NCPA - National Center for Policy Analysis


August 12, 2005

Last week, the Competitive Enterprise Institute (CEI) filed suit challenging the 1998 tobacco settlement on constitutional grounds. The CEI believes the deal, reached between a bloc of 46 states and the country's largest tobacco companies, violates the Compact Clause found in Article I, Section 10 of the Constitution: "No State shall, without the Consent of Congress . . . enter into any Agreement or Compact with another State."

According to Investor's Business Daily (IBD) the $246 billion tobacco settlement was supposed to be used to treat tobacco-related illnesses and for antismoking education. Instead, many states have spent the money on other things:

  • Five states plus the District of Columbia have yet to commit their first dollar of the settlement to prevention, and another 15 have spent the minimum.
  • Since the program began, only 3 percent of settlement funds have been spent on prevention.
  • States have done better when it comes to health-related spending, accounting for about 33 percent of the funds spent this year.
  • But they're still shortchanging those they said they'd help, and last year spent a mere 19.8 percent.

Where's the money going?

  • Nearly half (44 percent) of last year's payment was used to offset budget shortfalls, and more than a third (36 percent) was used for the same purpose the year before.
  • When Gray Davis was governor, California sold $2.4 billion of its share to balance the budget; but the Golden State has hardly been alone in turning future income from the deal into immediate cash -- at a large loss.

For their part, tobacco companies have had to raise prices to pay for the sham settlement. No big deal, say nonsmokers. But wait: Once the lawyers and politicians who fleeced Big Tobacco target another industry, it'll be more than just smokers who'll get burned, says IBD.

Source: Editorial, "Up In Smoke," Investor's Business Daily, August 12, 2005.


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