Tobacco Settlement Seen as No Windfall for CollegesThe Harvest From Tobacco Lawsuits: Payments Due to the States Over 25 Years

Many state legislators want to use the money to promote public health, not higher education

Nevada’s higher-education lobbyists thought they had hit a jackpot when Gov. Kenny Guinn, a Republican, revealed in January the way he wanted to spend the small fortune his state had been promised in a legal settlement with the nation’s major tobacco companies.

In his State of the State address, Governor Guinn said the money gave Nevada “a once-in-a-lifetime opportunity” to enable its children “to advance their education in a way never thought possible.” He proposed setting aside at least half of the tobacco payments to the state -- estimated at more than $40-million annually over 25 years -- to offer a college scholarship to every Nevada high-school student who graduates with a B average or better.

He called the plan, which would more than double state spending on student aid, “the chance for all of us to do something truly heroic.”

Throughout the nation, the news that every state stands to reap a bundle from tobacco settlements has inspired college officials to envision similar windfalls. They have looked to lawmakers to pump money not only into new scholarship programs, but also into university hospitals, medical education, and scientific research.

For the most part, however, such expectations could be pipe dreams.

The tobacco companies have agreed to pay the states a total of about $246-billion over the next 25 years -- with the first payments, in fiscal 2000, predicted to swell state budgets by an average of about 1.5 per cent. But most of the nation’s public colleges are expected to see little of the money. In states such as Nevada, where lawmakers have called for higher education to get a large share of the money, the proposals have encountered substantial resistance.

An array of formidable rivals, including various public-health programs and the federal government, stand between higher education and the tobacco-settlement funds.

In state-by-state debates over how to spend the money, “health-related programs, either new or existing, seem to be the favorites of policy makers out there at this time,” said Arturo Perez, a senior policy specialist in the fiscal-affairs program of the National Conference of State Legislatures.

Moreover, before state officials can get their hands on all of the money, they first must get the Clinton Administration to relinquish its claim to part of it. The Health Care Financing Administration is seeking a large part of the settlement funds as reimbursement for the federal portion of Medicaid costs associated with smoking-related diseases.

The Clinton Administration has argued that the agency has the legal authority to recover its share of any Medicaid costs being repaid by the tobacco companies. Because the states, on average, get 57 per cent of their Medicaid funds from the federal government, many state officials foresee being asked to relinquish more than half of their tobacco-settlement money.

The prospect has riled many governors, lawmakers, and attorneys general, leading them to ask Congress to intervene on their behalf. They argue that the federal government, having declined requests to join the states in tobacco lawsuits, has no claim to proceeds from the settlements.

“This is state money,” the Republican Governor of Utah, Michael Leavitt, insisted when the National Governors’ Association met with President Clinton last month.

At the behest of the association and other groups representing state officials, two Senators, Kay Bailey Hutchison, Republican of Texas, and Bob Graham, Democrat of Florida, have introduced a bill that would protect the tobacco-settlement funds from federal seizure. A companion bill has been introduced in the House or Representatives.

Noting that the lawsuits “involved a wide variety of issues beyond health-care costs,” Ms. Hutchison has argued that the money “should be used for the benefit of our states’ residents, not a federal bureaucracy.”

Although similar legislation failed in the last session of Congress, the Senate bill, with 36 co-sponsors, appears to have strong bipartisan support. The Senate Appropriations Committee this month attached the measure to a $1.9-billion emergency-spending package.

Other bills pending in Congress attempt to reach a compromise between federal and state interests by permitting the states to keep the money, but requiring that they spend a portion of it on public-health programs and anti-smoking campaigns, as the Health Care Financing Administration prefers. The National Governors’ Association opposes that idea as well.

A federal judge must approve many of the settlements before payments are made to states. The funds would come from separate settlements between the tobacco companies and Florida, Minnesota, Mississippi, and Texas, and one agreement involving the 46 other states, four territories, and the District of Columbia.

Given the uncertainty over how much tobacco money will end up in state treasuries, about half of the states’ governors made no reference to the funds in their State of the State speeches, and several have urged their legislatures to exercise restraint in making plans for the tobacco money.

The state executives “are being fiscally cautious about making commitments before they know how much money they have to work with,” said Joan Henneberry, who is monitoring the settlements as director of maternal and child-health programs for the National Governors’ Association. “It would feel like making promises they are not able to keep.”

Among the exceptions are Governor Guinn, of Nevada, and Gov. John Engler, Republican of Michigan, who has called for all of his state’s settlement revenues to go into a new trust fund for merit-based scholarships.

Michigan expects to receive more than $8.2-billion from the tobacco companies over the next 25 years, in annual payments expected to range from about $280-million to $400-million. Governor Engler’s plan is to set up an endowment that would award a college scholarship of $2,500 to every student who passed the state’s high-school proficiency test, and $3,000 to every student who also passed a proficiency test given in middle school.

Lawmakers in Connecticut and Ohio have introduced similar measures, and college officials have rallied around them.

“It is quite extraordinary, the impact this proposal has had here,” said Richard S. Jarvis, chancellor of Nevada’s University and Community College System. “It has really caught the imaginations of people in this state.”

The ideas have encountered resistance within state capitols, however, from legislators who have given a much higher priority to spending the money on public-health programs.

“I don’t think we sued the tobacco companies because we didn’t have enough scholarship money,” Michigan state Sen. Robert L. Emerson, a Democrat from Flint, said at a meeting last month between Mr. Engler and key members of the Legislature. “I am appalled we’re taking 100 per cent of the tobacco money and putting it into scholarships when we sued over the destruction of the health of people of this state.”

A coalition of Michigan health-care groups this month urged Governor Engler to reallocate the funds. “It only makes sense to spend a portion of the funds on youth anti-smoking initiatives, or the tobacco problem and financial burden in our state will only get worse,” said the coalition’s leader, Jeanne Knopf DeRoche.

A similar debate is taking place in most other states, largely because the settlement agreements place few restrictions on how the money can be used.

Indiana state Sen. Lawrence M. Borst, a Republican and chairman of his chamber’s Finance Committee, said that “states ought to be free to spend it as they see fit,” given that past state expenditures on Medicaid probably were “to the detriment of other programs.”

The Indiana and North Carolina legislatures are considering bills to finance university research into agricultural alternatives to growing tobacco, and lawmakers have proposed new college-scholarship programs specifically for displaced tobacco farmers in North Carolina and Tennessee, according to the National Conference of State Legislatures.

In addition to college scholarships, state lawmakers have proposed using tobacco money to pay for college construction in Florida, and for scientific research in Arkansas, Colorado, New Jersey, and Tennessee, the national group said.

On the other side of the issue, legislators in several states, including Louisiana, New Jersey, New Mexico, Pennsylvania, and Wisconsin, have called for spending the money exclusively on cancer-research centers -- many of which are located at universities -- or on anti-smoking campaigns.

Texas legislators have been debating a plan to divide of the first tobacco payments among university hospitals, medical schools, and public-health programs. “It seems to have been accepted, without really any explanation, that because the subject matter of the lawsuit was health care, every penny of this huge sum of money ought to go to some sort of new health-care initiative,” said state Rep. Todd A. Smith, a Republican.

In Minnesota, Gov. Jesse Ventura, who ran on the Reform Party ticket, has proposed putting about $450-million from the initial tobacco payments into endowments that would support medical education and medical research, and help keep university hospitals financially healthy.

But Minnesota state Rep. Richard D. Mulder, a Republican, questioned whether lawmakers could be trusted to continue spending such a fund solely on university hospitals or other intended uses, and not to raid it for pet projects.

“We can promise one thing one year, and come back in five or 10 or 15 years and unpromise that thing,” he said.

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