Michigan Uses Well-Worn Tactic In Shifting Tobacco Cash

By David Eggert, Associated Press

LANSING (AP) - To rescue Detroit's school district from potential insolvency, Michigan is turning to a familiar playbook.

It will shift more than a quarter of the state's $250 million annual payment from tobacco companies to Detroit schools. The move is the latest in a long line of tapping the legal settlement when the governor and lawmakers are in a pinch for money.

With the latest Detroit bailout, all but $26 million, or about 10 percent, of the yearly tobacco cash is automatically spoken for — which could curb legislators' options whenever another fiscal emergency hits.

It's also another blow for health advocates who say the state is shortchanging smoking prevention and cessation programs despite collecting massive sums from the 1998 settlement and tobacco taxes.

Of the $251 million net tobacco payment for the next budget year, $72 million will go to a Detroit Public Schools trust fund as part of a $617 million bailout. Another $17.5 million will repay Michigan's savings account for a $195 million bailout that helped end the Detroit bankruptcy in 2014.

About $60 million in debt service will be paid because of 2005 and 2007 deals under which the state received large up-front payments of money in exchange for giving bondholders a portion of future tobacco payments. The "securitizations" helped balance the state budget and launched the 21st Century Jobs Fund, an economic development program.

Another $75 million in tobacco cash will go to the economic development fund, too — some of which is used to finance the Pure Michigan tourism campaign.

Helping Detroit schools "means we're going to have to spend general fund on things that we were previously spending the tobacco settlement dollars on," said Kyle Jen, deputy director of the nonpartisan House Fiscal Agency.

The state will pull more from general spending to ensure that Medicaid and welfare spending is not cut, leaving less for other budget priorities.

For cancer and other health advocacy groups, the decision to again tap tobacco dollars for non-health purposes is disappointing but not surprising.

"We raised concerns with folks within (Gov. Rick Snyder's) administration and key lawmakers saying, 'Those dollars really belong in health care.' It was not something that folks really were interested in hearing or interested in reacting to," said Peter Ruddell, a Lansing-based lobbyist for the American Cancer Society Cancer Action Network and the American Heart Association.

Under the 1998 deal, tobacco manufacturers make annual payments to states to compensate for medical costs caused by smoking-related illnesses. The industry's advertising and marketing is restricted.

For a decade, Michigan used much of the money for popular college scholarship programs that later were eliminated during the Great Recession.

The master agreement does not explicitly state how the payments should be spent, though it has provisions that clearly show the intent for states to spend some money on tobacco prevention, according to advocates.

Michigan spent $1.6 million on tobacco prevention this fiscal year, 44th lowest among states and Washington, D.C., according to the Campaign for Tobacco-Free Kids. It is a tiny fraction of what is recommended by the Centers for Disease Control and Prevention.

"What concerns us the most is that we continue to have people who are addicted to tobacco products not being provided an opportunity to quit," Ruddell said.

Drawing from the tobacco settlement to save Detroit's school district enabled the GOP-led Legislature to avoid reducing funding for other districts across the state.

Legislators "can go tell their school districts, the parents in those school districts that this money is not at the expense of money that would otherwise go to their school district," Snyder, a Republican, said in February.

Copyright 2016 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.