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Officials: Settlement funds used poorly

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When South Carolina and 45 other states settled multibillion-dollar lawsuits with the tobacco industry in 1998, it was seen as an opportunity to ramp up smoking education, prevention and cessation programs.

Eight years later, many health advocacy groups, legislators and even Gov. Mark Sanford said much of the money was spent unwisely.

They say the money could have been used to help combat one of the largest and most expensive problems in the state -- cigarette smoking -- which costs South Carolina an estimated $1 billion annually in health-care costs.

Instead, only a small portion of the settlement money has been spent in South Carolina on smoking prevention, education and cessation initiatives.

Most of the state's money has been spent on a laundry list of items, including payments to tobacco farmers; rural water and sewer projects; and Medicaid funds to help the state reimburse hospitals, doctors and pharmacists for treating low-income patients.

"It was a squandered opportunity at the time the settlement money came down," Sanford, a Republican, said last week. "That money would have been better spent, no doubt about it, on prevention and education. But that's not the case."

The allocation of the settlement money was made by the Republican-controlled General Assembly and endorsed by then-Gov. James Hodges, a Democrat.

Sanford, a U.S. congressman at the time, said there's not much the governor's office can do now to reverse how the money was allocated.

Over time, South Carolina will receive an estimated $2.3 billion from the big tobacco companies. Payments began in 2000 and expire in 2025. A majority of the settlement money has been earmarked or spent by the General Assembly.

Only about $3.4 million has been spent on tobacco prevention and cessation programs. During the last three fiscal years, no settlement money was designated for these programs, and there's no guarantee any future money will either.

"We don't have a lot of funds for the tobacco program," said Thom Berry, spokesman for the state Department of Health and Environmental Control. "I think the feeling around here is that it would certainly be nice (to have more funding), but we understand that we are one of a number of agencies vying for the money."

The federal Centers for Disease Control and Prevention recommends that South Carolina spend at least $24 million a year from the settlement money on smoking prevention and cessation programs.

However, South Carolina is one of five states that spent no money from the tobacco settlement on those programs last year. In contrast, Maine leads the way in percentage spending based on CDC recommendations, designating $14.2 million this year on anti-smoking initiatives, compared with the $11.19 million the CDC recommended.

"The intent of that money was to provide funds for prevention, treatment, education and cessation programs," said Lisa Turner, manager of public policy for the South Atlantic Division of the American Cancer Society in Columbia. "And that clearly did not happen in South Carolina. We're ranked 51st in funding for these programs and 51st in (cigarette) tax. The state is doing next to nothing."

The settlement is to be paid in yearly installments. But South Carolina -- like a handful of other states -- issued bonds for about half of the total settlement so more money would be available to fund programs up front, according to the state Budget and Control Board.

In 2001, the state issued about $921 million in bonds in the biggest bond sale in state history.

South Carolina netted about $785 million from the bond sale, with $85 million remaining in a mandated reserve and the remainder placed in other reserves and absorbed in costs like insurance and lawyers, said Michael Sponhour, director of public affairs for the Budget and Control Board.

Of that $785 million:

• $573.7 million, or 73 percent, was placed in a Health Care Trust Fund. The General Assembly allocates the proceeds from this fund each year.

Since fiscal year 2003-04, all proceeds from the trust have gone directly to Medicaid. This year, $9.3 million will go toward Medicaid.

• $117.9 million, or 15 percent, went to the Tobacco Community Trust Fund, which was designated for qualifying tobacco producers, quota holders and warehousemen to compensate them for making less money from growing tobacco.

• $78.6 million, or 10 percent, was placed in an Economic Development Fund to help build or improve roads, water and sewer networks, and other services in job-poor rural counties.

• $15.7 million, or 2 percent, fell into a Local Government Fund that promotes economic-development projects around the state.

From 2004-2017, it's estimated the state will receive $1.28 billion from tobacco settlement payments, all of which will go toward paying debt service for the issue of the bonds.

The payments are considered estimates because they're not guaranteed, but rather based on projections that are subject to change based on inflation and market conditions in the tobacco industry.

In 2018, the debt service on the bonds should be paid off if the state receives the expected annual settlement money, Sponhour said. After that, none of the money has been spent.

From 2018 to 2025, the last year of payments, it's estimated the state will receive about $753 million from tobacco companies.

Contact Peter Frost at 706-8169 or . To comment on this story, please go to islandpacket.com.