Question of the Month
July
2005
How
have states spent money from payments made by tobacco companies under
the Master Settlement Agreement (MSA)?
A March 2005 report by the U.S. General
Accounting Office provides a state-by-state breakdown on how tobacco
settlement payments were used in fiscal year 2004 and would likely be
allocated in FY 2005. Together, the 46 states in the MSA spent 44
percent of the $9.7 billion received in 2004 (through either MSA
payments or securitized proceeds) to help plug budget shortfalls.
About 20 percent of the money was earmarked for health-related
programs. The tobacco revenue also was used for infrastructure
improvements (7 percent), economic development in tobacco regions (3
percent), education (2 percent), smoking cessation initiatives (2
percent) and tax reductions (1 percent).
According to the GAO’s findings,
spending patterns were expected to change somewhat in FY 2005. Most
notably, a higher percentage of tobacco dollars will go to health
programs (32 percent) and less will be used to address budget
shortfalls (11 percent). The report also found that states will
receive considerably less money from the companies in FY 2005 ($5.4
billion, as opposed to the $9.7 billion collected in 2004 and $12.8
billion in 2003).
In the Midwest, Illinois (59.6
percent), Iowa (56.0 percent), Nebraska (55.5 percent)
and Indiana (51.2 percent) spent more than half of their FY
2004 proceeds on various health initiatives. Illinois used some of the
dollars to pay for pharmaceutical assistance programs for seniors,
while Iowa allocated a substantial portion of its money to an account
used for efforts related to substance abuse treatment, preventing and
controlling tobacco use, and other health care concerns. Nebraska’s
dollars are going to biomedical research, its children’s health
insurance program, substance abuse prevention and behavioral health
services. Indiana disperses the money to a wide array of health
initiatives. It also allocated more tobacco settlement dollars to
rural economic development than any other state in the region.
Kansas spent
60.3 percent of its MSA dollars in 2004 on social services programs,
including early-childhood, children’s mental health and
juvenile-justice initiatives. Among the 10 Midwestern states in the
MSA (Minnesota was not a part of the agreement), North
Dakota (45.0 percent), South Dakota (39.3 percent) and Michigan
(36.7 percent) spent the highest percentage of their tobacco payments
on education. In part, the money was used in 2004 to boost general
K-12 education aid, pay for scholarships and enhance technology
opportunities in the classroom. Michigan (22.4 percent) and Ohio (72.9
percent) policymakers spent the largest portion of the money to
directly address their states’ budget shortfalls.
The GAO report (GAO-05-312) is
available at www.gao.gov.
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