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Non-Tech : Philip Morris - A Stock For Wealth Or Poverty (MO) -- Ignore unavailable to you. Want to Upgrade?

To: md1derful who wrote (6117)	2/5/2001 12:25:06 PM
From: Jim Oravetz	Read Replies (1) \| Respond to of 6439

The Outlook RICHMOND, Va. After winning a landmark legal settlement from Big Tobacco, states are grappling with a potential addiction of their own: the desire to use tobacco-settlement dollars to bolster public finances as the economy slows. Two years ago, when cigarette makers agreed to compensate 46 states for absorbing smokers' health-care costs, the money ostensibly was going toward fighting tobacco addiction and the launching of new health initiatives. Now, faced with sagging sales-tax revenue and rising Medicaid expenses, more and more states are eyeing the tobacco windfall for decidedly less altruistic purposes. Why raise taxes or cut spending unnecessarily, politicians argue, with untapped fortunes in the bank? By 2024, tobacco companies are expected to have paid out $206 billion. Health-care interests are steamed, noting that most states aren't keeping their promises to pour large sums into smoking-cessation programs. But legally, states can do most anything they want. "Ultimately, it's a legislative decision as to how the money will be spent," says Steve W. Berman, a Seattle attorney who helped states negotiate the tobacco settlement. So states' urge to use tobacco dollars to plug budget gaps now that they're no longer flush with cash shouldn't be a surprise. Many hadn't committed large portions of their tobacco dollars until now. "The obvious pot of honey is the tobacco settlement," says Robert D. Reischauer, president of the Urban Institute in Washington, D.C. Like it or not, he says, "it was bound to happen sooner or later." Virginia Gov. Jim Gilmore is among those making the case now to put tobacco dollars to work in different ways. In fact, Mr. Gilmore believes his state's tobacco pot can even enable a tax cut. Mr. Gilmore, President George W. Bush's pick to head the Republican National Committee, rode into office three years ago on a pledge to gradually abolish his state's unpopular annual personal-property tax on cars. He began the process but last year ran into a problem: capital-gains and sales-tax collections softened as stock-market values fell and consumer spending slowed. Revenue suddenly was coming up shy of the 5% annual growth that Virginia legislators stipulated as a condition for moving ahead with the car-tax cut. Mr. Gilmore's solution: sell Virginia's stream of tobacco payments to investors for two lump sums totaling $460 million. Then, use those proceeds to bolster revenue this fiscal year and next -- just long enough to fully repeal the car tax. A lion's share of the money actually would go into a trust fund for higher education and rural economic development, but it would provide a general-fund windfall that would push total revenue growth past the mandatory 5% mark. "It's good finance," Mr. Gilmore said in a pre-Christmas news conference, noting one-tenth of his state's tobacco dollars still would go toward smoking-prevention programs. Just as important, he added, "it's a promise kept" to cut taxes. But the Virginia Senate's Finance Committee slapped down Mr. Gilmore's plan last month, voicing concern about moving ahead with tax cuts as the economy slows and using tobacco money to do it. The governor's plan to count as revenue growth lump sums from the sale of tobacco payments is "a hollow argument," says Senate Finance Chairman John Chichester, a Republican. At the moment, the idea remains alive in the House of Delegates. Mr. Gilmore's proposal for using tobacco dollars is a bit more complicated than most plans. Maine Gov. Angus King simply wants to earmark $30 million of tobacco proceeds to cover rising Medicaid costs. And Louisiana Gov. Mike Foster is suggesting using tobacco dollars to reduce state debt in order to free up funds for other purposes. In nearly every state where governors are suggesting alternative uses, they're encountering serious opposition, often from antismoking groups who recall pledges made when the tobacco settlement was inked in 1998. "Virtually every state official justified the settlement by saying it would allow them to fund smoking-prevention activities and reduce the death toll of tobacco," notes Matthew Myers, president of the nonprofit Campaign for Tobacco-Free Kids in Washington. "Some states are living up to their promise," he says. "But the majority are not." A recent report by a coalition of groups including Mr. Myers's found only six states -- Arizona, Indiana, Maine, Massachusetts, Minnesota and Mississippi -- are abiding by minimum funding guidelines for tobacco-prevention programs urged by the Centers for Disease Control and Prevention. Instead, many states have put tobacco money into broadly defined health care, such as extending medical coverage to more citizens. But there may be long-term risks to relying on tobacco money. Annual payments by cigarette makers could fall as their U.S. sales shrink, making them potentially unreliable sources of continuing revenue. So states facing new obligations or declining revenue growth shouldn't look to tobacco dollars first. "The best thing," says Robert Kurtter, an analyst at Moody's Investors Service, "would be to raise your revenue, cut your spending and get the whole thing back in balance." -- Will Pinkston write to Will Pinkston at will.pinkston@wsj.com1 -------------------------------------------------------------------------------- URL for this Article($$$): interactive.wsj.com