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
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
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
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
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
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
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.