The struggling economy has prompted several states to use money from their share of the recent tobacco settlement agreement to fix budget deficits.
In 1998, the tobacco industry and state governments reached a $206 billion settlement. Wisconsin sold its 25 year, $5.9 billion tobacco settlement payment in exchange for an immediate $1.3 billion deal. Of that money, $450 million will be used to help balance the budget.
In a similar move, Tennessee spent $560 million of its tobacco payments toward paying off the state’s debt.
Since the terrorist attack, several other states have also decided to use the tobacco settlement money, including Gov. Bob Taft of Ohio, who recently proposed putting $100 million of their tobacco settlement money toward balancing the budget. Missouri has used $127 million over the past two years, and Michigan and Montana have made similar moves. Lawmakers in Hawaii and Florida are also considering similar deals.
State Budget Director David Schmiedicke said other reasons exist for taking immediate money besides budget shortcomings
“The reason why Wisconsin and other states have taken the money is that it is a protection against a somewhat uncertain revenue stream,” Schmiedicke said.
Debbie Monterrey-Millet, a spokesperson for Gov. Scott McCallum, said because the state is planning to invest about $650 million of the tobacco settlement money, the state could eventually receive higher returns than they would had they taken the yearly payments. Wisconsin will also not need to rely on the tobacco companies for the money over an extended period of time, protecting the state from economic loss.
“If we didn’t do something, we would be waiting the next 30 years for payments,” Monterrey-Millet said. “With our deal, we don’t have to count on the tobacco companies being extremely successful.”
Although much of the money is going toward the budget or being invested, $33.2 million of the money is being used for anti-smoking commercials. Monterrey-Millett said anti-tobacco groups have been very supportive of the way the governor has handled the tobacco settlement money.
Monterrey-Millet said because McCallum realized months ago Wisconsin was headed for difficult economic times, they were already in the process of finding a solution, including the use of the tobacco money.
“About 40 of 50 states are now facing serious economic problems,” she said. “Governor McCallum started working on this problem very early, so going into an economic slowdown we’re ahead of other states.”
Monterrey-Millet said McCallum would like to use more of the money for anti-smoking programs, but such a move is impossible given the state’s fiscal situation.
“Would the governor prefer we didn’t have to use the money for balancing the budget? Absolutely,” Monterrey-Millet said. “But you have to deal with the cards as they are dealt.”
Although Wisconsin has not yet finalized the deal, Schmiedicke said the process should be completed within the next few months, after which the state would receive the money.
UW political science professor Don Kettl said while McCallum was originally criticized for accepting the short-term deal, the recent economic downturn has made the move more appealing.
“If the legislature had to do it again, they would probably be tempted to dig deeper into the tobacco money,” Kettl said.
Although the immediate money corrects the temporary deficit, the long-range economic implications for the state are still uncertain.
“Wisconsin is going to have to confront all of this down the road,” Kettl said. “It will start next spring, and blossom after the 2002 November gubernatorial election.”
