NJ Tobacco Money Burned to Bridge Budget Gap

By Jeff McKay | July 7, 2008 | 8:21pm EDT

(CNSNews.com) - It took years of litigation to reach a settlement between the states and the tobacco companies. In the end, tobacco companies in 1998 were ordered to give the states over $200 billion.

The argument of the states for all of this money was the goal of preventing people from smoking and cutting health care costs. However, in the case of New Jersey, their multibillion-dollar piece of the settlement pie is now depleted just a few years after receiving it - and the money won't be helping to stop people from smoking.

The settlement provided New Jersey with $7.5 billion over 25 years - or a lump sum payment of $3.5 billion. New Jersey took the "quick cash," and much like winning the lottery, the state began using the money.

In the case of New Jersey, while some money is being used to fund antismoking campaigns and health care, the bulk of the money is being diverted to patch huge holes in a state budget with yearly billion dollar deficits.

In the state''s 2003 budget, over $1 billion was borrowed against New Jersey's share of the national tobacco settlement to offset the state debt. For 2004, an even bigger deficit is expected, so the state will again tap into its share of the tobacco windfall, this time virtually wiping out leftover money from the settlement.

The Centers for Disease Control and Prevention (CDC) released a report that recommends New Jersey spend between $45.1 million and $121.3 million a year to have an effective, comprehensive tobacco prevention program.

Current allocations show New Jersey only allocates $30 million a year for tobacco prevention. This is 66.5 percent of the CDC''s minimum recommendation.

New Jersey''s spending on tobacco prevention amounts to a mere 3.2 percent of the $942 million in tobacco-generated revenue the state collects each year in both tobacco settlement payments and tobacco taxes.

"The anti-tobacco campaign in New Jersey is working. We are committed to programs that get people to stop smoking," said a spokesperson for the New Jersey Democratic State Committee who asked not to be identified. "Raising taxes to fix budget shortfalls is not an option. Unlike the federal government, we can"t operate with deficits."

New Jersey is not alone. According to the National Center for Tobacco-Free Kids, an alarming number of states that have received settlement money designed for antismoking campaigns have diverted those funds for other use.

In a report issued by the National Conference of State Legislatures, a survey of states'' plans for their shares of the tobacco money during the fiscal years 2000 through 2002 showed a mere five percent of the $21 billion released during that period went into tobacco prevention. Over one-fourth of the money was used to bolster state budgets.

Reports indicate that nearly $18 billion in tobacco-settlement bonds have been issued by states. New Jersey ranks as the nation's biggest issuer.

"The state of New Jersey has sold the rights to the future payments from the tobacco settlement not to help smokers, but to balance the budget - and with a return on those bonds about 50 cents on the dollar," said Larry Downs, director of NJ Breathe, a coalition of 50 statewide organizations united to reduce tobacco use.

"Our program is already $15 million under budget from what the CDC says we should have for antismoking campaigns, and now, the state wants to cut our budget even further to just $10 million, two-thirds below what the CDC recommends. This is not a realistic approach," adds Downs.

More than half of the states that received settlement money have borrowed against some, if not all, of the incoming money from the tobacco award.

New Jersey is not alone in traveling down tobacco road for revenue to balance deficit-laden budgets on the backs of smokers.

In the first budget of his administration, Gov. James E. McGreevey raised taxes on tobacco products, moving the cigarette tax up 70 cents to $1.50 a pack. He has proposed another 40-cent-per-pack increase in the budget now under consideration. While his first cigarette tax diverted money to antismoking programs, the new tax will not.

"Antismoking campaigns will not see one cent of the 40-cent tax. This is not the way to reduce smoking," said Downs.

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