The Case for and Against Tapping the Tobacco Fund to Bolster State Services

Feb 11, 2018

A billboard for TSET’s Shape Your Future wellness campaign sits along an Oklahoma City highway. Shape Your Future is one of the agency’s advertising efforts to decrease smoking and obesity, and make Oklahomans healthier.
Credit Jeff Raymond-Oklahoma Watch

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 viewed by the agency as part of its 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 attacking  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, 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 role 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 firms in the settlement provide money for 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 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 TSET’s 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-related bills this session are a projected shortfall of $600 million for fiscal 2019 and widening calls for raising some taxes.

This isn’t the first time legislators have tried to expand TSET’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 conform to the constitutional language of how trust money is to be used. But attorney general opinions from 2007 and 2011 determined the Legislature has little control over TSET’s spending. The purse strings are held by the agency’s seven-member board, which has broad powers to spend the money as described in the constitution.

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. The bills 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 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 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 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.

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