Lawrence M. Borst put on an earring this year for the first time in his life. He did it on the floor of the Indiana Senate, as a gesture of solidarity with one of his legislative colleagues, House member Charlie Brown, who had lent it to him.
They made a slightly incongruous pair. Brown is a 6'4" liberal black Democrat who sports a beard and wears an earring all the time. Borst is a shorter, clean-shaven, conservative white Republican. But as they finished a long siege of legislative negotiation, they were referring to each other expansively as "my brother."
It's no mystery, however, why these two men were getting along so well. They were dividing up a $4 billion windfall from the state's settlement with the tobacco industry. For the current fiscal year alone, they were passing out $112.5 million to spend on children's health insurance, rural and community health centers and prescription drug aid for low-income seniors. Their joint House-Senate compromise passed both chambers with 95 percent support. "I have never seen the state of Indiana spend so much money with so little rancor," said Michael B. Murphy, one of the ranking House Republicans.
All but six states have now fashioned at least short-term plans for spending money from the massive 1998 settlement. In four states-- Arizona, Arkansas, Oklahoma and Oregon--decisions on allocation of the money have been thrown to the voters. Missouri and Pennsylvania have not come to any final decision about their settlement dollars, but intend to try again next year.
The money from the 1998 settlement--an estimated $246 billion nationally over 25 years--comes with few strings attached. While some states chose, as Indiana did, to spend all the money on health-related programs, there's no requirement that they do that: It's perfectly legal to use the money to address any pressing needs, and quite a few states are being creative in their spending schemes. "I think it's going to take awhile," says Ohio Attorney General Betty D. Montgomery, one of the original plaintiffs, "to determine whether this is one of the biggest public health settlements in the history of this country, or whether it's simply one of the biggest transfers of wealth and power."
Montgomery and the other attorneys general who pressed the suit largely shared an assumption that the settlement money would be devoted to health. And the fact that most states are not using all of the windfall that way has spawned criticism from those who wished to achieve a great act of political jujitsu--using the tobacco companies' own money to create effective anti-smoking campaigns and superior health programs.
Still, despite the criticism states have suffered, most of their decisions seem defensible enough. Illinois, while making efforts to create a comprehensive anti-tobacco program, is devoting 72 percent of its fiscal 2001 payments to property-tax relief. North Dakota, ravaged by floods for the past several years, is putting 45 percent of its tobacco money into trust funds for water resources and flood control. Michigan plans to spend 75 percent on scholarships for high school graduates who pass a standardized test. When Governor John Engler proposed the idea in his 1999 State of the State address, the Detroit News editorialized that "there can be no better use of the tobacco settlement funds."
Many states have taken pains to invest the windfall in projects than can be tied at least loosely to the public health in one way or another. Louisiana's Board of Regents, perhaps recognizing the connection between quitting smoking and gaining weight, will spend $7.3 million on a six-year study to identify genes that control obesity. Nevada gave a one-time grant of $2 million to public television stations to convert to digital broadcasting in exchange for a pledge to air anti-tobacco public service announcements.
Projects completely unrelated to health have sometimes run into obstacles: The mayor of Washington, D.C., was blocked in his effort to use tobacco money to give bonuses to unionized city workers; the mayor of Los Angeles has been unable to dip into the windfall to pay the city's share of anticipated damage awards in a police-corruption scandal.
And for all the departures from the "spend it on health" argument, the fact is that $4 billion nationwide will go to health services, research and long-term care in fiscal 2000-01--just under half of the $8.2 billion total outlay and far and away the largest share of the settlement money. Some 35 states are devoting at least some of their settlement money to tobacco cessation efforts: a total of $754 million in fiscal 2000-01, according to the National Conference of State Legislatures. That is easily an all-time high.
Leery that the tobacco companies might run out of money to meet the demands of the settlement, many Republicans around the country and some Democrats have favored putting the money into endowments or trusts, so that any new programs or earmarks could live off the interest rather than depend on fresh injections of principal. And fully half of the states are placing at least a portion of their settlement money in reserve. The trust fund idea began to seem more prudent this summer, with the $145 billion class-action verdict against the industry rendered by a jury in Florida. Cases such as that one are likely to remain under appeal for years, but there is also a more immediate threat to the spending plans of the states: a provision of the settlement that allows tobacco companies to shrink their payments when their volume of product shipments slips. This provision has already deprived states of an expected $1 billion.
Where there have been serious disputes over the tobacco money, they have often centered less on the question of which programs to fund than on turf battles over who would decide how to spend the money. The Clinton administration, arguing that because Medicaid is a joint federal-state program the federal government should receive recompense for Medicaid expenses, made its claim for 57 percent of the settlement money in its fiscal 2000 budget. Congress, heavily lobbied by the National Governors' Association, ignored it. But states are still fending off lawsuits both from individuals and local governments that believe they are entitled to a share.
Within the state capitols themselves, there have been occasional turf battles across party lines and among party factions. In Oklahoma, Republican Governor Frank Keating vetoed the Democratic legislature's plan to set up an advisory council to make spending decisions because he felt the legislature would have too much control. Keating set up an advisory task force of his own, but the status of the state's tobacco money will be decided by voters through a November ballot initiative.
There will also be ballot initiatives next month in Arizona, where GOP Governor Jane Dee Hull and the Republican-controlled legislature failed to come to agreement about the tobacco money, and in Oregon, where the legislature is offering voters a plan to place the tobacco money in trust, interest from which would be spent on health, housing and transportation for the elderly.
The Oregon measure is the Republican legislature's revenge against Democratic Governor John Kitzhaber, with whom it has never been on friendly terms. Kitzhaber didn't like the Republican plan to tie up the money in trust funds and wanted instead to spend the principal as it came in, directing most of it toward schools, with smaller portions devoted to health. State government picks up most of the tab for public schools in Oregon, making school funding a perennial battle since voters approved a limit on property taxes a decade ago.
The Republican trust fund plan is competing for ballot support with a proposition, sponsored by the Oregon Association of Hospitals and Health Systems, that calls for spending all the state's tobacco money, as it comes in, on health care for children and the poor. Because the health care industry is willing to put big bucks behind its proposal, this initiative likely will win a bigger majority than the legislature's plan. Oregon courts would then, presumably, follow precedent and declare the initiative with the higher vote total the winner.
Either way, health care will be the clear winner in Oregon, something that hasn't happened everywhere. But it won't be the entire field of health care: The hospital association has shown no evidence that it intends to share the money equally with such concerns as smoking prevention or mental illness.
Ohio's process was equally contentious. Attorney General Montgomery, a Republican, ended up happy with her state's allocation of its $10 billion tobacco payments. But despite the fact that her party dominates all branches of state government, it was messy getting there.
Putting big chunks of funding into school construction was clearly Ohio's most dire need. The state Supreme Court had ruled in 1997 that Ohio's school-funding formula was unconstitutional, so the state's scheduled tobacco money was immediately viewed as manna from heaven sent down to help resolve the school-funding crisis. Even public health lobbyists in Ohio were quick to concede that their projects would take a back seat behind school construction.
Newly elected GOP Governor Bob Taft quickly decided he wanted the bulk of the tobacco money to go to schools, and called in his first State of the State address in March 1999 for the creation of a bipartisan task force to go to work on the tobacco money.
The tobacco task force, made up of most of Taft's cabinet as well as the relevant leaders and chairmen in the legislature, met through the summer of 1999, finally releasing a plan, adopted with one dissenting vote, that would have set up seven separate spending accounts, for schools, health, support for tobacco farmers, and several other purposes. Democrats generally supported it.
But the carefully crafted deal reached a stalemate in the GOP Senate, where several Republicans felt the money should be returned to the citizenry through tax cuts. Their recalcitrance was enough, combined with a united, balky Democratic caucus (which didn't think the package provided enough money for health services), to hold up the legislation for months.
Attorney General Montgomery recalls wanting to "wring some people's necks" when the deal appeared to be going sour. But it was old- fashioned arm-twisting, not actual neck-wringing, that pushed the package through. Taft, knowing he needed to score major points on school funding with the Supreme Court, lobbied heavily to see to it that senators from his own party finally agreed to address the school- funding lapse.
In the end, the Senate approved a package that set up seven trust funds, along the model proposed by the task force, but with a shorter- term spending plan. Schools became the only guaranteed recipients of funding, with public health, law enforcement and Ohio's tobacco- producing communities having to settle for leftovers. The final bill also included a provision mandating tax cuts if more tobacco settlement dollars come into the state than were initially projected.
"Like any recommendations from a task force, the legislature isn't going to rubber-stamp the work," says Montgomery, a former state senator. "Each body is going to be jealous of its own obligation to debate allocation of these kinds of dollars."
Indiana did a much better job of avoiding partisan and special- interest warfare. Democrats and Republicans privately agreed on a non- aggression pact: The money would all go to health, but neither side would hail that as a partisan victory. (Democratic Governor Frank O'Bannon has, however, touted the $20 million in prescription drug assistance in his reelection campaign this year.)
Indiana had the luxury of choosing to keep all its tobacco money in health care because the state has for several years enjoyed one of the largest per capita surpluses in the nation; consequently, Indiana was faced with few overriding funding needs. And legislative compromise was achieved quickly because the two parties weren't all that far apart when they started off. Borst, a veterinarian and former smoker, was determined from the first to see all the money go to health care. Brown, who was carrying the governor's proposals, was more than willing to go along with Republican desires to put half the money into trust, and have all the spending controlled by autonomous non- political boards. This came as a blow to O'Bannon, who looked forward to having the funds distributed through the state Department of Health, but he signed the legislation nonetheless.
Indiana legislators like to refer to their decision to put all the money into health-related programs as "common sense." They also note that health remains a major problem that the state needs to grapple with. Hoosiers are the eighth-smokingest, twelfth-most-overweight population in the country. "Public health has been slighted in Indiana as much as any other thing I can think of," says Borst. "Down the road, 20 years from now, hopefully we're going to see the fruits from all these endeavors, and hopefully we'll have a healthier population."