Focus Report, Volume 76, Number 5, February 1999 Page: 11
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House Research Organization
Page 11
Financial Windfall: Tobacco Settlement Funds
In March 1996, then-Attorney General Dan Morales
filed a lawsuit on behalf of the state of Texas against
major Amercan tobaccocompanies. Thawsuit sought
to recover billions of tax dollars the state had spent to
treat Medicaid patients who suffered from tobacco-
related illnesses. The suit alleged that the industry had
violated both state and federal laws, including
conspiracy, racketeering, wire fraud, mail fraud,
consumerprotection, and antitrust laws.
In.July.1099. Texas finalized a settlement ofthe
lawsuit:that:ultimatel awarded the state a total of
$17.3billion over the next 25 Years. Nearly $2.3
billion of:this will be directed to certain counties and
hospital districts. As of January 8, 1999, payments
totaling $1.1 billion had been deposited to thestate
General Revenue Fund, and the state is expected to
receive another $689 million during fiscal 2000-01.
On average, the state can expect to receive about $
billion per biennium til the fu amun e
HB 1, the filed version of the fiscal 2000-01 budget
bill, groups the tobacco settlement funds in Article 12.
The distribution of funds resembles the spending plan
outlined in a February 1998 memorandum of
understanding among Sen. Bill Ratliff, Rep. Rob Junell,
and Morales, although the budget bill would award
funds to a larger numberofprograms.The billproposes
spending 11.768 billion in settlenient funds, the full
amount the state is scheduled to receive through fiscal
2000-01, as follows:
- $179.6 million to fund the Children's Health
Insurance Program (CHIP);
.$200 million for a pilot project to fund smoking
cessation and anti-tobacco education programs and
enforcementfor juenile-related anti-smoking laws;
* $150 million to create a Permanent Fund for
Children and Public Health, an endowed source of
funding for children's health programs and public
health services;
$400 million to create a Permanent Health Fund
r6 Higher Education,4an endowment for medical
researchandth ogam- $555million for the University of Texas M.D.
Anderson Cancer Center and various public medical
schools;
* $100 million for an EMS/Trauma System
Endowment and $35 million for hospitals and
facilities for the Texas Department of Health; and
$148.5 million for programs supporting rural
hospitalslong-term health are for children, public
nempl oye ealth-benefit plansand other initiatives,
iluding$3 million for operating costs of the Texas
Healthy Kids Corporation.
About$2.275 billion of the settlement will be
deposited in a permanent trust account from which
Texas.counties and hospital districts will be reimbursed
for costs associated with indigent health care.Hospital
districts and counties had intervened in the settlement,
claiming that it would have barredthenfrom obtaining
separatedaages for all the tobacco-related indigent'
health caredthey have provided
On January 4, 1999, the tobacco industry paid the
state $300 million, which was distributed on a per-
capita basis to counties and hospital districts. These
entities will receive supplemental distributions of
$100 million in January 2000 and $50 million in
January200I1 whilethe corpus of the trust fund is
growing. Futue disbursements will be based on each
entity's unreimbursed expenditures for indigent health
care.
Spending the settlement funds will depend on
direction by the Legislature, which may choose to
change the budget proposals and ignore agreements
made:duringthe settlement negotiations. Many
health-care providers and consumers will advocate
dedicating settlement funds tofinancing health-care
programs and education since the lawsuit was based
on thestate's *health-cate costs caused by smoking.
Other public benefit:programs may request settlement
funds to help compensate them for costs stemming
from tobaco-related diseases.Legislators also may
feel pressure to use settlement funds to finance other
state programs, since these funds are not subject to
the constitutional cap on spending nondedicated
general revenue.
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Texas. Legislature. House of Representatives. Research Organization. Focus Report, Volume 76, Number 5, February 1999, periodical, February 4, 1999; Austin, Texas. (https://texashistory.unt.edu/ark:/67531/metapth641172/m1/11/?q=%22~1~1%22~1: accessed July 16, 2024), University of North Texas Libraries, The Portal to Texas History, https://texashistory.unt.edu; crediting UNT Libraries Government Documents Department.