Report Exaggerates Reduction in Expected Tobacco Settlement Payments to States

Washington, DC — A new study by the Council of State Governments (CSG) exaggerates possible reductions in tobacco settlement payments to the states and risks misleading the states as they make decisions about how to allocate their tobacco settlement dollars. The report tells only half the story. It focuses on the settlement agreements' volume adjustment — which reduces state settlement payments based on declines in the four major cigarette companies' nationwide cigarette sales — but ignores the agreements' inflation adjustment, which automatically increases the payments to the states each year by even more than the actual rates of inflation.

The CSG report also ignores many other facts including the fact that the states have already taken into account these various adjustments to their settlement payments as part of their budget planning, and provides little new information to inform the states current budgetary decisions. The report's conclusion that states are receiving less money than their unadjusted base amount payments is not news.

The states always knew that their settlement payments would be adjusted down as U.S. cigarette sales decreased. In fact, it's good news that tobacco use is declining, especially among kids, as a result of the price increases that followed the tobacco settlement and the decisions by some states to use their tobacco settlement money to fund comprehensive, effective tobacco prevention programs. The more smoking declines, the more lives will be saved, and the more states will save in reduced smoking-caused healthcare and other related costs. We can only hope that the CSG is correct in projecting that tobacco consumption will continue to fall by 1.5 percent a year as it has on average in the years since the settlement. In fact, in each of the last two years cigarette consumption dropped by less than 1.2 percent.

Despite these and other flaws in the CSG report, we do agree with one of its conclusions: it is wrong for state's to use the tobacco settlement payments to fill budget gaps. The reason is not that these payments are going to be reduced unexpectedly, because they will not, but that the money should be used as it was intended — to reduce smoking and improve public health. The best way to do that is to fully fund comprehensive tobacco prevention programs that have been proven to reduce youth smoking and save up to $3 in health care costs for every $1 spent on prevention.

The CSG report is like Chicken Little's cries that the 'sky is falling.' The report claims that states will lose $14 billion in expected payments. However, states are fully aware of both sides of the adjustment equations called for in the settlement — the downward adjustments made in the CSG report and the upwards inflation adjustment left out of the CSG report. The fact of the matter is that the inflation adjustment will offset most of the $14 billion reduction that CSG is falsely reporting and the states already know it. In other words, the heavens will not descend to the earth anytime soon.