View the State Rankings for Tobacco Prevention and Control Spending. 

• Key Findings: Smokefree Air
• Key Findings: Cigarette Taxes
• Key Findings: Youth Access
• Key Findings: Conclusion

Well-funded, sustained and comprehensive tobacco prevention and cessation programs have proven to be one of the best ways to combat tobacco use. Data from California and Massachusetts show that an investment in tobacco prevention programs results in dramatic decreases in tobacco use. For example, California’s comprehensive approach to smoking prevention and cessation yielded an astounding 14 percent decline in the incidence of lung cancer from 1988 to 1997 and smoking rates have declined more rapidly compared with the rest of the country.6 The very successful Massachusetts Tobacco Control Program released a study showing that from 1999 to 2002, Massachusetts reduced high school smoking by 29.7 percent and middle school moking by 13 percent.7 Clearly, thousands of deaths from tobacco use could be prevented and billions in medical expenses could be saved if all states made a long-term investment in a sustained campaign to prevent tobacco-related disease and death.

In 1998, the states sued the tobacco industry to recover Medicaid funds spent on tobacco-related illnesses
(see box on the Master Settlement Agreement). At the time, the states repeatedly asserted that their intent was to use these funds for health-related programs, particularly for persons suffering from tobacco-related diseases, and to prevent tobacco use and exposure to secondhand smoke. Five years later only six states—Arkansas, Indiana, Maryland, Maine, Minnesota and Mississippi—have committed significant funds toward tobacco prevention and cessation.8

Another disturbing trend emerged in 2002—faced with growing budget deficits, a number of states decided to securitize a portion of their tobacco settlement funds.9 In so doing, these states have opted to sell the rights to future annual tobacco settlement payments in the form of bonds, in exchange for an upfront lump sum payment. In most cases, funds  from the bond issues are disappearing to plug oneyear budget gaps.

Selling off 25 years of tobacco settlement payments to close a hole in a single year's budget is fiscal malpractice.

States that have securitized have received approximately 30 to 40 cents for each dollar anticipated under the Master Settlement Agreement (MSA). By securitizing, states are forgoing the bulk of the money owed to them. And this return may go even lower for future securitizers as the bond market becomes saturated with tobacco bonds and available capital is stretched thinner.

From a fiscal standpoint, filling a budget gap with tobacco bond proceeds is a mere bandage. By not addressing the underlying reasons for gaps between revenue and spending, states leave themselves open
to the same problem in subsequent years. Not only will there be no more tobacco money to securitize,
the annual MSA payment will go to bond holders, not to the state.

Massachusetts is one state that decided against securitization. The state avoided securitizing its future MSA
payments, instead overriding a gubernatorial veto and increasing the cigarette tax by $0.75 to $1.51, the highest in the nation. The tax increase is likely to raise $222 million a year, prevent 43,000 kids from taking up smoking and save $800 million in future health care costs. However, Massachusetts is unwisely cutting its highly successful tobacco prevention program funding by 88 percent.10

Program Funding: Bright Spots

Legislators in Arkansas, Indiana, Maine, Maryland, Minnesota, and Mississippi were able to look beyond
their immediate budget crises to see the fiscal wisdom of maintaining at least 90 percent of the industry settled the states’ Medicaid lawsuits for recovery of their tobacco-related health care costs. The industry committed to paying the states approximately $206 billion over the next 25 years. In addition, payments of $5 billion will be made to 14 states to compensate them for potential economic impact to their tobacco-producing
communities. Four states (Mississippi, Texas, Florida and Minnesota) settled their tobacco
lawsuits separately for a total of $40 billion over the next 25 years.

Program Funding: Work to Do

Unfortunately, 32 states and the District of Columbia received an F for program funding. In 2002, many state legislatures continue to raid their tobacco settlement funds. The worst example of this trend is Massachusetts, which cut its highly successful tobacco prevention program by 88 percent in the same year that it raised its tax to the highest in the nation. This severe cut will jeopardize a tobacco prevention program that is estimated to have saved thousands of lives and millions of dollars. (View Appendix C: The Tobacco Prevention and Control Spending Chart)

Program Funding: Looking Ahead

States still have the opportunity to live up to the promise made in 1998 through the Master Settlement Agreement by committing funding to tobacco prevention. Tobacco control is a sound investment for the future, one of the surest ways to enhance health and decrease health care costs. This choice between public health adn public finance is not a difficult decision to make.