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New National Report Finds States Collecting More Tobacco Revenue Than Ever but Spending Less on Tobacco Prevention

Health Groups Say Tobacco Prevention Programs Can Save States Money and Cuts Are 'Penny-Wise, Pound-Foolish'
January 22, 2003

Washington, D.C. — Despite collecting record amounts of tobacco-generated revenue from tobacco taxes and the tobacco settlement, states are cutting spending on programs to keep kids from starting to smoke and help smokers quit, according to a report released today by five leading public health organizations.

The states in the current budget year are collecting a record $20.3 billion in tobacco-generated revenue, an increase of nine percent from the year before. But they have cut spending on already under-funded tobacco prevention and cessation programs by $86.2 million, or 11 percent, according to the report. Tobacco revenues are up because 21 states and the District of Columbia increased cigarette taxes in 2002.

January 2003 Report

Complete 2003 Report (636k .pdf)

Chart: Fiscal Year 2003 Tobacco Money for Tobacco Prevention (47K .pdf)

Table: Ranking of State Funding for Tobacco Prevention (10K .pdf)

State Summaries

Use the dropdown to see state-specific settlement information:
The report was released by the Campaign for Tobacco-Free Kids, American Heart Association, American Cancer Society, American Lung Association and the SmokeLess States National Tobacco Policy Initiative.

These groups have issued annual reports since the November 1998 state tobacco settlement assessing whether states are keeping their promise to use tobacco settlement money to fund tobacco prevention and cessation programs that can reduce the tremendous toll that tobacco use takes in health, lives and money. This year, the groups argue, the states have even more of an obligation to fund tobacco prevention programs because of the added revenue generated by cigarette tax increases. Instead, the report finds, states increasingly are using both tobacco tax and tobacco settlement money to cover budget shortfalls.

On the positive side, the report finds that more states increased than cut funding for tobacco prevention in the past year (20 to 13). But in dollar amounts, the states have cut more than they increased, with the largest cuts occurring in California and Massachusetts, which have the nation's two oldest and most successful tobacco prevention programs. California cut tobacco prevention funding by $46.2 million (34 percent), while Massachusetts cut its program by $43.2 million (90 percent).

The report argues that it is shortsighted for states to cut tobacco prevention programs because tobacco use costs the states billions of dollars a year in health care costs under Medicaid and other health care programs. Skyrocketing Medicaid costs have been one of the main causes of state budget deficits. The U.S. Centers for Disease Control and Prevention (CDC) estimates annual smoking-caused health care costs in the U.S. at more than $75 billion, including $23.5 billion under Medicaid (CDC estimates other smoking-caused economic costs at more than $80 billion a year). Studies have shown that, before the recent cuts, the California and Massachusetts tobacco prevention programs were saving up to $3 in health care costs for every dollar spent.

'Gutting tobacco control programs is penny wise and pound foolish,' said John R. Seffrin, PhD, Chief Executive Officer of the American Cancer Society. 'Ultimately, states are going to have to pay the piper in lives lost and spending on health care. Smoking is responsible for nearly one-third of all cancer deaths and kills 440,000 people every year. In 2002, economic losses due to tobacco-related illnesses were $157 billion. If states fail to fund proven strategies to help people quit or keep them from starting to smoke, the human and economic cost will only get higher.'

'The evidence is clear that tobacco prevention and cessation programs are part of the solution to the fiscal crisis states are facing,' said William V. Corr, Executive Vice President of the Campaign for Tobacco-Free Kids. 'Those states that choose wisely to invest in tobacco prevention despite tight budgets will reap the benefits of fewer kids smoking, lives saved and taxpayer dollars saved by reducing smoking-caused health care costs. Those states that make shortsighted decisions to cut tobacco prevention will pay a steep price in lives and dollars.'

'When budgets are tight, it makes sense to look for ways to save money. Tobacco control programs not only save money but they save lives as well – you don't get many deals like that,' said Cass Wheeler, CEO of the American Heart Association. 'With more than 170,000 Americans dying from smoking-related cardiovascular diseases every year, we must remain true to the intent of the settlement and fully fund programs to fight tobacco. States can save lives now by investing in these prevention and cessation programs, and that is a big investment in the future.'

'Too many states are engaging in fiscal malpractice by mortgaging their futures. The recent American Lung Association State of Tobacco Control 2002 report gave 'F' grades to 33 states for their dismal records in funding tobacco programs. These states are raiding tobacco funds to cover budget shortfalls, and denying themselves a sound investment in their citizens' health,' said John L. Kirkwood, President and CEO of the American Lung Association.

'This report commends the few states that have spent tobacco excise tax or Master Settlement Agreement funds wisely; however, it shows that most states have not taken appropriate actions to protect the health of the public from the scourge of tobacco use. Wrecking the tobacco control programs in Massachusetts and California, which had produced significant changes in tobacco-related illness, is public health malpractice. Similar cuts across the country will make it very difficult for the health community to continue curbing the toll in lives and high health care costs taken by tobacco use,' said Thomas Houston, M.D., co-director, SmokeLess States National Tobacco Policy Initiative.

The report's key findings:

  • Just four states – Maine, Maryland, Minnesota and Mississippi – are funding tobacco prevention programs at the minimum levels recommended by the CDC (although Maryland Governor Robert Ehrlich last week proposed cutting funding for that state's program in half). Meeting the CDC minimum requires about 20 to 25 percent of a state's settlement proceeds.

  • Only 15 other states are funding tobacco prevention programs at even half the CDC's minimum recommended amount. Sixteen states have committed 25 to 50 percent of the CDC minimum; 12 states have committed less than 25 percent of the CDC minimum; and three states – Michigan, Missouri, and Tennessee – and the District of Columbia have committed none of their tobacco settlement or tobacco tax money for tobacco prevention.

  • States in FY2003 will collect $20.3 billion in revenue from tobacco taxes and the tobacco settlement, an increase of nine percent from the $18.6 billion collected in FY2002. States will collect even more in the future as many of the 2002 cigarette tax increases were not in effect for the full fiscal year and states are likely to enact additional tobacco tax increases this year. Once fully implemented the 2002 cigarette tax increases will generate about $3.5 billion a year in new revenue.

  • States in FY2003 have budgeted $682.3 million for tobacco prevention and cessation programs, a cut of 11.2 percent from the $768.5 million budgeted in FY2002.

  • State spending on tobacco prevention and cessation in FY 2003 ($682.3 million) amounts to only 3.4 percent of the $20.3 billion in tobacco-generated revenues the states will collect from the tobacco settlement and tobacco taxes. To meet the CDC's minimum recommendation for tobacco prevention spending, the states would have to spend $1.6 billion, or 7.9 percent of their total tobacco revenue.

  • Total state spending on tobacco prevention amounts to just seven percent of the $9.6 billion a year that the tobacco industry spends to market tobacco products.

  • At least 18 states and the District of Columbia have securitized, or sold to investors, all or part of their future tobacco settlement payments for a much smaller up-front payment, or have passed laws authorizing such action. Several states used the revenues generated to balance budgets for just one year.

Securitization reduces the amount of settlement money available to fund tobacco prevention and other programs in the future. Also, because securitization is viewed as a one-time fix that does not solve recurring budget problems, it has resulted in several states having their credit ratings reduced, which costs these states and their taxpayers more to borrow money.

The report details the powerful evidence that comprehensive tobacco prevention programs work to reduce smoking, save lives and save money for taxpayers. This evidence includes Florida, which cut smoking by 47 percent among middle school students and 30 percent among high school students between 1998 and 2001; Oregon, which cut smoking by 41 percent among eighth graders between 1996 and 2000; Maine, which cut high school smoking by 36 percent from 1997 to 2001; and Mississippi, which cut public high school smoking by 25 percent from 1999 to 2001. Studies show that California, which started the nation's oldest tobacco prevention program in 1990, has saved tens of thousands of lives by reducing smoking-caused birth complications, heart disease, strokes and lung cancer.

Tobacco use is the leading cause of preventable death in the United States, killing more than 400,000 people every year. Despite recent declines in youth smoking rates, 26.7 percent of high school seniors are still smokers, according to the recently released Monitoring the Future survey. Every day, another 2,000 kids become regular, daily smokers, one-third of whom will die prematurely as a result.

More information, including the full report and state-specific information, can be obtained on the Internet at

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