Ventura uses endowments to compensate short funds

Erin Ghere

Last year, funding shortages began to force the hands of officials in the University’s Academic Health Center. Classes were cut, residencies were slashed, emergency money reserves were tapped.
To make matters worse, the Legislature approved only a fraction of the center’s 1999-2001 budget request — $6 million of the $37 million request.
But as one of his first acts in office, Gov. Jesse Ventura proposed creating four endowments from the $6.1 billion tobacco settlement. One of them eventually became the Medical Education Endowment, holding $378 million and yielding $8 million a year for the Medical School.
All told, the Legislature approved $968 million in standing endowments. The Legislature’s decision to create endowments from tobacco settlement funds is a common solution for state legislatures around the country, who are working to allot a $206 billion national tobacco settlement.
The trend of suing tobacco companies to reclaim Medicare money spent on smokers, which began with suits in Mississippi and Minnesota, spawned a nationwide attack on the industry.
On Nov. 23, the attorneys general of 46 states, five territories and the District of Columbia settled with the five major tobacco companies, which agreed to pay the states $206 billion over the next 26 years. The five companies, which include Philip Morris, Inc. and R.J. Reynolds Tobacco Co., represent nearly 98 percent of the tobacco industry.
The four remaining states — Minnesota, Florida, Texas and Mississippi — settled their own suits for a total of $36.8 billion.
The settlements do not require states to spend the money for any specific purpose, which has given governors the opportunity to make their marks by establishing trust funds, endowments and foundations with the money. In so doing, states can allot the funds for specific intentions and guard them for future use.
Endowments and foundations are normally established with the intention of preserving funds and making them permanent, while trust funds can either be permanent or flexible.
Minnesota’s legislative legacy
According to the American Cancer Society, a nationwide anti-tobacco lobbying group, about 2.1 million people in developed countries died in 1995 as a result of smoking.
Yet between 1991 and 1997, cigarette smoking among high school students increased, while smoking among adults 18 years and older declined.
Also, the society’s figures show that tobacco use drains the United States’ economy of more than $100 billion in health care costs and lost productivity. On average, each cigarette pack sold costs American taxpayers more than $3.90 in smoking-related expenses.
Attorneys general began to realize the tobacco industry should be liable for those costs, because of its illegal marketing tactics, manipulation of chemicals in cigarettes and suppression of facts about the addictiveness of tobacco. All 50 states eventually filed suit.
The Minnesota trial, which began Jan. 20, is the only case to get to trial before a settlement was reached. The trial got up to closing arguments before tobacco industry officials and then-Attorney General Hubert H. Humphrey III agreed to a settlement of $6.1 billion.
The legacy of the health and human services bill is the endowments and the tobacco prevention legislation, said Rep. Matt Entenza, DFL-St. Paul.
Sen. Roger Moe, DFL-Erskine, concurred: “Years from now, I believe the 1999 Legislative session will be best remembered for safeguarding the future public health of all Minnesotans,” he said. “The legacy will be our decision to do what we could to vastly improve the health and the lives of our children and grandchildren.”
During the next 25 years, Minnesota will divvy up 5 percent of the interest from the tobacco settlement endowments to fund related programs, including a statewide campaign against youth smoking.
The annual interest garnered by the programs will be about $19 million for tobacco-prevention programs, $10 million for public health programs and $19 million for medical education. The Academic Health Center’s $8 million comes from the latter fund.
Although the Legislature nailed down the funding amounts of each endowment before the end of the legislative session, specifics on the programs are still being discussed.
For now, Minnesota’s health projects seem stable and will remain for at least 25 years.
Many states, few solutions
In all, the 50 states have $242.8 billion to spend. Although they’ve all come up with their own solutions, most states are choosing three main options: setting up long-standing endowments, establishing shorter-term trust funds and creating or boosting foundations.
Governors in Alabama, Michigan, Virginia and Washington have proposed the establishment of trust funds with the state’s tobacco-settlement money. Alabama created the Children’s First Trust Fund with $85 million to support issues such as juvenile justice, foster care, multiple-needs children and Children’s Health Insurance Program.
Michigan Gov. John Engler recommended creating the Michigan Merit Award Trust Fund, which would support a merit-based scholarship program for high school students. And Virginia Gov. James S. Gilmore III created two trust funds from 60 percent of the funds, one for tobacco farmers and the other for youth smoking prevention and cessation. The remaining 40 percent was also given to the Legislature for appropriations.
Gov. Gary Locke of Washington created a Tobacco Prevention Trust Fund from $100 million of settlement funds.
Ventura and Gov. Jeb Bush of Florida recommended using the settlement money to establish long-standing endowments. Bush proposed creating the Lawton Chile Tobacco Endowment for Children and Elders, which will garner more than $2 billion of the state’s tobacco funds over the next four years to secure the future of programming initiatives.
Ventura recommended creating three endowments for medical education and tobacco-use prevention. In the end, he signed a bill which included two endowments — one for each of his initiatives — totaling $968 million. Of that, $590 million will go toward tobacco prevention and local public health and $378 million will go to fund medical education, including the University’s Academic Health Center.
Three governors, including Ventura, recommended using the funds to establish foundations. The Alabama Legislature established the Children’s First Foundation, in conjunction with their newly established trust fund, to be responsible for the disbursement of the funding. Ventura recommended creating a Minnesota Families Foundation to monitor and guide about half of the state’s tobacco payments. And the Virginia Legislature created a foundation to oversee their portion of the settlement funds.
Minnesota and other states have finalized decisions for now, but when the tobacco funds continue to accumulate, many states will make more choices. The Minnesota Legislature will have to make decisions regarding another $403 million in tobacco settlement funds that will come into the state in 2002 and 2003.