respite service for caregivers of family members and in-home care for seniors -- both offered through the state's Division of Aging Services. "We'd be about $2 million short in the division," Hale calculated.
"Without the tobacco dollars, the Division of Aging Services would just be devastated," warned state Assemblywoman Chris Giunchigliani (D-Las Vegas). "Over 30 percent of their budget is from the tobacco fund." The problem, however, goes beyond tobacco companies potentially withholding settlement payments, she added. Nevada shouldn't be dependent on the settlement to take care of health-care needs in the first place.
"They shouldn't be funded by 'soft' money, all these needed programs," the lawmaker said. "They are using soft-money solutions for hard problems."
Unfortunately, many state health care and senior programs have become addicted to tobacco money. "Over the last several years, every time programs apply for grants, we have asked them what their sustainability would be if the funds went away. Some of the smaller programs would just go away," Hale acknowledged. "There's still waiting lists for some services."
While the legislators are playing "he said, she said" about the proposal for securitizing the monies back in 2001, the state Department of Administration's Clinger said a shortfall in tobacco money wouldn't qualify as a reason to dip into the state's rainy-day fund. That is only allowed when some state taxes fall below a certain level, but key taxes remain strong.
"Sales tax, as of February, was up $32 million above what was projected in the May economic forum," Clinger explained, "and the main gaming tax was about $24 million ahead. Real property transfers taxes were about $18 million ahead."
None of that money can be used this year to supplement the programs that might be cut off from delayed tobacco dollars. Gubernatorial candidates -- Senate Minority leader Dina Titus (D-Las Vegas), and Sen. Bob Beers (R-Las Vegas) -- concurred with Guinn's office that a special session was not warranted. Beers said he would prefer to look at "reallocating" state funds from "an area where there is overspending" in the event tobacco settlement dollars fall short.
Titus, who sits on the Legislature's interim finance committee, saw another possible solution that might not require a year-long wait for the programs. "I'd hate to see some of the senior programs cut in the meantime," she said. "If they (state officials) came to the interim finance committee with some proposals, the state has a certain amount in reserve and we could look at that."
Krolicki remained skeptical that anything could be done in the near-term if the tobacco companies withhold funds. "In 2007, they have the ability to fix it, change it, or find a way to stop it should the worst-case scenario come about," the treasurer said. "I can't do anything unless the Legislature authorizes it."
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