The Strickland Budget: Proposed Tobacco Settlement Treatment is a Big ‘Told Ya’ for Critics
I’ll probably have more to say on the Governor’s two-year budget in the coming weeks, but what struck me immediately in the Dispatch article about it was the proposed “structured settlement” treatment for the remaining payments due in the next several years from the 1990s nationwide tobacco lawsuit settlement:
But a debate is shaping up over Strickland’s plan to pay for that tax cut: a proposal to “sell” the state’s expected revenue in the coming years from a major tobacco settlement to generate an expected $5 billion lumpsum (sic) payment to spend now.
About $2.2 billion raised would go toward school construction, while the rest would cover the tax break and other spending in the budget.
The nationwide settlement was supposed to be “compensation” to the states for extra health care costs incurred. But none of the lump sum is going for Medicaid or other offsets. Money was supposed to be allocated, as it has been until now, for stop-smoking campaigns. According to information I’ve seen elsewhere from those affected, the lump sum settlement money will not be spent on that, and the stop-smoking money is drying up (though I’m not as convinced as those groups are that the campaigns accomplished as much as, uh, advertised).
Finally, there was concern raised by critics at the time that the settlement money would be used for operating costs. The $2.8 billion that is being used for reasons other than school construction is being used exactly that way on a one-time-for-two-years basis. First, the property-tax break is surely expected to be ongoing. I expect that the “other spending” mentioned in the same sentence above is also anticipated to continue into future years. So, where is the $2.8 billion going to come from in the next biennial budget? (Hint to Ted: You might “find” some of it two years from now if you allow the other half of the individual income-tax cut hoped for in the last budget to take place now. As an added bonus, Ohio’s economy could very well start growing at a decent rate and you would come off looking good for it.)
The overall point is that those who predicted that the nationwide tobacco settlement money would not be used as promised are being proven right in Ohio, as they have in many, if not most, other states. I believe that the attorneys general who brought the tobacco suits expected all along that this would be the likely outcome. It wasn’t about the kids; it’s always been about the money.
Bizzy –
Actually, the GOP has diverted 100% of the settlement payments since FY02 to plug holes in the GRF. The total diverted to date is $580 million. See here for more info.
In addition, the settlement was for reimbursement of past costs, not bankrolling future costs. Because these were sunk costs, it is reasonable for the state to utilize the funds as needed. However, I find Strickland’s structured plan to be much more palatable than random budget-hole-plugging.
Comment by bryan — March 20, 2007 @ 10:29 am
#1, I thought the settlement was for past and future costs (costs that will not be visible until smokers develop lung cancer down the road).
The whole tobacco settlement has reeked of opportunism from the beginning, and as a way to get more money to spend without having to ask voters for a tax increase.
I am as unhappy with how the money has been treated in the past as you are (I think), but as I understand it, the stop-smoking campaign money is now history — and I believe prematurely compared to original intent.
LATER THOUGHT: I do not believe that you *the states* could have, or should have, just taken the money that was supposed to be *reimbursement* for past medical costs and just spend it on other things. If it is as you stated, then the money should have been given back to the taxpayers who paid the state all of the supposedly excessive Medicaid and other medical costs in the first place. What is the basis for doing otherwise?
Comment by TBlumer — March 20, 2007 @ 3:06 pm
Regardless - I love securitization.
(inadvertently deleted but resurrected by BizzyBlog; the above is the commenter\’s full comment.)
Comment by Kevin — March 21, 2007 @ 12:48 am
a response to your comment here.
Comment by bryan — March 21, 2007 @ 10:46 pm
#4, read. Thanks.
Comment by TBlumer — March 21, 2007 @ 10:51 pm