Wagner on Tobacco Settlement Money

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Auditor General Jack Wagner Calls For Hearings On Reallocation of $370 Million In Tobacco Settlement Funds

HARRISBURG, Mar. 28, 2011 – Auditor General Jack Wagner today called for statewide hearings about how tobacco settlement dollars should be spent to determine if the money should be used according to the original intentions, such as providing subsidized health insurance for low-income Pennsylvanians, or if new priorities should be established.

The Tobacco Settlement Act, proposed by Gov. Ridge and passed by the General Assembly in 2001, specifically mandated how the state should use the annual tobacco company payments, including providing funding for smoking cession and prevention programs, adultBasic health insurance and cancer research. But Wagner’s recent special report found that, over the past six years, those mandates were superseded by language inserted into the state budget that diverted the funds to other categories.

Wagner’s special report determined that the General Assembly diverted $1.34 billion, or 30 percent, of the Tobacco Settlement Fund payments the commonwealth has received since 1999.

“There should be extensive public discussion bringing all of the parties to the table to determine how tobacco settlement dollars should be spent and then the General Assembly should make a final decision,” Wagner said. “It should not be done by putting a paragraph or two in the budget each and every year, taking the majority of the funds and putting them somewhere else.”

Wagner made his remarks during testimony today before the Senate Appropriations Committee.

Pennsylvania was one of 46 states that settled litigation in 1998 with five major tobacco companies to recover medical expenses for Medicaid enrollees with tobacco-related illnesses. Under the Master Settlement Agreement, the tobacco companies agreed to pay Pennsylvania beginning in 2000 and each year thereafter approximately $370 million through 2025.

Wagner said that in 2000, then-Gov. Tom Ridge issued Pennsylvania’s Health Investment Plan, which proposed several health initiatives to be funded by the tobacco settlement money. The Tobacco Settlement Act followed, outlining the principles in the Health Investment Plan, which included making Pennsylvanians healthier. Wagner voted for the law as a state senator.

The Tobacco Settlement Act mandated that annual tobacco settlement payments be used according to these percentages: 8 percent deposited to an endowment account for the future, 30 percent for adultBasic and Medicaid for workers with disabilities, 18 percent for health research, 13 percent for home- and community-based services for the elderly, 12 percent for tobacco prevention and cessation programs, 10 percent to reimburse hospitals for uncompensated care, 8 percent to expand the PACENET prescription drug program, and 1 percent for cancer research.

Wagner said that the programs were funded as mandated until 2005 when Pennsylvania started its “redirections” that year and every year thereafter. He noted that the commonwealth will still receive annual payments of about $370 million for next 14 years, and said that the public should have some say in how those dollars are spent.

“We are at a point of reckoning for the Tobacco Settlement Fund,” Wagner said. “Now is the time to determine priorities for this money going forward.”

Auditor General Jack Wagner is responsible for ensuring that all state money is spent legally and properly. He is the commonwealth’s elected independent fiscal watchdog, conducting financial audits, performance audits and special investigations. The Department of the Auditor General conducts more than 5,000 audits per year. To learn more about the Department of the Auditor General, taxpayers are encouraged to visit the department’s website at www.auditorgen.state.pa.us.