Cover Story -June 2000
By Johanna Franke
Much has happened in the 2 years since former Texas Atty Gen Dan
Morales found an oasis in the tobacco desert by settling the
state's lawsuit against Big Tobacco for $17.3 billion. Texans have
gotten used to the idea of all that money, and they're using it,
though not totally for health-related matters.
Tobacco revenues, in some form or another, are starting to
sprinkle across much of the state, but many public health groups
say the next session of the Texas Legislature needs to set aside
more of this money to prevent the use of tobacco. In fact, Texas
ranks dead last in per-capita funding for prevention.
Meanwhile, as Big Tobacco's reputation becomes more stained,
fewer Texans are lighting up, which means fewer tobacco funds are
rolling in, which could mean a drought for some of the state's
public health programs.
Forecasting the future
Like parents who suggest their children save some of their
allowance for a rainy day, the Texas Legislature last year directed
most of the initial $1.8 billion of the state's tobacco settlement
into endowments similar to the state's Permanent School and
Permanent University funds.
These endowments were borne by the Memorandum of Understanding
(MOU) signed February 3, 1998, by Sen Bill Ratliff (R-Mount
Pleasant), Rep Rob Junell (D-San Angelo), and then-Attorney General
Morales. The MOU outlined health care priorities to be funded by
the first tobacco settlement installment, and while it had no legal
standing, it prevented protracted legal struggles for control of
tobacco funds and provided a framework for the 76th Legislature to
follow while allocating tobacco funds during the 1999 session.
At that point, the Texas Medical Association and the Texas
Hospital Association cofounded the Coalition for A Healthy Texas,
which includes representatives from more than 40 provider and
consumer organizations. Throughout the session, the coalition
worked to convince the legislature that all tobacco settlement
dollars should be dedicated to improving Texans' health by funding
direct medical care, prevention, and research. The coalition
succeeded, and legislators greeted the MOU with open arms.
"What the legislature did by accepting the MOU was put an
important down payment on health," said Texas Commissioner of
Health William R. Archer III, MD. "They made a commitment to
The MOU weather map
Working from the MOU's map of settlement funds, lawmakers
enacted three tobacco-related bills during the 1999 session:
- House Bill 1161 created a permanent fund and advisory
committee to handle the investment, management, and distribution
of tobacco settlement receipts earmarked for reimbursing counties
and public hospitals for indigent health care. It codified the
Texas Supreme Court order to provide counties and hospital
districts with initial cash distributions worth $300 million and
interest payments to be used to cover the costs of indigent care.
(See the Texas Department of Health [TDH] Web site at
for a spreadsheet showing the distribution of tobacco settlement
proceeds to local political subdivisions.)
- HB 1676 created five permanent endowments to provide stable
long-term funding of prevention and treatment programs. The
funds, managed by the Texas Comptroller's Office, do not bind the
legislature to future appropriations. Legislators may increase or
decrease additional state appropriations as needed. The funds
- The $200 million Permanent Fund for Tobacco Education and
Enforcement within TDH. Interest from the fund would pay for
programs to reduce tobacco use, including smoking cessation,
public awareness campaigns, enforcement of sales and distribution
laws, and specific programs for populations, such as minorities,
traditionally targeted through advertising by tobacco
- The $100 million Permanent Fund for Children and Public
Health is appropriated to TDH for a foundation to demonstrate
cost-effective prevention and intervention strategies to improve
health outcomes, address disparities in minorities' health, and
provide grants to local communities to address public health
priorities. Interest from the endowment will fuel the programs.
TMA Applies for Innovation
- The $100 million Permanent Fund for Emergency Medical
Services (EMS) and Trauma Care generates interest appropriated to
TDH for programs or grants for emergency medical services and
- The $50 million Permanent Fund for Rural Health Facility
Capital Improvement provides low-interest loans to a city,
county, hospital district, or hospital authority that owns or
operates a rural public hospital. The loans can be used only for
capital improvements to existing public health facilities, to
construct new such facilities, or to purchase capital equipment
for a public health facility. The Center for Rural Health
Initiatives administers the project.
- The $25 million Community Hospital Capital Improvement fund's
earnings are appropriated to TDH for grants, loans, or loan
guarantees to urban public or nonprofit community hospitals with
125 or fewer beds.
- HB 1945 created a $595 million fund for research at
universities and three grant funds, managed jointly by the Texas
Comptroller's Office and The University of Texas (UT) System,
that will be distributed to medical schools and other
higher-education institutions based on formulas and competitive
grants. They are:
- The $595 million Permanent Fund for Health-Related
Institutions benefits the UT Health Science Center at San
Antonio, $200 million; UT M.D. Anderson Cancer Center, $100
million; UT Southwestern Medical Center at Dallas, $50 million;
Baylor College of Medicine, $25 million; Texas A&M University
System Health Science Center, $25 million; Texas Tech University
Health Sciences Center (TTUHSC) in El Paso, $25 million; other
TTUHSC components, $25 million; University of North Texas Health
Science Center at Fort Worth, $25 million; UT-El Paso, $25
million; UT Health Center at Tyler, $25 million; UT-Houston
Health Science Center, $25 million; UT Medical Branch at
Galveston, $25 million; and the regional academic health center
in the Lower Rio Grande Valley, $20 million. These funds may be
used only for research and other programs that benefit public
health. (See "
Texas Institutions Plan Tobacco
- The $350 million Permanent Fund for Higher Education is
administered and managed by the UT System. Funds may be
appropriated only for medical research or health education, or
treatment programs at certain higher-education institutions.
- The $45 million Permanent Fund for Higher Education Nursing,
Allied Health and Other Health-Related Education Programs
generates investment returns that are appropriated to the Texas
Higher Education Coordinating Board (THECB) for grants to public
higher-education institutions that offer upper-level academic
instruction and training in nursing, allied health, or other
health-related education. (See "THECB Awards New Tobacco
- The $25 million Permanent Fund for Minority Health,
administered by THECB, provides grants to higher-education
institutions and to partnerships of minority organizations,
colleges, and universities for research or educational programs
that address minority health issues. (See "THECB Awards New Tobacco
Storm of criticism
Although the tobacco settlement money was intended to be used
for health programs, some states have chosen to use some of it for
other purposes. Texas is one of them.
The thunder and lightning of criticism began almost immediately
after several states began using tobacco money for non-health
programs. US Health and Human Services Secretary Donna Shalala
sharply accused several states of "breaking their pledge to use
billions of dollars from the national tobacco settlement for health
Richard F. Corlin, MD, speaker of the American Medical
Association House of Delegates, criticized Los Angeles Mayor
Richard Riordan's proposal to use $300 million of that city's
tobacco settlement funds to settle expected lawsuits stemming from
a police corruption scandal. "It is corrupt in and of itself to
steal the tobacco settlement money to pay off the price of
political problems and police corruption," Dr Corlin said.
In Texas, counties and cities account for most of the tobacco
settlement funds that have gone astray because the initial $300
million payment -- distributed in 1999 to 131 hospital districts,
167 counties, and 5 cities on the basis of their population -- did
not restrict how they could spend the money. They are not required
to report how they're using the first round of funds.
Results of an informal 28-county survey published in the October
13, 1999, issue of
The Wall Street Journal
, show several Texas counties are using their tobacco dollars for
construction and renovation projects. According to the
, Fort Bend County is using half of its $3.9 million share of the
settlement to renovate a former Wal-Mart as office space. Falls
County is using $100,000 of its $312,812 share to upgrade county
roads. Limestone County plans to spend part of its $223,765 share
to renovate a 1924 courthouse.
Senator Ratliff, chair of the Senate Finance Committee, says
critics should lay off these counties. "I think the counties are
getting a bad rap for that. The reason Representative Junell and I
did not specify that this money had to be used for local indigent
care was that we were convinced by county representatives that they
had already been spending a lot of money on indigent care and had
been neglecting other areas, like roads and bridges that carry
Cameron County officials say they have spent $20 million over
the past 10 years, or 10% of their property tax collections, on
indigent health care,
The Wall Street Journal
reported. They plan to use their $4.5 million tobacco payment on
new county adult probation, engineering, and health department
buildings. They also will use tobacco dollars for drainage
improvements at a substandard housing development.
"There may be some counties that were not doing anything in
indigent care and still raked off the money. I'm not going to tell
you that wasn't so," Senator Ratliff said. "But we felt like that
was legitimately a local decision as to what their priorities
From now on, though, tobacco money distribution will be
determined by how much a local government spends on unreimbursed
health care. Representatives from hospital districts and counties
will staff an advisory committee that will decide which
expenditures might qualify as health care expenses -- medical
supplies, diagnostic and treatment services, laboratory work, and
case management -- and which ones probably won't, such as
Cloudy skies for prevention
Though they needed a downpour, efforts to prevent tobacco use
only received a drizzle of settlement funds during the first
biennium of the settlement, says Mike Dany, chief executive officer
of the American Cancer Society (ACS)-Texas Division, Inc.
Instead of the US Centers for Disease Control and Prevention's
(CDC's) most recent recommendation that Texas spend $100 million on
comprehensive tobacco prevention, the programs overseen by TDH are
receiving only the interest from the $200 million Permanent Fund
for Tobacco Education and Enforcement. This amounts to about $9.6
million from the first settlement installment, leaving Texas at the
bottom of all the states in per-capita funding of prevention
Mississippi ranks first with per-capita funding of $11.36, or
165.1% of the CDC's recommendation for spending on prevention
there. The other 49 states trail behind, with Texas' per-capita
funding pulling up the rear at $0.51, only 9.6% of the CDC's
recommendation for prevention spending for the Lone Star State.
"The lawsuit was based on the harm that tobacco had created in
the state in terms of cost," Mr Dany said. "The intent of the
original suit was to try to put monies into prevention so this
wouldn't be a future problem, and tobacco prevention was
Robert Emmick, Jr, MD, chair of TMA's Council on Public Health
and an emergency medicine specialist in Bryan, also is concerned
about this lack of funding.
"Of course, we preferred a higher level of funding, but now
we'll wait and analyze the pilot project results once they're
available," he said.
Mr Dany says smoking prevention pilot projects conducted by TDH
in about 20 Texas communities will not generate worthwhile results
for the next legislative session because they are using only parts
of a comprehensive program shown to be successful in other
"Studies show that the way you attack smoking rates is a
comprehensive program that includes media, community youth
programs, cessation programming, and enforcement," he said. "Not
one approach in itself has been shown to work. It takes all those
things in combination."
Mr Dany points to the success of Florida's tobacco pilot
program, which uses community partnerships, education, enforcement,
and research to evaluate every aspect of the program. The program's
most critical elements include its youth-driven counter-marketing
effort, local partnerships active in all 67 Florida counties,
in-school and after-school instructional support at every grade
level, youth smoking cessation programs, and a youth advocacy group
called Students Working Against Tobacco.
A recent survey of more than 20,000 Florida middle and high
school students showed a 2-year decline in cigarette use that
represents 79,760 fewer young smokers and approximately 26,230
fewer premature deaths attributable to smoking.
"When our programs don't have these kinds of results by next
session, those who have not been favorable to tobacco prevention
funding will say, 'See, this stuff doesn't work,'" Mr Dany
But Dr Archer says Florida still has more work to do.
"In addition to their middle and high school student smoking
rate declines, they saw a possible increase in college students
that they didn't anticipate," he said. "And, when they
disaggregated the data, they found the impact was not there in
Texas, he says, is on the right track.
"The legislature wants very much to understand the different
dimensions of the tobacco prevention program, and they really want
us to be scientists and look at what works," he said. "What we're
trying to do is determine which of those components have the most
impact, and then, when put together, what component combinations
will have the most impact."
Dr Archer added that the number of Texas middle school students
who reported using tobacco declined from 30.6% in 1998 to 22.6% in
1999. He attributes these numbers to less access to tobacco and to
a state law that revokes driver's licenses from kids who smoke.
High school student smoking rates remained the same, he says.
"We had an impact on younger kids, I think, because they are
still longing for their licenses and are afraid they might not get
them," Dr Archer said.
Significant pilot study results probably won't be ready by the
2001 legislative session, but Dr Archer says he expects legislators
to be patient and refrain from cutting prevention programs.
"We've articulated along the way that this is a long haul," he
said. "If you're wanting to impact high school students, you've got
to get them before they go to high school."
During the next legislative session, TMA, the Texas division of
ACS, and other health advocacy groups will propose adding to the
$200 million endowment to push annual funding for tobacco
prevention programs toward the CDC's recommendation of spending
$100 million on prevention, Mr Dany says. They also will promote
statewide expansion of prevention programs.
Preparing for a slight dry spell
Though the ACS-Texas Division is looking toward the 77th Texas
Legislature for more funding, the first $1.8 billion installment of
the tobacco settlement is still not water under the bridge.
Number crunchers for the Texas Comptroller's Office are working
to determine how much Big Tobacco owes in fiscal year 2000 after
adjustments such as profitability, inflation, and tobacco
consumption during 1999.
"We don't have final figures on the profitability adjustment
yet, but it's not expected to have any impact," said James LeBas,
chief revenue estimator at the Texas Comptroller's Office. "It's to
the state's benefit if the tobacco industry's domestic
profitability is rising faster than inflation."
The inflation adjustment factor is 3%, or the actual consumer
price index change, whichever is greater that year. "The inflation
factor, which works to our advantage, was 3% for 1999, but the
consumption factor was -14%," Mr LeBas said.
The consumption factor is based on a decline in cigarettes
shipped for domestic consumption, which may mean efforts to curb
smoking are working. This means less money will be pouring in from
this biennium's tobacco settlement payment. The comptroller's
office has calculated a $75 million shortfall for the state (see "
State Tobacco Industry Payments
Even more disturbing than this shortfall is the possibility of
the tobacco industry going bankrupt, which would delay or end
settlement payments to states (see "
Bound For Bankruptcy?
The 2-year outlook
Other health advocacy groups, as well as non-health-related
organizations such as education and veterans groups, are starting
to clamor for the next biennium's tobacco money.
Before adjustments, the tobacco industry will owe $471.25
million to the state and $605.09 million to local entities at the
end of December 2001, Mr LeBas says. At the end of 2002, Big
Tobacco will owe the state another $471.25 million and local
entities $303.2 million.
The Senate Finance Committee was charged during the interim to
identify priorities for the use of future tobacco settlement
proceeds. Senator Ratliff passed this duty along to Senator West's
interim committee along with a warning.
"I admonished the committee members not to see the money as a
pork barrel pool that we start kicking out into individual projects
around the state, but I don't think I had to," Senator Ratliff
said. "I think what they'll do is come up with recommendations for
statewide programs and avoid special interest-type items."
The interim committee's priorities are due back to the Senate
Finance Committee by mid-summer, so that a report can be made to
the lieutenant governor in September.
Making sure these priorities are health priorities without the
benefit of a memorandum of understanding during the 2001 session
might be tough, Dr Emmick says.
"This session, the tobacco funds will go directly into general
revenue," he said. "Without an MOU, many people can think of ways
besides public health and direct health care projects on which to
spend the money."
But TMA and other members of the Coalition for A Healthy Texas
have been working during the interim as well. A poll commissioned
by the coalition in 1999 showed that more than 80% of Texans favor
dedicating tobacco settlement money to meeting current and future
health care needs. TMA and its coalition partners are building on
this support throughout the interim session to ensure that future
tobacco monies address Texas' vast health needs.
Senator Ratliff says he thinks legislators won't need much
convincing to channel tobacco funds into health care.
"I think the legislature accepted Representative Junell's and my
basic philosophy that the funds ought to be used for health care of
some kind," he said. "So I think we will continue to see the money
dedicated to health care, and there are lots of different ways to
Bound for bankruptcy?
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