Limited Taxation
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CLT Update
Tuesday, April 13, 1999

Believe it or not, the rationale by which the Beacon Hill pols now want to deprive us taxpayers of our tax reimbursement is ... are you ready for this? ... it's for "our children's children."

Talk about uncanny foresight and long-range planning!

This incredible reach of alleged wisdom and what passes for leadership these days was presented courtesy of Health Care Committee Co-chairman Rep. Harriette Chandler (D-Worcester).

Rep. Chandler's got it all figured out: "[The $7.6 billion tobacco settlement] will be used for the purposes the money was originally created. People had to become sick and die in order for this money to be achieved, so it will be used for the purposes it was created."

Wow, what sacrifice!

Okay, I think we know how all this money was "achieved" (it's called extortion when perpetrated in the private sector), but let's see if I've got it right how it was "created":

Smokers went out and got themselves sick -- some even died -- just so that years, even decades later, the Commonwealth of Massachusetts could lay claim to this tobacco settlement booty to benefit "our children's children."

Next, taxpayers put up billions of their hard-earned dollars to treat those sick smokers, but Chandler conveniently denies this annoying little detail. To her, it never happened, those selfish, greedy, insensitive taxpayers never gave up a cent to help the needy, so they need not be "reimbursed."

Nobody funded Medicaid or the state CommonHealth program and nobody ever received taxpayer-funded medical care, she would have us believe. At least not smokers. They just got sick and died. For the children and the children's children.

All the opportunistic attorneys general sued the tobacco industry to "recover damages." In court they staked claim to "reimbursement" for health care costs -- for health care that, in Chandler's strange little world, was never provided, never existed.

In the real world, that's called fraud ... one way or the other. Bait-and-Switch.

In her mind it's not taxpayer sacrifice and generosity over those decades, for which not even a thank you is given. Nope, it's all those smokers who selflessly got sick and even gave their lives, just so today's pols can spend the windfall to benefit yet-unborn generations to come!

The next thing you know, they'll promise to leave the $7.6 billion untouched in this "trust fund" and not spend it as soon as nobody's looking -- and expect us to buy that "promise" too!

But the Boston Herald got it right in its lead editorial today, "Taxpayers owed tobacco money," following the SHNS report below.

Chip Ford --

State House News Service
April 12, 1999

House Leaders Want Tobacco Money
Put in Permanent Trust Fund

APRIL 12, 1999 ... EJB ... House Ways and Means Chairman Paul Haley announced today that his committee will not budget expected proceeds from the state's $7.6 billion tobacco settlement, instead placing the money into a permanent trust fund devoted to health care and tobacco control.

The plan described by Haley and House Speaker Thomas Finneran would force state lawmakers to leave most of the settlement monies in a trust fund earning millions of dollars in interest that would effectively extend the settlement's fiscal benefits to future generations, officials said.

Haley said Attorney General Thomas Reilly advised lawmakers not to expect the first installment of cash before the end of fiscal 2000. Reilly also said the total amounts could vary, depending on tobacco market vagaries and whether the federal government decides to take a cut of the states' settlements.

"It is foolhardy for me to commit those resources before they're in-hand," Haley said. "The House Ways and Means Committee will not budget for any of those resources in its budget recommendation it will be making in the next several weeks. That means that we will need to restore some $189 million that the governor has used these resources for to fund traditionally funded obligations that historically have been funded with general fund resources."

The plan includes the establishment of a commission to make recommendations on how to spend the interest the trust fund is expected to generate, with recommendations required by November so House budget planners can begin working the tobacco revenues into the fiscal 2001 budget. "We do not intend to use those resources prior to that timeframe," Haley said.

Gov. Paul Cellucci's proposed $20.5 billion budget contained numerous uses for the expected first installment of tobacco cash, including the governor's coveted income tax cut. Haley, who has already announced that Cellucci's budget will be substantially reworked, said Cellucci's dependence on illusory revenues is "hitting where it hurts" and creates "a huge void."

In light of competing "appetites," Finneran said Haley, House Ways and Means Assistant Vice-chairman Rep. Harriett Stanley (D-Merrimac) and Health Care Committee Co-chairman Rep. Harriette Chandler (D-Worcester) "wrestled" with how to best use the money.

"It was their consideration, and I join them in their conclusion on it, that the most intelligent use of this money would be to devote it to a trust fund so that the unpredictability of the timing does not create a destabilizing force with regard to our budget considerations, and to protect ourselves from the vagaries of the amounts," Finneran said.

Under the proposal, all of the money -- an expected $7.6 billion over 25 years -- would go into a permanent trust fund, where it would collect interest. During the first seven or eight years, lawmakers would be allowed to spend around 15 percent of the principal to "prime the pump" for expanded health care and tobacco control programs.

After those first seven or eight years, the accrued interest would catch up with annual spending, and further appropriations would be from the interest only. Stanley, who worked closely with Haley and Chandler to develop the proposal, said that by reserving 85 percent of the principal, the state could reap $40 million in interest by 2000 and $100 million in interest by 2006.

In 2011, when the Baby Boomers begin to retire, the state would be collecting $160 million per year in interest. At the end of the 25 years of settlement installments, the state could collect around $400 million per year in interest, they said.

"The Commonwealth will have earned about as much in interest as the principal," Stanley said. "That's an incredible gift for future generations."

Chandler called it "remarkable" that the interest could equal the principal. "What's even more remarkable about it is that we're going to be taking care of our health care needs, that of our generation, that of our children's generation, and maybe even that of our children's children, as a result of this," she said.

Under the House plan, trust fund money would only be used for health care and tobacco control, not other popular projects like roads and schools. "I can't emphasize it enough," Chandler said. "It will be used for the purposes the money was originally created. People had to become sick and die in order for this money to be achieved, so it will be used for the purposes it was created."

Finneran said a trust fund represents the "generational" approach he advocated in his January address to the citizens. The alternative to saving the money would be "binge-spending," which he said would leave everyone empty-handed after the final installment of tobacco money arrived.

"In the end, if you can show some discipline and restraint from the early years, all the health care interests who have expressed themselves in a desire to latch onto some of this money for very laudable and notable purposes would be much, much better off," Finneran said.

"If we can discipline ourselves to put that money away and then live off the interest, which we would commit ourselves to an annual appropriation of the interest, for health care purposes and for tobacco education and cessation programs, we think that's just the best of both possible worlds."

A Boston Herald Editorial
Tuesday, April 13, 1999

Taxpayers owed tobacco money

Keeping in mind that not a buck of that much talked-about tobacco suit settlement has yet found its way into state coffers, it's rather extraordinary that proposals for spending it are springing up faster than crabgrass this year.

That's right, not one thin dime is in hand and some estimates are that first payment might not arrive until June 2000. Even then there are certain risk factors. What if the federal government decides to lay claim to a shore, based on its Medicaid contributions.

Yesterday House Speaker Tom Finneran, noting that the feeding frenzy to spend the money not yet even in hand has already begun, proposed setting up a tobacco settlement trust fund or, as he described it, "a lockbox" into which the 20 years worth of settlement money -- ultimately expected to reach $9 billion -- would be stashed. During that time the state would spend only the interest, estimated at some $15 million a year to start, but which would eventually build to about $300 million a year.

The settlement "has created an extraordinary appetite for spending," Finneran said. "Clearly we can go on a binge for 20 years, but at the end there's nothing to show for it ... If we can just show some restraint and discipline now, we'll be better off in the long run."

In the spendthrift world that is Beacon Hill politics, Finneran's proposal is eminently sensible -- although we would quibble with the earmarking of those trust proceeds for health-related uses on philosophical grounds. (Money is money is money.)

But the speaker's idea is clearly second best to returning the proceeds from the tobacco settlement to the people to whom it is owed -- the taxpayers. Remember, for a moment, the rationale behind the suit. In fact, the state's complaint charged that "each year, the commonwealth must spend millions of dollars to purchase or provide medical and related services for Massachusetts citizens suffering from diseases caused by cigarette smoking." Expenses incurred through the Medicaid program were paid by ... you guessed it, the taxpayers.

Elsewhere that is how the debate over use of the settlement money is being framed.

As South Carolina Attorney General Charles Condon put it last November, "Let's give this money back to the taxpayers. That could take the form of car tax relief, income tax relief for seniors or simply a scheduled rebate to all taxpayers. The point is we should pledge this money to tax relief only."

We second the motion. A bill drafted by Citizens for Limited Taxation and filed by Sen. Bruce Tarr (R-Gloucester) would do just that. It deserves prompt and thoughtful consideration.

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