Tobacco fund off its health objective

Tobacco-Fund HARRISBURG — Gov. Tom Corbett proposes using $220 million from the state’s tobacco fund — money that was dedicated to health care — to help leverage money for economic development.

His budget would transfer money from the tobacco fund to a proposed Liberty Loan Fund. That money would represent a small portion of the overall $2 billion planned for the loan fund, which would consolidate numerous economic development accounts. And the money would remain in life science investments, said Steve Kratz, a spokesman for the Department of Community and Economic Development.

The transfer would give the proposed loan fund board the option of including $220 million in assets pledged to borrow money for projects, Kratz said.

Pennsylvania created its tobacco fund as a result of a 1998 court settlement of a lawsuit by state attorneys general against the five major tobacco companies. The states alleged the companies owed them for future medical expenses of Medicaid patients with tobacco-related illnesses. The companies agreed to pay into a settlement fund, which sends annual payments to the states.

Rep. Joe Markosek of Monroeville, ranking Democrat on the House Appropriations Committee, objects to using the tobacco money for purposes other than health care. He’s concerned that Corbett’s proposal would become a discretionary loan fund under the governor’s control.

Corbett spokeswoman Kelli Roberts said legislators would make eight of 15 appointments on the Liberty Loan Fund board.

Asked about the loan fund, Auditor General Jack Wagner said he would “have serious concerns” about seeking bonds based on holdings that include tobacco funds. “Then you are obligating future governors and General Assemblies,” he said.

Corbett’s office insists the tobacco money would remain invested in biotechnology and pharmaceutical research funds within the Liberty Loan Fund, but details are thin because no one has introduced legislation.

Using tobacco money for economic development would not differ greatly from how most states use the settlement money. The settlement did not restrict states’ uses of the money, and it goes toward just about anything.

A General Accounting Office report analyzing $53 billion in tobacco fund spending in 46 states from 2001-05 found that 30 percent went toward health care and 3 percent toward tobacco use prevention, but the remainder plugged budget holes and paid for education or infrastructure. Pennsylvania was one of only a few states that initially dedicated the money to health care funds.

“What other states are doing should not in any way dictate what we are doing,” Wagner said.

Former Gov. Tom Ridge believed Pennsylvania should devote its fund exclusively to health care. Act 77, approved in 2001, established health care spending parameters and specified percentages in categories such as adultBasic, a state-subsidized health insurance program; tobacco use cessation; medical and cancer research; home-based services for seniors; and hospital reimbursements for treating uninsured patients.

Over the years, budget-related legislation altered that formula.

The Legislature and former Gov. Ed Rendell diverted $1.3 billion to shore up the budget and pay for school employees’ pensions; $735 million of that total went toward Medicaid long-term nursing home care, according to a special report by Wagner’s office. The 2009-10 state budget used $121 million from the fund to help pay the state’s share of the Public School Employees Retirement Fund.

The legislative changes led to the demise of the adultBasic program and dramatically reduced spending for tobacco cessation and prevention, Wagner’s report stated.

Rendell, a Democrat elected in 2002, had his own ideas about spending the money. It is “a governor’s prerogative” to direct state spending in accounts such as these, with legislative approval, said Larry Ceisler, a Democratic political analyst from Philadelphia.

Rendell said most of that money still went toward health care — citing the Medicaid payments and a shift in spending to other state programs for the uninsured.

Wagner said transfers to the general fund and pension fund were “a break in the covenant with Pennsylvanians” in Act 77, which required spending tobacco settlement money for health care. The Legislature did not repeal that law.

Wagner contends that lawmakers should have repealed Act 77 and held hearings on how to spend the money. Changing the budget each year gave lawmakers legal authority to use the fund for other purposes, he acknowledged. He is holding hearings across the state, including one next week in Harrisburg.

Senate Majority Leader Dominic Pileggi, R-Delaware County, said the only constant about the tobacco fund is that it changes every year. “It’s as public and open as any other bill passed by the Legislature and signed by the governor,” he said.

By Brad Bumsted

Leave a Reply