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Sun October 13, 2013
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15 Years Later, Where Did All The Cigarette Money Go?

Originally published on Tue October 15, 2013 11:12 am

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.

Copyright 2013 NPR. To see more, visit http://www.npr.org/.

Transcript

ARUN RATH, HOST:

It's ALL THINGS CONSIDERED from NPR West. I'm Arun Rath.

LUISA SANTA: So number one, I would like to start with - if you open up your folder - with Just the Facts. Just the Facts talks about how many chemicals are inside a cigarette.

RATH: In the basement of Anaheim Regional Medical Center, Luisa Santa is teaching the first of a five-part class for people who want to quit smoking.

SANTA: So go ahead and take a minute or two to write down maybe one or two reasons why you want to quit, and we'll talk about them in just a bit.

RATH: This class is free for anyone living or working in Orange County, California. 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.

SANTA: OK, guys. So let's go ahead and talk about one or two reasons why you're here, why you're considering quitting smoking. Let's go ahead and start with Susan.

SUSAN HALLOCK: My health, it's embarrassing. I feel ashamed. I feel like I have to hide my hand with a cigarette in it from people because I don't want them to know I'm a smoker.

SANTA: Hmm. What about you, Joanne(ph)?

JOANNE: Well, for me, I'm worried if I don't stop smoking now that I might get sick later.

RATH: Every year since 1998, this program has been funded by some of the more than $100 billion tobacco companies have paid to state governments as part of a 25-year, $246 billion settlement plan. Here in Orange County, voters have mandated that 80 percent of the county's money from tobacco companies is spent on smoking-related programs like this class.

SANTA: Any questions, ladies? OK. Thank you so much for...

RATH: But Orange County is an outlier. Fifteen years after what is still the largest civil litigation settlement in U.S. history, it's unclear how most state and local governments are using their share of the tobacco money. And that's our cover story.

(SOUNDBITE OF MUSIC)

RATH: 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 had failed because courts held people responsible for their decision to smoke, but Moore argued the state shouldn't be forced to pay the cost of treating smoking-related illnesses. Here he is speaking to NPR in 1994.

(SOUNDBITE OF ARCHIVED BROADCAST)

MIKE MOORE: Things such as lung cancer, heart disease, emphysema, low-birth-weight babies and others, we have to pay. 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, and we think the tobacco companies should pay their fair share.

RATH: Tobacco companies should pay for medical bills, he argued. And eventually the courts agreed. The settlement also meant the end of cigarette ads and targeting youth.

Remember Joe Camel and the Marlboro Man? If not, it's because they were killed off in the '90s. The settlement left the tobacco companies immune from future state and federal lawsuits. Looking back today, Mike Moore remembers a long slog.

MOORE: It was not an easy task. Some people that are spending the money these days from the settlement think the money just fell out of heaven. But, you know, when we filed our case here in 1994, you know, my governor actually sued me to try to stop the tobacco case. The tobacco companies sued me to try to stop the case. Went all the way to my Supreme Court.

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

(SOUNDBITE OF TRUTH ADVERTISEMENT)

UNIDENTIFIED MAN #1: ...big tobacco manipulated nicotine levels. But too much nicotine can make you sick.

UNIDENTIFIED MAN #2: That's why they need the magical amount.

(Singing) Too much nicotine might make you sick, not enough you might quit and walk away.

RATH: The tobacco settlement included money specifically to fund PSAs like that one, but Moore says most of the settlement money came with no strings attached. The states could spend the tobacco money however they wanted, and it was impossible to hold them accountable.

Colorado has spent tens of millions of its share to support a literacy program. Kentucky spent half of its money in agricultural programs. In Mississippi, says Moore, a lot of the settlement money was spent on things other than smoking prevention and health care.

MOORE: The state put all the money in a trust fund. But what happened as the years go by is that legislators come and go, as you know, and governors come and go. We got a new governor, and he had a different opinion about the tobacco trust fund, and some new legislators, and they had some different opinions. So a trust fund that ought to have two and a half billion dollars in it now doesn't have much at all. And it's not just Mississippi, but all across the country.

So many hundreds of millions of dollars have gone to states, and the states have made choices not to spend it on public health or tobacco prevention, which is what we fought these lawsuits about. And that's my biggest disappointment.

RATH: And how does this sort of boil down to per individual smoker in Mississippi? You know, how are things different for him or her in terms of quitting, getting health care than they were all those years ago?

MOORE: Things are good actually from that standpoint. We spent a lot of money on tobacco prevention programs in the early years. I continued to be attorney general until 2004. And until that time, we had a very robust prevention program that reduced teen smoking by over 50 percent in just five years - its first five years. And we actually reduced adult smoking by about 25 percent, which was a remarkable thing.

Those things have slowly drifted back the other way, but, you know, teen smoking's still down about 50 percent, which is amazing. And it's that way most of the country too. We need to continue the vigilance. We've got new products coming out, e-cigarettes and the like. So we've got the money to do, you know, do something about the problem. We just need to talk the states back into spending some money to do something about it.

RATH: Mike Moore, former attorney general of Mississippi.

Myron Levin covered the tobacco industry for the Los Angeles Times for many years. He says talking states into spending settlement money on tobacco prevention is tough.

MYRON LEVIN: There was the feeling that there was definitely a moral obligation to spend at least a sizable chunk of money on programs to help people quit smoking and to prevent kids from starting, you know, to show this was not just a big money grab. So it was understood without being codified into the agreement that states would make a big investment in this. And, in fact, they haven't.

RATH: 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 into anti-smoking programs. Again, Myron Levin.

LEVIN: What the states have actually done in the last 15 years has fluctuated somewhat year by year according to financial cycles and political ones, but it's never come close to 14 percent. There are some fairly notorious cases of money being used for fixing potholes, for tax relief, for financial assistance to tobacco farmers. There are states that don't have any money coming in anymore because they securitized their future payments, sold them off to investors and got a big lump sum covering a portion of what they were to receive and just dumped it into general fund.

RATH: Myron, I remember back at the time of the settlement - and again, it was such a huge amount of money - people were saying, oh, this is going to kill the tobacco companies. There's going to be no more R.J. Reynolds or Philip Morris. These guys are - they're done.

LEVIN: No. When you are supplying the most widely used addictive product in the world, you have certain advantages. And they have done a terrific job of covering their bases by moving into products such as smokeless and now electronic cigarettes, which not only provide the opportunity for big sales in the future, but may neutralize, in some respects, the effect of all the public smoking bans that exist, because if, in fact, you can sustain your nicotine dependence during the day without offending people or being thrown out of the building, by smokeless tobacco or using electronic cigarettes, you're less likely maybe to be able to quit. So for all these reasons, I mean, I think they really landed on their feet.

RATH: And in terms of marketing, one of the other parts of the settlement involved tobacco advertising. How have things changed, and how have the tobacco companies adapted?

LEVIN: Well, that has changed a lot. The settlement took out billboard ads, it took out some conventional forms of advertising. Really most of their so-called advertising dollar went into unconventional forms. And that's kind of saturating the retail environment, the counter of the store and buying shelf space in supermarkets.

So if you go into a major grocery store and you look at the array of cigarettes, it's no accident that, for instance, all the Philip Morris brands are on the top at eye level or all the Reynolds brands are on top because they paid for that. So a lot of what is called cigarette advertising is not the old-style cigarette advertising.

RATH: So how would you track this as - just looking in terms of how between the taxes and the other disincentives for smoking, has it been generally successful do you think?

LEVIN: I think it depends on your definition of success. I think that there are fewer cigarettes being sold and smoked today than there would've been if none of this had happened. You're certainly down now to where a lot of the people probably that can be reached with an anti-smoking message have been reached. And you get down to a harder core of people who probably aren't going to quit because they're young and they want to take chances. They don't think they're ever going to die. There is a disproportionate number of smokers who have mental illness.

One other effect that I think the settlement had kind of indirectly, long after the settlement was reached, a legislation was introduced to give the FDA authority over tobacco products. They got that in 2009 in a bill that Obama signed. Something that could happen is they could ratchet down the allowable levels of nicotine in cigarettes to a level that is essentially non-addictive. That would be a total game changer.

RATH: Myron Levin is the founder of the health and safety news site FairWarning. Non-addictive cigarettes would be a game changer for people like Susan Hallock back in Orange County. She desperately wants to quit.

HALLOCK: I feel ashamed. I feel like I have to hide my hand with the cigarette in it.

RATH: But the nicotine keeps her coming back over and over.

HALLOCK: I'll smoke about a few - like six to eight months, then I'll quit, or I'll smoke a month and quit. It just - it's just different every time.

RATH: She's hoping this time with this free class, she'll be successful. And she has a real chance. This program has a 50 percent quit rate for adults like Susan. Transcript provided by NPR, Copyright NPR.

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