As one of four states to settle with the tobacco industry prior to and separate from the November 1998 multi-state settlement agreement, Texas, along with Florida and Mississippi, agreed to launch a tobacco prevention pilot program. Under the terms of Texas' settlement agreement, the tobacco industry paid the state an initial $1.3 billion in 1999. Each year thereafter, the tobacco industry is scheduled to pay the state of Texas between $326.3 million and $580 million subject to various factors that may increase or decrease the payment.

Current Status: The FY2004-05 biennial budget approved by the Legislature and Governor Rick Perry (R) remains unchanged, having been cut from $12.5 million a year in the FY2002-03 biennial budget to $7.4 million a year for FY2004-05. Rather than dilute the strength of the overall program, the $3 per capita program will remain but be limited to a defined regional coverage area – Texas' pilot tobacco prevention program is being conducted in 4 East Texas communities.

Other tobacco settlement revenues went to fund insurance premiums for children, public health services, emergency health care systems, improvements to rural health facilities and university health centers.

Background: The initial tobacco settlement funds received by Texas are governed by a 1999 law passed by the Legislature and signed by then-Governor George W. Bush (R) which placed all the tobacco settlement payments into several permanent endowments earmarked for the following purposes: higher education, individual endowments for 13 medical schools, children and public health, emergency medical services and trauma care, a higher education nursing and allied health fund, minority health research and education, rural health facility capital improvement, and community hospital capital improvement. As Texas receives new funds as part of their settlement with the tobacco industry, they are appropriated by the legislature on a biennial basis.

The 1999 law also directed $200 million of the $1.8 billion Texas received from its first two tobacco settlement payments into a Tobacco Education Enforcement Trust Fund. No future payments go into this trust fund. A maximum of 7.5 percent of the annual interest generated from the trust is available to fund a tobacco prevention and cessation program. Only interest earned from each of the endowments is available for expenditure and must be appropriated by the Legislature every year. However, the tobacco prevention trust fund dollars were supplemented by a direct appropriation from the biannual budget for FY2002, none of the other endowments were allocated additional money in the FY2002-03 budget.

Texas' debate about how to use its settlement money began uniquely when two legislators, House Appropriations Chairman Robert Junell (D) and Senate Finance Chairman Bill Ratliff (R), sued then Attorney General Dan Morales (D) shortly after he entered the settlement on behalf of the state in 1997. The lawsuit questioned who would decide how to spend the settlement funds -- the Attorney General or the Legislature. The dispute ended with a Memorandum of Understanding that called for placing approximately $1 billion into endowments to fund projects at health centers in Texas and the CHIP program. The Memorandum also called for spending $200 million on a pilot tobacco prevention program.

In 1999, Chairmen Junell and Ratliff introduced their legislation. Instead of spending the $200 million for tobacco prevention as agreed to in the Memorandum of Understanding, their bill placed the $200 million into an endowment which permitted only the interest generated, approximately $10 million a year, to be spent on a tobacco prevention program. The Junell/Ratliff legislation passed.

A separate part of the Texas settlement agreement awarded $2.28 billion to counties, hospital districts, and other providers of healthcare for indigents over 25 years.

The FY2002-03 biennial budget approved by the Legislature and signed by Governor Rick Perry (R) increased funding for tobacco prevention to $12.5 million annually from $9.3 million annually in FY2000-01. The $12.5 million allocated annually for FY2002-03 is from a combination of interest available from a settlement-funded trust fund previously established for tobacco prevention and a supplemental direct appropriation. The Texas legislature did not meet in 2002.

Using the FY2000-01 funding, Texas operated tobacco prevention pilot programs of varying levels of comprehensiveness in 4 East-Texas communities. Results released in January 2001 showed that the most comprehensive program, in Port Arthur, had reduced smoking rates by nearly 40 percent among sixth graders, far greater than in areas with less comprehensive programs. In FY 2002-03, the Texas Department of Health, using the additional appropriation approved by the legislature, consolidated the pilot program into four Texas counties. Results released in August 2002 showed that tobacco use declined an average of 30% among youth in grades 6-12 in the regions where the pilot program was implemented, but only 17% in regions that received a lower level of funding.

The FY2004-05 biennial budget appropriated $7.4 million for tobacco prevention per year, down from $12.5 million per year in FY2002-03. Other tobacco settlement revenues went to fund insurance premiums for children, public health services, emergency health care systems, improvements to rural health facilities and university health centers.

On the Net:

Campaign for Tobacco-Free Kids:
http://www.tobaccofreekids.org/

CTFK's Report on State Tobacco Prevention Spending:
http://www.tobaccofreekids.org/reports/settlements/

CTFK's Report on Texas Tobacco Prevention Spending
http://www.tobaccofreekids.org/reports/settlements/state.php?StateID=TX

CDC on Adolescent Tobacco Use:
http://www.cdc.gov/doc.do/id/0900f3ec802346d8