N.C. spends settlement on tobacco, not health

When North Carolina won a $4.6 billion settlement from tobacco companies, officials said they'd use the money to break tobacco's grip on the state.

They would help smokers quit and stop kids from starting. They would wean farmers off the golden leaf.

But since the money began flowing in 1999, not a dime has been spent on new health services, and only a fraction has gone toward moving tobacco farmers into other crops.

Instead, about 73 percent of the $59 million spent so far -- about $43 million -- has gone toward production and marketing of N.C. tobacco, an Observer investigation has found.

"That's disgusting. This money is supposed to help prevent tobacco use -- not keep feeding the same old system," says Amy Barkley, a coordinator for the Campaign for Tobacco-Free Kids. "North Carolina is supposed to be moving away from its dependence on tobacco."

In a state where smoking rates already top the national average, an estimated 75,000 children under 18 have taken up the habit in the three years since North Carolina began collecting settlement payments.

Plans call for a $6.2 million teen tobacco prevention program beginning next year, but a state budget shortfall could jeopardize the effort. Even if the plan does get under way, the N.C. program falls far short of the minimum $43 million recommended for the state by the federal Centers for Disease Control and Prevention.

North Carolina is America's largest tobacco producer, and historically has depended on the controversial crop.

South Carolina, the third-largest producer, has aggressively spent its settlement money on health programs, though its outlays for prevention also fall below recommended levels.

"People are dying, and kids are becoming addicted every day," says Lynette Tolson of the American Heart Association's N.C. office. "How can we justify ignoring this?"

North Carolina's settlement spending has drawn criticism from health advocates and taxpayer watchdogs, as well as the state's mayors. A lawsuit challenges the distribution of money. Even Gov. Mike Easley, a key negotiator in the settlement, says he's uncomfortable with some of the spending.

The money is controlled by three citizen groups, appointed by top state officials.

One group -- the Tobacco Trust Fund Commission -- has accounted for most of North Carolina's settlement spending so far. It spent $41 million to reimburse tobacco farmers for equipment they needed to remain competitive.

The equipment reduces -- but does not eliminate -- harmful chemicals called nitrosamines created while flue-curing tobacco. Without the new machinery, N.C. farmers faced falling profits because most cigarette makers stopped buying tobacco high in nitrosamines.

Billy Carter, a Moore County tobacco farmer and chairman of the trust fund commission, said his group wanted to ease the latest blow to an industry already hurt by overseas competition.

"This was an expense that farmers couldn't plan for. All of a sudden, you had to produce a new product that required different equipment or you couldn't sell your tobacco," Carter said. "We thought it was important to help people in these economically stressed areas."

Carter collected about $25,000 from the reimbursement program funded by his board. Other commission members also likely received money from the program, said executive director William Upchurch. But the commission has not obtained records from the private farmers group, called the Flue Cured Tobacco Cooperative Stabilization Corp., that supervised the equipment program.

"If one or two individuals alone benefited from this program, that would be scandalous," Carter said, "but this was a very broad- based program that most farmers were eligible for. It was run by another agency. You had to have receipts to get reimbursement. There was no opportunity to defraud."

Gov. Easley, the son of a tobacco farmer, declined to say whether he objects to settlement money going toward tobacco production. But he did say he wishes the Tobacco Trust Fund money had been spent more wisely.

Easley has taken steps to divert $120 million from the 18-member commission, which includes 11 tobacco farmers.

"It appears that their general trend has been to give money to individuals rather than to invest in long-term economic development strategies," Easley told The Observer. "This money could be utilized as a real tool rather than simply serving as a Band-Aid."

In the 1990s, states began suing tobacco companies to recoup the cost of providing health care to people suffering from tobacco- related diseases. To avoid trials, the industry agreed in 1997 and 1998 to pay states $246 billion over 25 years. Additional payments will continue after that -- as long as the industry survives.North Carolina's share is $4.6 billion over 25 years. South Carolina's is $2.4 billion.

No requirements were attached to the money, but state leaders across the country -- including the Carolinas -- said they'd make tobacco prevention and health a top priority.

Many states haven't delivered. Only seven are spending the minimum amount for tobacco prevention suggested by the CDC.

Instead, states are using the windfall to balance budgets and for other projects -- from schools in Ohio to golf courses in New York to harbor repairs in Alaska.

The Carolinas took different approaches to settlement spending. Now, both states are abandoning some plans and using the money to ease severe budget shortfalls.

"When you get a big gift like this, everybody wants to put their hand in the pot," says James Cox, a spokesman for the National Conference of State Legislatures. "The legislatures have to weigh what's most important."

South Carolina, and a few other states, chose not to wait for annual tobacco payments. Like a lottery winner who wants the money immediately, these states took smaller upfront lump sums, selling bonds backed by the tobacco money to generate instant cash.

South Carolina netted $786 million from its bond sale in 2001, less than the $2.4 billion the state expected over 25 years. Officials worried that long-term payments might dry up if cigarette consumption fell.

"They wanted a sure thing" said Michael Sponhour, an S.C. spokesman. "There are a lot of things they wanted to accomplish, especially in health care. This gave them a way to get started."

South Carolina has spent aggressively on health programs. Lawmakers designated 73 percent for health care, and already the state has spent $191 million on new and existing services -- from infant screening, to sickle cell testing, to nursing home beds. The state's Silver Card prescription drug program for seniors is in its second year.

South Carolina has spent about $1.7 million annually on youth tobacco prevention -- far below the CDC's suggested $24 million.

With its tobacco roots, the state wanted to be particularly sensitive to farmers and communities dependent on tobacco.

Top elected officials -- including then-Gov. Jim Hunt -- proposed half the settlement go to health care and half to help tobacco communities move into new crops and businesses.

That split promised a balanced approach toward spending settlement money, Hunt said in 1998. "It will help us address our efforts to crack down on underage smoking and to protect the health and well-being of North Carolinians."

Easley, too, favored that 50-50 split. As the state's attorney general then, Easley was one of eight attorneys general who negotiated the national tobacco deal on behalf of states.

During negotiations, Easley made sure tobacco farmers would collect from cigarette makers, who allegedly withheld information about the health effects of smoking, allowing communities to become dependent on sales of a dangerous commodity.

As part of the settlement, Easley pushed through a requirement that cigarette makers sign a separate, private deal to pay tobacco farmers in 14 states $5.15 billion over 12 years. It pays about $1.95 billion for N.C. farmers.

With farmers taken care of, Easley and Hunt lobbied for an even split of the $4.6 billion public settlement money: half for health, half for economic transition.

N.C. lawmakers had other ideas. They agreed to designate half the settlement for economic transition and created the nonprofit Golden LEAF (Long-term Economic Advancement Foundation) to oversee that money.

Faced with protesting farmers, who lined tractors along capital streets, lawmakers allocated the remaining 25 percent to help keep tobacco farmers afloat. Most of those farmers already stood to benefit from the separate, private payments from cigarette makers.

To oversee the public money for farmers, lawmakers created the Tobacco Trust Fund Commission, appointed by Hunt and other top state leaders. The commission got little steering on how to spend its money, Easley said.

"The Tobacco Trust commission was created without as much thought and planning as the (health) board and Golden LEAF," Easley said. "As a result, members of the board walked into the board room with $100 million and no guidance. That is recipe for sub-par performance."

The tobacco commission can freely spend its settlement money -- unlike the other two oversight groups, who are limited to spending a portion of their settlement money or only interest it earns.

The tobacco commission also spent $1.3 million for a tobacco marketing center near Asheville. Without a central auction house, tobacco sales in Western North Carolina have nose-dived. The new center aims to keep farmers in business by attracting buyers to a thriving auction house.

"(Farmers) were having to go to Tennessee to sell their product," says Upchurch, the tobacco commission's executive director. "They needed some help."

In April, Easley used his emergency powers to divert a $30 million settlement payment from the tobacco commission to the general fund. Facing a $2 billion budget shortfall, Easley this month took an additional $50 million from the commission's $58 million account -- effectively killing its ability to start new programs.

"We're disappointed," said Carter, the tobacco commission chairman. "When the legislature was divvying up this money, they thought it was a good use for some to go to an industry that has been in the tank a lot longer than this sudden dip in the economy."

Easley's proposed budget also calls for diverting next year's $40 million settlement payment from the tobacco group.

Commission members had hoped to give much of their allotment directly to tobacco farmers. But a recent N.C. State University study showed tobacco farmers have already been well compensated for their losses -- thanks to the separate, private payments pushed through by Easley.

The tobacco commission isn't the only group spending settlement money on projects that boost tobacco.

Golden LEAF -- created to oversee economic development and transition -- spent $400,000 to help entice a tobacco processing plant and its 1,100 jobs to Nash County. It also awarded small grants for projects that commemorate tobacco farming, including a tobacco farm life museum, a tobacco farm tour, and a newsletter that tracks tobacco market trends.

Overall, Golden LEAF has spent $15.9 million, primarily for alternative crops, education and economic development projects in poor and tobacco-dependent communities.

Projects range from a $1.9 million grant to train workers for a new Franklin County technology company, to a $200,000 award for horse shows and racing in Hoke County. About $6.5 million has gone toward alternative crops and livestock -- such as tofu, medicinal herbs, and peppers so hot they can be used for insecticide.

Golden LEAF, which receives hundreds of requests each year, can grant money only to other nonprofit or government groups.

Some have criticized Golden LEAF's projects, arguing that settlement money should go back to taxpayers for basics.

"Now is not the time to be creating new services," said Beau Mills of the N.C. Metropolitan Coalition of mayors. "The settlement was to pay back costs the taxpayers bore for medical expenses related to tobacco. The legislature should use those funds to balance the budget instead of taking money that goes to cities for police and fire protection and roads."

So far, budgeters have left Golden LEAF's funding intact, although the Senate proposes intercepting half of its $80 million settlement payment next year.

At the opposite end of the state's settlement spending, North Carolina has spent just $888,544 on health issues.

Most went to rescue a prescription drug program for 2,000 seniors that ran out of money this month. The rest went to planning two new health services: A $35 million prescription drug program for 100,000 seniors could begin this fall, unless lawmakers take the money to balance the budget. And the $6.2 million youth tobacco prevention program is expected to begin in January -- three years after the state began getting settlement payments.

Easley already has diverted a $30 million settlement payment designated for health programs. More significant cuts would require scaling back the drug and tobacco prevention programs, expected to run for three years.

"The health groups have a right to be livid," says one tobacco company representative who was involved in settlement talks and spoke only on the condition of anonymity. "We've got this terrible problem with young people smoking, and that's what the states said they wanted the money for -- to fight health problems caused by smoking."

N.C. teens smoke and use tobacco at higher rates than the national average: 38 percent of N.C. high school students use some form of tobacco, compared with 35 percent nationally. The gap is similar among middle school students: 18 percent of N.C. students use tobacco, compared with 15 percent nationally.

Yet the state's tobacco prevention efforts ranked last -- along with Michigan, Tennessee and Washington, D.C. -- according to a 2001 study by the Campaign for Tobacco-Free Kids.

Health advocates never expected North Carolina to spend $43 million on tobacco prevention, which the CDC says is the minimum necessary for an effective program in this state. A coalition of N.C. health groups spent two years drafting what they considered a more realistic $25 million prevention plan -- then saw it slashed to $6.2 million.

California and Massachusetts have dramatically cut smoking and tobacco-related disease rates over the last decade. Florida's three- year campaign cut smoking in high school by 47 percent. Mississippi cut high school smoking by 25 percent in two years. The states used comprehensive anti-tobacco programs in schools, businesses, church and civic groups, and through advertising.

"We've seen dramatic results in other states," says William Corr, executive vice president for the tobacco-free kids campaign. "The sad truth is that North Carolina's leadership is turning its back on a large group of kids."

Way to go North Carolina! I think this whole lawsuit was a shakedown for tax revenue and nothing else. Glad to see someone make a gutsy move with the money! If they really thought tobacco was that bad, they should have banned it!

Tobacco Companies should sue the states governments for fraud, cease payments from the settlement, and demand repayment for the monies already paid out. Not a single government has used dime one for the purposes that were agreed to and promised in the settlement.

If it was an industry other than tobacco, they would probably have a pretty could 'fraud' case.

I heard on the news recently, FNC I think, that this settlement was the largest transfer of wealth in the history of mankind. And the lawyers certainly got their fair share!

If they really thought tobacco was that bad, they should have banned it!

I'm with YOU!

Seriously, I believe that government is more addicted to tobacco (the tax money) than smokers are to tobacco.

If cigarettes were banned tomorrow, or cigarette companies decided they werent going to take it any more and shut down operations, who do you think would have the biggest negative reaction... Smokers denied their addiction, or governments denied BILLIONS of dollars?

My money is on Government.

This whole tobacco thing was about lawyers reaping large paydays and politicians reaping new, non-tax monies to spend on whatever......

The health issue was the last thing they gave a crap about.

Your so right!

I have so many links about how the Government is Addicted to the Tobacco Money, it's sickening.

BRAVO TO NORTH CAROLINA!

If the truth be told it is not surprising that the monies from the settlement were not spend on health issues. The only reason North and South Carolina joined the litigation was so that they could lessen the impact to the tobacco industry by working from within.

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