Tobacco Settlement Fund Proves A Target For Cash-Strapped Lawmakers
With another sizable budget shortfall looming, and state agencies pleading for help, some Oklahoma lawmakers are turning hungrily to one of the state’s biggest heaps of public cash.
The Tobacco Settlement Endowment Trust, valued at $1.1 billion, has become a tempting target for legislators who want to redirect the flow of TSET funds to core state services not directly related to the agency’s mission. At least 10 bills have been filed for the upcoming legislative session that would channel TSET money to, among other things, health care for the poor, mental-health services and a pay raise for teachers.
But steep barriers stand in the way of the efforts.
The largest one is that 18 years ago TSET was created through a constitutional amendment approved by voters – a culmination of lawsuits filed by states against Big Tobacco to redress the health-care and human costs from lung cancer, emphysema, heart disease and other smoking-related illnesses. Another vote by Oklahomans would be required to alter the trust’s mission or complexion.
Still, some lawmakers and advocacy groups are posing sharp questions about the trust fund’s size and whether, in light of declining smoking rates and the agency’s heavy spending on advertising, it should focus more on addressing general health problems rather than educating Oklahomans to adopt better habits.
TSET’s reports and messages take credit for at least part of the decline in smoking over years, although smoking rates have declined nationwide. And the agency posts evaluations of its effectiveness. It also emphasizes that Oklahoma still faces alarmingly high rates of tobacco use and lung cancer deaths.
John Woods, TSET’s executive director who formerly worked for state House speakers, said he understands the push by some legislators to change how the trust spends its earnings.
“When you’re in a down budget year, there are legislators that are reticent to increase budget revenues through taxation, and so they’re looking for alternative sources of funding,” Woods said. “I think it (TSET) becomes a natural target, and that’s to be expected.”
How TSET works
Oklahoma voters created TSET in 2000, two years after 46 states and major tobacco companies reached a master settlement agreement.
The trust’s stated purpose is to use earnings to fund cancer research, tobacco cessation and programs “to maintain or improve the health of Oklahomans,” including those that emphasize children or seniors.
Each year, tobacco companies covered by the settlement contribute money to the fund, which allocates it to the states. Nearly $120 billion has been paid to states under the settlement since 1999, with almost $1.4 billion going to Oklahoma, according to the National Association of Attorneys General.
Under the state constitution, at least 75 percent of the annual receipts must go to the TSET trust fund. Almost 19 percent goes to a special legislative fund for appropriation. The balance, about 6 percent, goes to the attorney general’s office to oversee the master settlement. So far, the Legislature has spent all of its share, or more than $400 million, on Medicaid or other health-related areas.
Earnings from the TSET principal fluctuate, depending on the market and investment decisions. Earnings have ranged from $33 million in fiscal year 2012 to $53 million in 2014. Last year’s earnings were $38 million. A special five-member board governs TSET’s investments.
Current change efforts
The backdrop to TSET bills introduced this session are a projected shortfall of $600 million for fiscal year 2019 and widening calls for increases in some taxes.
This isn’t the first time legislators have tried to expand the agency’s role. In past years lawmakers filed legislation to steer its funds toward rural health-care infrastructure, community health centers and Medicaid, and to endow cancer research chairs at the state’s medical schools. Lawmakers say such proposed uses fall under the constitution’s broader provisions of how endowment trust money is to be used. But attorney general opinions from 2007 and 2011 concluded the Legislature has little control over TSET’s spending. The purse strings are held by TSET’s seven-member board, which has broad powers under the constitution to spend the money as designated in the state question.
The only time voters have spoken on expanding TSET was in 2002, when they soundly defeated a state question that would have allowed TSET to spend up to 5.5 percent of its endowment each year.
Among the recent bills are Senate Joint Resolution 50 by Sen. Josh Brecheen, R-Coalgate, and House Joint Resolution 1049 by Rep. Mark McBride, R-Moore, which would direct portions of the annual settlement funds to Medicaid, teacher pay or mental health services. Others are broad “shell” bills with no details or supporting legislation for ballot initiative changes.
McBride, who filed legislation in 2017 to redirect TSET money to schools, said he doesn’t want to touch the endowment but would like to use future settlement payments and earnings for health-related education positions such as school nurses, special education teachers and counselors, and for addiction treatment and other mental health programs.
“It still leaves TSET intact. It still leaves them with plenty of money,” he said.
Brecheen’s bill would ask voters to approve spending 25 percent of TSET’s earnings on tobacco prevention and the rest on Medicaid or other health care. He said the master settlement was originally intended to address Medicaid’s smoking-related costs, not public health education and wellness.
“What is an ‘allowable use’ that the voters would look at and go, ‘That’s common sense?'” he asked, referring to TSET-related language in the constitution.
Brecheen said voters were wise to create the trust, but its appointed board isn’t accountable to citizens in the way elected officials are. Taxpayers, he said, shouldn’t subsidize costs tied to smokers who are on Medicaid and light up at a higher rate than the general population.
“This is not being spent in the most efficient manner,” he said, calling much of TSET’s spending “experimental” that runs contrary to how state government programs usually work.
The Oklahoma Council of Public Affairs is a frequent critic of TSET spending. Its president, Jonathan Small, said the trust fund should be frozen at its current level and the Legislature should spend future settlement payments on core state services. Small said TSET has already broadened its focus from funding anti-tobacco programs and research to expensive advertising campaigns on health and obesity.
TSET spent about $14 million last year on advertising, or nearly 29 percent of the agency’s $48 million, an annual audit shows. Yet the American Lung Association gave Oklahoma a “D” for the level of its tobacco-prevention funding in 2017.
The latest Campaign for Tobacco-Free Kids report gives Oklahoma relatively high marks for its tobacco cessation programs. Oklahoma ranked No. 7 among states in spending amounts per capita recommended by the Centers for Disease Control and Prevention. Total spending was $19 million, or 45 percent of the recommended level. Only California and Alaska come close to the recommended spending amounts.
TSET points to a 10-percentage-point drop in smoking among high school students from 2002 to 2015 and a 7-percentage-point drop among adults from 2002 to 2016 as evidence of its effectiveness.
“Nobody can argue that TSET hasn’t had some impact on smoking or cigarettes. But I think there’s huge concern about where else they’ve spent money,” Small said. “The reason they’ve expanded is because that fund has become so massive that they literally cannot spend all the money trying to prevent tobacco use, even if they wanted to.”
Small praised the TSET board’s decision in November to shore up mental health services for children and provide meals for seniors. The one-time funding of $3.1 million from TSET earnings went to the Department of Human Services and the Oklahoma Department of Mental Health and Substance Abuse Services.
Few states have protected their tobacco settlement money like Oklahoma. Most states have diverted the annual payments to other state priorities. Others, like New Jersey, have securitized the income stream, selling bonds backed by future annual tobacco settlement payments to get a lump sum.
“TSET was created with constitutional language because there was a recognition there are going to be fiscal challenges in our state but those are not permanent,” Woods said. “Even in states that have utilized their funds appropriately and effectively, if they didn’t have the funds protected, at some point there was a legislator in their state who determined they wanted to use the funds for another purpose. It becomes too tempting.”
Small said TSET hides behind its constitutional protections to reject reform efforts.
“The only way you can effectively ensure TSET actually makes some changes is through a ballot measure,” Small said. TSET’s spending level is proof that there’s a “saturation point” for tobacco prevention efforts, he said.
The agency’s advertising campaigns include the Tobacco Helpline, “Tobacco Stops with Me” and “Shape Your Future.”
Woods said TSET’s ad campaigns are evaluated regularly for effectiveness and follow CDC guidelines. Its anti-smoking and obesity messages are outpaced by advertising from tobacco companies and fast-food restaurants, he said. The tobacco industry spent $163 million on its Oklahoma marketing efforts, according to the Campaign for Tobacco-Free Kids.
“Our public campaigns want to drive awareness of an issue or problem and drive the behavior change, and they work,” Woods said. “They are one component in a holistic approach in how you address public health. We cannot abdicate that public sphere of influence to the industries that are harmful to our health.”
Brecheen said TSET’s broad-based advertising gives him “big heartburn.” Attitudes toward smoking are turning negative, which could explain the drop in young adults’ smoking rates, he said. Studies show older smokers are likely more set in their ways.
“I don’t believe you’re going to change a 60-year-old’s mind on smoking,” he said.
Woods said new laws to strengthen the state’s clean indoor air laws and higher tobacco taxes would go far in boosting TSET’s tobacco cessation efforts. More states have passed “Tobacco 21” legislation that raises the purchase age to 21. Oklahoma law allows sales at age 18 and also preempts cities and counties from passing their own indoor air regulations.
Woods said challenges to TSET’s purpose often reflect a lack of understanding of what it does.
“When you have an agency that is non-appropriated, it tends to be one that legislators don’t know a lot about offhand because they’re not dealing with it on a daily basis like some of the big appropriated agencies,” he said. “Our job is to educate and share with them what our mission is and what we’re doing.”