Don’t touch Oklahoma’s Tobacco Settlement Trust Fund

As Oklahoma staggers through an apparently endless string of bad budget years, our investments in education, health care, public safety, and infrastructure that are tied to the annual budget cycle are suffering. Amid all the cuts and all the struggles just to survive from one year to the next, there’s at least one area where forward-thinking by an earlier generation of state leaders has left us in strong and stable condition: using tobacco settlement payments to invest in better health.

In the late 1990s, Oklahoma was one of 46 states that settled an historic lawsuit with the nation’s major tobacco companies. Under the Tobacco Master Settlement Agreement, states were assured an annual financial payment in perpetuity for as long as cigarettes are sold nationally as compensation for the public health-care costs associated with smoking. In return, the companies gained exemption from future state lawsuits regarding harm caused by tobacco use.

In November 2000, with passage of State Question 692, Oklahoma became the first and only state to direct its tobacco settlement payments into a constitutionally-protected trust fund. Under the measure, 75 percent of Oklahoma’s annual payment is now deposited in the Tobacco Settlement Endowment Trust (TSET), with the remainder divided between legislative appropriations (18.75 percent) and the Attorney General Office’s Evidence Fund (6.25 percent). To ensure that the Trust grows over time and provides an ongoing and sustainable funding stream, TSET is allowed to spend only certified investment earnings. A subsequent ballot measure, SQ 701, that aimed to alter how much money could be spent from the Trust was defeated in 2002.

TSET is governed by two boards: a five-member Board of Investment that oversees the investment of funds to the Trust and a seven-member Board of Directors that allocates the endowment’s earnings to programs that promote health and well-being under one of five categories:

1. Clinical and basic research and treatment efforts to prevent and combat cancer and other tobacco-related diseases;
2. Tobacco prevention and cessation efforts;
3. Programs designed to aid the health of Oklahomans or the provision of health care services to Oklahomans;
4. Programs intended to enhance the health and quality of life of children;
5. Programs intended to enhance the health and well-being of senior adults.

The size of the tobacco companies’ annual payment to Oklahoma fluctuates; the average payment has been $78 million, but it has ranged from $65 million to $110 million. Since 2008, an average of $64 million has been allocated to the Endowment, which has grown to $999.8 million as of June 30, 2015 (for annual financial data, click here).

With this growing capital, the TSET investment earnings available for spending on health services have grown most years, reaching an anticipated $46.3 million in FY 2016. Tobacco prevention efforts are the largest funding category supported by the Trust (38 percent), followed by obesity prevention, physical activity and nutrition (26 percent), and research (20 percent). The various TSET-funded initiatives include the 1-800-QUIT-NOW tobacco helpline; three research centers focused on cancer research, tobacco research, and adult stem cell research; the TSET Healthy Living Program, which supports community-based grants to prevent and reduce tobacco use and obesity; the Oklahoma Medical Loan Repayment Program, and others.

Not surprisingly, the $1 billion Trust has become an inviting target for some elected officials in desperate search of revenue to help the state meet its many neglected obligations.  Recently, Republican State Sen. Bryce Marlatt proposed that tobacco settlement funds be used to boost teacher salaries. Noting  that Oklahoma’s teachers have not had a raise since 2008 and that our teachers are among the lowest paid in the nation, Marlatt asserted that, “If we don’t do something very soon, we’re going to be so far behind in being able to compete with our neighboring states that we’re going to be in dire straits.”

The state’s teacher shortage is a real and urgent crisis, but tapping tobacco settlement funds to address it presents a misguided solution. In the first place, the tobacco endowment is far too small to make a serious dent in raising teacher salaries. Even a minimal $1,000 per teacher raise would cost $60 million a year, which is more than the Endowment’s total annual earnings; using TSET to provide a larger raise would rapidly eat away at the endowment [note: This sentence has been corrected; initially, it stated that a $500 per teacher raise would cost $60 million per year].

More significantly, Oklahoma’s elected leaders and voters made the right decision in giving authority over allocating tobacco payment dollars to an independent Board and ensuring that those payments would be used only to fund health-related projects, with an emphasis on tobacco prevention and research. That ongoing investment is still needed. Oklahoma remains one of the unhealthiest states in the nation, and while we have made progress in reducing smoking rates, we remain above the national average in smoking prevalence, obesity, and other public health dangers targeted by tobacco settlement funds.

The Tobacco Settlement Endowment Trust represents a rare example of Oklahoma’s elected officials making a firm and long-term commitment to a crucial public policy goal. This commitment should be honored, and the Trust Fund allowed to continue its important work.