Where Did It All Go? A Windfall of Money from Tobacco Companies – but None for Prevention.

Since 1998, the US Justice Department, and 46 States Attorney General have been collecting the sum of $10 billion per year from the tobacco companies.  One would think that by being forced to give a large portion of your profits to the US government, the days of Big Tobacco should have ended years ago.

The issue then comes to this question – where is all of this money going?  Tobacco prevention programs state to state?  Well – no.  According to the web site Public Health Law Center, the states have been collecting record amounts of money from tobacco companies – but over the past 20 years, only one state – North Dakota, even funds a tobacco prevention program at have the level that the CDC recommends. 

The Master Settlement Agreement (MSA) came about due to the law suits from several different states against manufacturers such as Philip Morris, RJ Reynolds, Brown and Williamson, and Lorillard to recover a portion of the healthcare costs that the states and the Federal Government were paying for tobacco-related illnesses – usually covered by Medicare and state Medicaid mechanisms.  So – in 1998, these states entered into the largest litigation settlement in US history.

In lieu of making payments to individual families and class action groups, the MSA manufacturers agreed to make annual payments “in perpetuity” to the Settling States to compensate them for taxpayer money spent on healthcare costs related to tobacco illnesses.  The MSA sets the standards and imposes restriction on the sale and marketing of tobacco programs and company conduct. 

The companies have been paying a base amount per years with increasing costs.  Starting in 2000, it was $4.5 billion, then $6.5 billion a few years later, then $8.4 billion up to 2017, and this year - $9 billion.  The calculations are complicated, as the money is spread around to different types of payments, adjusted for inflation, etc.  The MSA also regulates the use of marketing (billboards, cartoon characters, free samples, branded merchandise, etc.).  Also – it creates a prevention foundation (called the American Legacy Foundation) that focuses efforts on preventing teen smoking and encouraging smokers to quit.   All enforced by States Attorney General. 

Again – it begs the question – where is all of this money going?  Because it’s certainly not going for youth programs.  In the executive summary of the Broken Promises Report (5), they state that in the 2015 fiscal year, states collected $25.6 billion in revenues from tobacco settlement and taxes.  They only spent 1.9% - $490.4 million – on programs to prevent kids from smoking and to help smokers quit. 

The state’s failure to fund tobacco prevention and cessation programs is undermining the nation’s efforts to reduce tobacco use – the number one cause of preventable death in the US.  It is also indefensible given the conclusive evidence that such program work to reduce smoking and save lives, but also to reduce tobacco-related health care costs.  These costs total about $170 billion per year according to a report from the CDC. 

However – according to this Broken Promises report – the State of Florida saw a drop in teen smoking to a low of 7.5% in 2014 – one of the lowest state levels ever recorded.  Florida is well funded, but if they have the same percentages as national that are allocated to prevention, then what is the cause of this drop? 

I believe it has a lot to do with vaping.  E cigarettes came into vogue around 2005, and since then, the concept of vaping and using devices such as JUUL have transplanted cigarette smoking as “the new cool” for those who are into the smoking scene.  Companies such as JUUL state that they are committed to reducing cigarette smoking, and their take is that 98% of all tobacco related heart and cancer incidences are related to the burning of tobacco products – not the nicotine inherent to the cigarette itself.  They point to coffee, which has caffeine in it (a sister herb to nicotine) and that used as a stand-alone product, nicotine does not produce the carcinogenic effects and the use of cigarettes do.   Vaping companies state that they want to be part of the solution

In a personal communication with Dr. Brad Rodu, professor at University of Louisville, who has been involved with tobacco control research since the early 1990s, he states that in recent reports, the use of e-cigarettes was the second-most used method for quitting cigarettes, behind help from family and friends.  They are used now by Americans more often than NRT products or prescription drugs, which many think have far more problematic side effects than the nicotine associated with vaping.

Studies show that California, which has the nation’s longest-running tobacco prevention and cessation program, has saved tens of thousands of lives by reducing smoking-caused birth complications, heart disease, strokes and lung cancer. Lung cancer rates in California decreased by 33 percent from 1988 to 2011, while rates in the rest of the U.S. decreased only 11 percent from 1988 to 2009. Researchers have associated the declines in lung cancer rates with the efforts of California’s program.   A February 2013 study in the scientific journal PLOS ONE found that, from 1989 to 2008, California’s tobacco control program reduced health care costs by $134 billion, far more than the $2.4 billion spent on the program.

The tobacco industry is ultimately and directly responsible for cigarette marketing and contends its efforts are not directed towards attracting new smokers.  According to Phillip Morris, Inc., ‘Our marketing programs are designed to enhance brand awareness, recognition and loyalty among adult smokers, while honoring the Company's commitment to responsible marketing.’[i]  The tobacco industry uses brand loyalty as the main justification for continuing marketing efforts.  Further, other elements of society that indirectly market tobacco are not regulated.  As an example, the number of shows glamorizing smoking has decreased during the last decade.  However, television shows still show characters smoking and one show, the long-time running, animated and very popular Simpson’s claims to be family programming.  Yet every main character on the program has been documented with a cigarette.  Both Bart and Lisa, the adolescent main characters have smoked, and even Maggie, the infant sister of Bart and Lisa has been seen sucking on a cigarette.[ii]   

 

Of greater concern is the proliferation of cable TV shows over the past decade.  HBO, Showtime, and now Netflix produce and show their own brand of comedies, dramas, and even musicals.  Of interest is that – looking at Netflix programming, the resurgence of smoking is underway.  One would expect that period shows – such as Peaky Blinders (turn of the century English gang) would have smoking (a lot of smoking), and The Crown would show people in the 1950s and 60s smoke – it was fashionable, and Glow – which depicts early 1980’s Los Angeles back alley entertainment.  Just like the hit show Mad Men – in which every major character smoked at some level.  That was the time, and these shows represented it.  Current cable shows such as Breaking Bad, and spinoff  Better Call Saul (which represent the seedy side of life) show a lot of smoking, as do shows such as Shameless (about a south side Chicago family whose dysfunction knows no bounds), Stranger Things (both major characters smoke), and House of Cards, where the President and First Lady are closet smokers.  Even our lovable loser Hank Moody from Californication is a serial smoker.  It’s painful to watch, but it’s a part of his “in the gutter” character which had actor David Duchovny smoke so much over eight seasons.

One might expect that shows that depict violence (such as Narcos and Sons of Anarchy) would also show more smoking – they do.  It is more a part of their culture.  Perhaps this is why more of these types of shows are being produced – because the characters can be portrayed as “edgier” and thus normalize smoking within this group – both children and adults.   Let’s not forget shows such as Frankie and Grace, and Disjointed, where pot smoking is part of the norm (even when regular cigarette smoking is not featured). 

Out of the hundreds of new shows in production over the past half-decade, the majority of them feature some type of smoking (major or minor character).  Since less than 33% of American smoke (less than 13% in states like California), then the perception of smoking in many life situations is becoming more “normalized”.  This – in my opinion – is a brilliant marketing ploy by tobacco companies, as they are hamstrung in most other situations because of the MSA agreement, and state laws on smoking.  However – showing your favorite character smoking is a very good form of free advertising, and will maintain the percentage of current smokers, who will subconsciously remain smokers because they are constantly seeing their favorite characters smoke on their favorite shows. 

So – it begs the question.  After looking over the Tobacco Free Kids website, and seeing the small percentage of total state tobacco revenue settlement money that goes to states, I ask again – where is all of this money going?  The answer may lie in a tremendous investigative piece by Pro Publica finance reporter Cezary Podkul, who nosed around to find that states who were awarded tobacco settlement money (which would have trickled in year by year) were approached by Wall Street investment group such as Citigroup, JP Morgan, Goldman Sachs, Morgan Stanley, Bear Stearns and Lehman Brothers (the latter two are now out of business) to trade their settlements in for cash payments now, and agree to pay back these “loans” down the road (in less than 10 years) for balloon payments, some more that 10 times their initial payments.  So – as stupid as most government officials were – they took the payments (including the finance departments in Puerto Rico) in a process called securitization.  Those smart finance directors who opposed it (there were not many) were over ridden by governors, state attorneys general, and others who wanted a bigger payout now, and didn’t worry about future debt prospects.    

So, after investigating for two short days, I have figured out where the money has gone.  It has gone down the wasteland of beurocratic corruption to line the pockets of state officials, lawyers, and district supervisors.  According to the edits of the original MSA contract, states could decide.  Well, they decided to steal it before it ever reached the hands of we mire smoking prevention and cessation counselors.  It’s too important to give bigger salaries, raises, and pensions to those who shouldn’t see one cent of this money.  They don’t care if people quit smoking.  Think about it.  If smoking dropped off in the US by 10% in five years (hey – it could happen), then that’s a lot of money that municipalities DON’T have for the above-mentioned perks.  So, smoke ‘em if you got ‘em, America.  Your political hacks need your money.  This is the biggest trough that they have gorged on in quite a while.  Of course, with all of the smoke and confusion – there is no end in sight. 

References

1.       http://www.publichealthlawcenter.org/topics/tobacco-control/tobacco-control-litigation/master-settlement-agreement

2.      http://www.publichealthlawcenter.org/sites/default/files/resources/tclc-fs-msa-overview-2015.pdf

3.      Robin Miller, Annotation, Validity, Construction, Application, and Effect of Master Settlement Agreement (MSA) Between Tobacco Companies and Various States, and State Statutes Implementing Agreement, Use and Distribution of MSA Proceeds, 25 A.L.R. 6th 435 (2007).

4.      State of California v. R.J. Reynolds Tobacco Co., No. GIC 764118 (San Diego Cnty. Super. Ct., 2002). But see CA Sup Court case People ex rel. Lockyer v. R.J. Reynolds Tobacco, Co., 124 P.3d 408 (Cal. 2005).

5.      Broken Promises to Our Children: A State-by-State Look at the 1998 State Tobacco Settlement 16 Years Later, CAMPAIGN FOR TOBACCO FREE KIDS 1 (2014), http://www.tobaccofreekids.org/content/what_we_do/state_local_issues/settlement/FY2015/2014_12_11_ brokenpromises_report.pdf.

6.      Xu, X, Bishop, EE, Kennedy, SM, Simpson, SA, Pechacek, TF.  Annual healthcare spending attributable to cigarette smoking.  2015.  Am. J. Prev. Med.  48(3):326-33. 

7.      Institute of Medicine, Ending the Tobacco Problem: A Blueprint for the Nation, National Academy of Sciences, 2007

8.      https://www.juullabs.com/our-perspective/

9.      http://rodutobaccotruth.blogspot.com

10.   Rodu, B, Plurphanswat, N.  Quit methods used by American smokers – 2013-14.  2017. Int. J. Environ. Res.  Public Health.  14:1403; doi:10.3390/ijerph14111403. 

11.   Stuart Jackson, “FAQ’s, Guides & Lists: The Simpsons Vs. Smoking,” The Simpsons Archive, List found online (04-19-04) at: http://www.snpp.com/guides/ smoking.simpsons.html.

12.   Phillip Morris, USA, Inc., “Responsible Marketing,” http://www.philipmorrisusa.com/ responsible_marketing/default.asp.

13.   Podkul, C.  https://www.propublica.org/article/how-wall-street-tobacco-deals-left-states-with-billions-in-toxic-debt