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15 Years Later, Where Did All The Cigarette Money Go?

So far, the tobacco industry has paid more than $100 billion to state governments as part of a settlement. While smoking is down among young people and even adults in some areas, it's still unclear where much of that money has gone.
Carolyn Kaster
So far, the tobacco industry has paid more than $100 billion to state governments as part of a settlement. While smoking is down among young people and even adults in some areas, it's still unclear where much of that money has gone.

Fifteen years after tobacco companies agreed to pay billions of dollars in fines in what is still the largest civil litigation settlement in U.S. history, it's unclear how state governments are using much of that money.

So far tobacco companies have paid more than $100 billion to state governments as part of the 25-year, $246 billion settlement.

Among many state governments receiving money, Orange County, Calif., is an outlier. Voters mandated that 80 percent of money from tobacco companies be spent on smoking-related programs, like a cessation class taught in the basement of Anaheim Regional Medical Center.

"So go ahead and take a minute or two to write down reasons why you want to quit and we'll talk about them in just a bit," Luisa Santa says at the start of a recent session.

Every year since 1998, this program has been funded by money from the tobacco settlement. The five-part class is free for anyone living or working in Orange County. When they sign up, participants get a "quit kit" full of things like toothpicks and gum. And, if they come for at least three of the five sessions, they get a free two-week supply of nicotine patches.

Making Big Tobacco Pay

In the mid-1990s, Mississippi was the undisputed leader on the tobacco issue. In 1994, Mike Moore, the state attorney general, filed the first state lawsuit against big tobacco.

Individual lawsuits by smokers failed because courts held people responsible for their decision to smoke, but Moore argued that Mississippi shouldn't be forced to pay the costs of treating smoking-related diseases.

"Things such as lung cancer, heart disease, emphysema, low-birth-weight babies and others, we have to pay," Moore told NPR in a 1994 interview. "The state is obligated to pay for those for our citizens that are not covered in other ways, and we feel like they're caused by the tobacco products."

Moore argued that tobacco companies should pay for medical bills, and eventually the courts agreed. That agreement said no ads and no targeting youth. Popular advertising characters like Joe Camel and the Marlboro Man were killed off as a result.

The settlement left the tobacco industry immune from future state and federal suits, but the agreement said nothing about how states had to spend the money. Looking back on it, Moore remembers it was a long slog.

"It was not an easy task," Moore tells NPR's Arun Rath. "When we filed our case here in 1994, my governor actually sued me to try to stop the tobacco case."

The tobacco companies sued Moore as well, he says, and it went all the way to the Supreme Court. "It took me two years before I even had five states who would agree to join the efforts."

Moore now serves on the board of directors of the American Legacy Foundation, a group created by the tobacco settlement. The organization's mission is to create national anti-smoking campaigns, like the famous Truth ads.

The tobacco settlement included money specifically to fund public service announcements, but Moore says most of the settlement money came with no strings attached, and that has made it impossible to hold states accountable.

In Mississippi, where the settlement money was put into a trust fund, a lot of it was spent on things other than smoking prevention and health care, Moore says.

"What happened as the years went by, legislators come and go, and governors come and go ... so we got a new governor and he had a new opinion about the tobacco trust fund," he says. "So a trust fund that should have $2.5 billion in it now doesn't have much at all, and unfortunately that's one of my biggest disappointments.

And it's not just Mississippi; Moore says that all across the country hundreds of millions of dollars have gone to states, and the states have made choices not to spend the money on public health and tobacco prevention.

It's not all bad news in Mississippi, however; Moore says money that was spent on tobacco prevention has helped reduce teen smoking by more than 50 percent in just five years. Adult smoking has been reduced by about 25 percent, and he says it is that way around much of the U.S. as well.

"We need to continue the vigilance," he says. "We have new products coming out — e-cigarettes and the like — we just need to talk the states into spending the money to do something about it."

The Settlement Aftermath

Myron Levin covered the tobacco industry for the Los Angeles Times for many years and is also the founder of the health and safety news site Fair Warning. He says talking states into spending settlement money on tobacco prevention is a tough sell.

To show the settlement was not just a big money grab, Levin says, there was definitely a feeling that states had a moral obligation to spend at least a sizeable chunk of money on programs to help people quit smoking and to prevent kids from starting.

"So it was understood without being codified into the agreement that states would make a big investment in this," he says. "They haven't."

To help guide state governments, in 2007 the Centers for Disease Control and Prevention recommended that states reinvest 14 percent of the money from the settlement and tobacco taxes in anti-smoking programs. But most state governments have decided to prioritize other things: Colorado has spent tens of millions of its share to support a literacy program, while Kentucky has invested half of its money in agricultural programs.

"What states have actually done has fluctuated year by year ... but it's never come close to 14 percent," Levin says. "There are some fairly notorious cases of money being used for fixing potholes, for tax relief [and] for financial assistance for tobacco farmers."

Levin says some states don't have any money coming in anymore because they securitized their future payments with an investor in order to receive a lump sum. That lump sum often went into their state's general fund.

For its part, the tobacco industry has managed to weather the settlement fairly well. New products like smokeless tobacco and electronic cigarettes have put many companies on the road to big sales, Levin says.

"When you are supplying the most widely used addictive product in the world, you have certain advantages," he says. "Their cash flows remain enormous."

One indirect effect of the settlement, Levin says, is legislation that gave the Federal Drug Administration control over tobacco products. President Obama signed the law in 2009.

"Something that could happen, although I wouldn't put a lot of money on it, is they could ratchet down the allowable levels of nicotine in cigarettes to a level that is essentially nonaddictive," he says. "That would be a total game changer."

Nonaddictive cigarettes would indeed be a game changer for people like Susan Hallock, an attendee at the class in Orange County, who says she desperately wants to quit.

"I feel ashamed," she says. "I feel like I have to hide my hand with the cigarette in it."

But the nicotine keeps her coming back, over and over. "I'll smoke like six to eight months and quit. Or a month and quit. It's just different every time."

She's hoping that this time, with the help of the free class, she'll be successful. And she has a real chance: The program has a 50 percent success rate for adults like her.

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Corrected: October 14, 2013 at 9:00 PM PDT
A previous Web version of this story incorrectly said Mike Moore was CEO of the American Legacy Foundation. He is on the board of directors.