Old Money, New Decisions in Oregon


Almost a decade after balancing its budget with millions of dollars earned off the massive nationwide tobacco settlement reached in 1998, Oregon lawmakers have a second chance this year to put the settlement money to different use.

And as the legislature began its 2013 session this week, policy makers and advocates around the country were already mobilizing to help lawmakers decide how to spend the nearly $140 million in newly available funds.

Oregon is believed to be the first state to emerge from the controversial tobacco settlement bond arrangement many others entered in recent years. Advocates see it as a critical test case and a second chance to ensure scarce funds go to programs they say they were intended to support in the first place.

The $140 million in question in Oregon is the bulk of what the state receives from the tobacco lawsuit settlement, which nearly every state and federal officials reached with cigarette manufacturers in 1998. That settlement directed nearly $250 billion to states over the coming decades, money that was intended – although not required – to be used to curb tobacco use and other health initiatives around the country.

But as Stateline has reported and the Campaign for Tobacco Free Kids has documented, states used those funds in myriad ways. Some mounted anti-tobacco campaigns credited with reducing smoking nationwide. But others used the funds to plug budget gaps or offset cuts in other areas. Some even directed payments to tobacco farmers, rationalizing that efforts to reduce smoking would harm a key economic driver in their state.

Others, though, engaged in what quickly became one of the more questionable and controversial use of the funds: Issuing bonds against the future settlement payments paid each year. States effectively mortgaged those future payments, making the money available sooner but also paying bondholders and interest in the meantime, an arrangement that siphoned dollars away in the process.

That’s where Oregon comes in. Like in many states, lawmakers issued bonds against the settlement to balance the state budget. Since 2003, some of the state’s settlement funds (as much as $140 million per biennium) have gone to repay bonds issued early last decade to close the state’s budget gap.

That debt will be paid off later this year, making Oregon the first state advocates have identified to emerge from a tobacco bond arrangement.

The repayment means the state will have a bulk of its tobacco settlement funds available for the first time in a decade. That’s welcome revenue to a state that, like most others, has faced budget shortfalls in recent years, most recently a $3.5 billion deficit in the previous cycle. The coming budget year the state is forecast to actually have a $220 million surplus.

Despite the rosier overall picture, though, how the funds will ultimately be spent remains an open question. The legislature began work just this week and isn’t expected to get into details of crafting a budget until next month at the earliest.

Meanwhile, Governor John Kitzhaber has already proposed directing the funds to the Oregon Health Plan, the state’s public health program for low-income residents that covers hundreds of thousands.

Others ideas include boosting the state’s anti-tobacco efforts, a purpose in line with the original goal of the settlement. That’s how advocates at the national Campaign for Tobacco Free Kids and the state-based Smoke Free Oregon would like to see the funds spent.

Research from Smoke Free Oregon shows the state’s current efforts of $7.7 million each year are almost one-fifth below what the Center for Disease Control recommends, and none of the settlement funds currently support those ends. Smoke Free Oregon is hoping the newly available funds will support those efforts.

But even in a state with a stable budget outlook and a track record of supporting anti-tobacco efforts, the effort could prove a challenge, as it has most everywhere around the country.

The Campaign for Tobacco Free Kids has delivered scathing annual reports since the settlement funds began flowing, faulting officials nationwide for not making best use of available dollars. The results have proven so dismal the campaign calls its annual reports “Broken Promises.”

In its most recent report, the Campaign says less than 2 percent of nearly $26 billion in tobacco settlement and tax revenue that states will collect in the current fiscal year will go toward anti-tobacco efforts.

What’s more, the report says most states have failed to reverse cuts enacted during the recession that slashed hundreds of millions of dollars from anti-tobacco efforts, leaving funding levels essentially flat compared to what they were five years ago. Overall, states are spending about 12 percent what the Center for Disease Control says they should be on their anti-tobacco efforts.

That record of disappointment, though, is what has advocates focused on Oregon as it prepares to essentially have a replay of the debates that took place in many states when the settlement funds were first made available more than a decade ago. The Democratic-controlled legislature and the governor, also a Democrat, aren’t expected to finalize budget plans until May, however, leaving plenty of time for proposals to be offered and advocates to lobby.

But as they undertake those efforts, advocates hope a decade’s worth of bond payments and countless other examples from around the country serve as a warning for any who might propose tapping settlements for other purposes or to offset spending elsewhere.

To that end, they also have another cautionary example to draw upon. While Oregon will be out from under one bond arrangement this year, another set of tobacco settlement-backed bonds issued early last decade is still on its books, costing the state about $30 million every two years. Those bonds support Oregon Health and Sciences University, a purpose not entirely removed from the public health ends envisioned by settlement advocates.

Still, the arrangement is an illustration of the extended effect decisions on the tobacco funds can have. Those bonds won’t be paid off until 2023.


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