The Connecticut Office of Policy and Management is searching for a vendor who could analyze and model a complicated new taxation strategy that would replace part of the income tax with a payroll tax. If implemented, the new tax structure could result in employees seeing a pay reduction of 5 ...
A Billion Dollars Up in Smoke
Published July 16, 2009 by the Yankee Institute for Public Policy
“There is a danger to the euphoria that surrounds an unexpected source of revenue. This is the first session since I have been here [in 1992] that there seems to be so little concern with the overall increases in spending, and I think the tobacco settlement is part of that. It’s a problem. Legislators have proposals to spend it five times over, and we don’t have it once.”
— Connecticut State Senator Robert Genuario, on the eve of receiving the first infusion from the 1998 Tobacco Settlement.
“My greatest achievement was going after the tobacco companies. But my biggest disappointment is not being able to determine how the nearly $5 billion in settlement money allocated to Connecticut has been spent.”
—Connecticut Attorney General Richard Blumenthal, one of the top five lead attorneys in the 1998 Tobacco Settlement, ten years later.
In 1998, Connecticut became one of 46 beneficiaries of the multi-state, $246 billion Tobacco Settlement, a deal hammered out in backrooms between Attorneys General and the four major tobacco companies.
For Connecticut, the settlement amounts to between $3.6 and $5 billion over the first 25 years of the in-perpetuity agreement. At the time, public health advocates and state Attorney General Richard Blumenthal, who represented Connecticut in the lawsuit, expected that tobacco prevention and treatment programs would receive much of these funds.
Ten years later Blumenthal was calling the state’s handling of the tobacco revenue “a moral and social failure.”
Key findings of this report:
• Connecticut has received nearly $1.29 billion from the settlement since distributions began in Fiscal Year 2000.
• Of that, only $23 million, or less than 2% of the total Tobacco Settlement Funds, have been used on programs specific to reducing the number of smokers or anti-tobacco efforts.
• 86% of Tobacco Settlement funds, $1.1 billion, ended up in the General Fund for unrestricted spending.
• The Tobacco Health and Trust Fund, set up to fund tobacco prevention, cessation and health programs, received only $134 million from the Tobacco Settlement over time.
• Raids on that Trust Fund by the General Assembly have resulting in just $9.2 million in spending and a projected balance of just $11.1 million.
• The terms of the agreement allowed the tobacco companies to shift the cost of the settlement to consumers without fear of losing market share.
• Connecticut collected an additional $2 billion in cigarette tax revenue since settlement funds started flowing to the state, bringing the state’s total cigarette-related revenue to more than $3 billion during these nine years.
• In 2008, smokers paid the state of Connecticut nearly half a billion dollars in combined cigarette taxes and settlement money.
• Despite all the revenue the state takes in from smokers, Connecticut was ranked 51st in the nation by the Campaign for Tobacco-Free Kids in 2008 for failing to spend enough on tobacco prevention. That year Connecticut spent just $1.19 million on tobacco prevention. For comparison, the Centers for Disease Control recommended $43.9 million.
“Raising taxes in response to this economic downturn ignores twelve years of Connecticut’s economic and fiscal history – and will only chop any chance of recovery off at the knees. Connecticut now has an opportunity to gain wealthy residents fleeing New York City and thereby increase its high-income tax base. ...