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State Hooked on Tobacco Revenue Habit

by Fergus Cullen and Tamara Tragakiss, Published in the Hartford Courant on September 1, 2009

‘Thank You for Smoking,” Christopher Buckley’s satirical novel turned Hollywood comedy, overlooked the biggest smoking addict of all: state governments. Illustrating how states have become hooked on tobacco revenue is Connecticut’s misuse of the money it has received through the 1998 national Tobacco Settlement.

In the 1990s, states sued the four largest cigarette-makers, contending that Big Tobacco concealed the true health risks of smoking, conspired to make cigarettes more addictive and marketed its product to kids. State attorneys general, with Connecticut’s Richard Blumenthal at the forefront, argued that the health costs of smoking-related disease are borne by state Medicaid budgets. The resulting Master Settlement Agreement ended the lawsuits in exchange for payments from the tobacco companies to the states in perpetuity. The deal gives states an estimated $246 billion over the first 25 years.

Public health advocates celebrated the settlement as a means of funding youth smoking prevention, smoking cessation and other health programs. A decade later, that’s not what has happened at all. The settlement looks more like an industry shakedown that has fueled the growth of state government, with the costs passed onto consumers.

Of the $1.3 billion of tobacco settlement money sent to Connecticut starting in 2000, just $23 million has been spent on anti-tobacco efforts including smoking education and prevention programs for youths and adults, and medical research on diseases linked to tobacco use. The rest of the settlement money was appropriated by the General Assembly to fund unrestricted general government. Essentially, it’s gone up in smoke.

“My greatest achievement was going after the tobacco companies. But my biggest disappointment is not being able to determine how the … settlement allocated to Connecticut has been spent,” Blumenthal said earlier this year.

To ensure the money would be put to its intended good use, the legislature created a Tobacco and Health Trust Fund to recommend grants for anti-smoking programs. The fund now gets $12 million annually and has received $134 million over its first nine years — about 10 percent of the total settlement revenue Connecticut has received.

Yet even this modest allocation has been raided by the legislature and for the general fund or state agencies. The trust fund board has been able to recommend just $9.2 million in spending since its inception. Grants have included $2 million for a tobacco cessation telephone service known as Quitline, $1.2 million for anti-smoking programs aimed at the mentally ill and less than $1 million for community and school-based prevention and cessation efforts. These token efforts are akin to one cigarette next to a smokestack. The raids on the settlement money predate the recession, so that’s no excuse.

Connecticut’s dipping into the fund money is only a fraction of its dependence on tobacco for revenue when compared to direct taxation. At the time of the settlement, Connecticut’s cigarette tax stood at 50 cents per pack. Three increases starting in 2002 have quadrupled the tax to $2, or 10 cents per cigarette. Annual Connecticut cigarette tax revenue has risen from $115 million to $329 million over this time. On top of this, the federal cigarette tax, hiked 62 cents in April this year, now stands at $1.01 a pack.

Add in the $141 million in settlement money Connecticut received last year and the state now collects nearly half a billion in tobacco money annually. Since the settlement, total state revenue derived from tobacco stands at $3.6 billion over 10 years — just $23 million of which has been spent on anti-tobacco efforts.

Current budget deficits make it unlikely state government will kick the habit anytime soon. Indeed, Gov. M. Jodi Rell has just proposed hiking the state cigarette tax another dollar. Tobacco money has become the nicotine patch used to cover budget holes.

The biggest nicotine addicts aren’t the ones furtively puffing away on sidewalks outside of office buildings or working class stiffs taking a break. They are government officials working inside state houses looking for that next fix for their spending addiction.

•Fergus Cullen ( [email protected]) is executive director of the Yankee Institute, a free-market think tank with offices at Trinity College in Hartford. Tamara Tragakiss, a Yankee Fellow, authored a study of Connecticut’s use of tobacco settlement money, which can be found at yankeeinstitute.org.

Yankee Staff

Yankee Institute is a 501(c)(3) research and citizen education organization that does not accept government funding. Yankee Institute develops and advances free-market, limited-government solutions in Connecticut. As one of America’s oldest state-based think tanks, Yankee is a leading advocate for smart, limited government; fairness for taxpayers; and an open road to opportunity.

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