Was 1998 tobacco pact a bad deal for some U.S. states?

Introduction

U.S. states have collected about $75 billion so far from a 1998 settlement with big tobacco companies to resolve litigation over escalating Medicaid costs for smoking-related health care.

But Stanford professor Jeremy Bulow calls the lucrative settlement a “bad deal” for many of the 46 states.

Under the settlement’s complicated distribution system, smokers in many states, including Georgia, Kentucky, North Carolina, and Virginia, are paying $100 million more for tobacco due to higher prices than the settlement returns to their state coffers. Many states would be better off if they had simply levied a new tax on the cigarette companies, Bulow said.

Other states get more than their smokers put in. In 2004, for example, California raked in $793 million from the settlement, but its smokers paid $509 million for their cigarettes. New York state also received $793 million that year, while its citizens paid $281 million.

What the states have done with the tobacco money is also controversial.

The Centers for Disease Control recommended that 30 percent of the revenue go to programs to prevent kids from smoking and to help smokers quit.

But cash-strapped states this year will spend just $517.9 million on anti-smoking programs, a 28 percent decline in the past three years, according to the Campaign for Tobacco Free Kids. Georgia, for example, will spend just $2 million of $369 million in revenue from tobacco taxes and settlement money on these programs.

Iowa spent almost $55 million to pay off bonds that finance projects including state capitol renovation and prison construction. North Carolina used three-quarters of its settlement funds to support tobacco production, including funding for tobacco-curing equipment and video production for a tobacco museum.