Oregon Putting All Its Declining Tobacco Settlement Funds into Health Expenses

The state is still putting less than 10 percent of the money toward tobacco prevention that it receives from Philip Morris and R.J. Reynolds after they agreed to settle a 1998 lawsuit to avoid a court ruling. The state received just $158 million from the tobacco companies, down almost 25 percent from a $208 million payout in 2011.

For the first time, Oregon will use all of its $158 million biennial tobacco master settlement for healthcare-related expenses, and not divert the money to pay for other projects.

The bulk of the funds will be geared toward the Oregon Health Plan, which will receive $102 million. The state will spend $4.1 million on tobacco prevention and cessation programs as well as $4.1 million in grants for physical education programs at Oregon schools. The Oregon Health Authority will pay for $16 million of its budget for community mental health programs with money from the settlement.

The state is using tobacco money to fill a large majority of the $22 million in increased commitments to community mental health that have been laid out in the next Addictions and Mental Health budget.

The Department of Justice will get $1.4 million for enforcement of tobacco laws. The remaining $30.9 million will be used to pay down bonds issued to Oregon Health & Science University.

The 2015-2017 allocations were approved by the Senate on a 27-2 vote Thursday evening, with just Sen. Brian Boquist, R-McMinnville, and Sen. Kim Thatcher, R-Keizer, opposed; the House approved the package 51-6 on Wednesday evening, with a handful of the most conservative Republicans opposed.

The tobacco master settlement comes from an agreement the four largest cigarette manufacturers made in 1998 to settle lawsuits with state attorneys generals over the decades the companies spent engaged in deceptive advertising about the health hazards of cigarettes and the deliberate marketing of these highly addictive, carcinogenic products to children.

“The tobacco companies agreed to make payments to the states in perpetuity,” said Rep. Greg Smith, R-Heppner.

The settlement dollars are down considerably from the last biennium, when the state received $186 million, and legislators were unable to explain why the money has been in decline.

“It’s very complex. There has been some overpayments to some states,” said Sen. Richard Devlin, D-Tualatin, adding that the state could regain funding from this source in the future.

The state had $208 million from the tobacco companies to spend in the 2011-2013 budget, back when the state was putting the bulk of the funds toward paying off debt that had little to do with healthcare, let alone tobacco prevention.

Almost all of the lost dollars went toward paying down old bonds from the first Bush-era recession. “When we received our first payment back in 2003, we had taken the whole thing to get half a million in bonding just to pay our bills,” said Sen. Alan Bates, D-Ashland.

The money dedicated toward the state Medicaid program is actually more than three times historic levels, while until last session, Oregon had never put any of it into tobacco prevention. Money for that purpose was increased by a slight amount -- $120,000 -- from the budget that just expired.

Bates said there’s been a constant battle with the tobacco manufacturers to put in their proper funding, and he said the number was based on how many packs of cigarettes are sold in Oregon.   

The physician-senator from Ashland said that putting the money toward health programs like tobacco prevention and the Oregon Health Plan not only is good public policy but sound economic sense, because the state can then triple those dollars with federal matching funds.

When it uses that money to borrow cash for OHSU or general obligation debts, not only is the state forced to pay interest, it receives no help from Uncle Sam.

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