Tobacco Settlement Proceeds Act of 2000

After the establishment of the Master Settlement Agreement of 1998 between several major U.S. tobacco companies and four state governments (Texas, Florida, Minnesota, and Mississippi), the remaining forty-six states, the District of Columbia, and five U.S. territories not party to the original legal action were allowed to join into benefits conferred by the agreement. The tobacco companies were mandated to pay damages approaching the sum of $10 billion over an indefinite time period to the states joining the agreement, as well as acknowledge publicly that tobacco companies targeted youth in marketing and sales of products. In addition, the companies were subjected to sponsorship, marketing, and sales restrictions on their product. The State of Arkansas, agreeing not to file further litigation regarding retroactive health impacts (both physical and cost-based) caused by the use of these companies’ products, was allotted a share of $62 million in November 1999, the same amount to be paid each year over the course of twenty-five years.

The Tobacco Settlement Proceeds Act of 2000 was approved by voters as a citizen-initiated state act, known as the Initiated Act I of 2000, passing by a margin of more than 220,000 votes (506,683 for; 281,790 against). The statute placed the funds received under the management of the State Board of Finance for direction of investment and account administration, also creating the Arkansas Tobacco Settlement Commission (ATSC)—a commission created to direct the awarding of funds from the settlement in the form of grants. The nine-member commission is made up of the directors of five state agencies: the Arkansas Science and Technology Authority, the Arkansas Department of Education, the Arkansas Department of Higher Education, the Arkansas Department of Human Services, and the Arkansas Department of Health. Four additional members serve on the committee—two healthcare professionals (one appointed by the state Senate president pro tempore and the other by the speaker of the Arkansas House of Representatives) and two private citizens (one selected by the governor and other by the state attorney general). These appointees are limited to serving up to two consecutive four-year terms. No members of the commission are awarded compensation for their service.

Settlement funds were not awarded with any clear or implied uses; the act, therefore, established a structure by which to manage the distribution of funds from the Master Settlement Act according to specific in-state purposes. In reaction to the possibility of the monies being used for purposes other than healthcare spending, groups such as the Arkansas Center for Health Improvement (ACHI) conducted studies on statewide tobacco behaviors and use. To assist in guiding the distribution of funds, the ACHI defined four primary principles: 1) All funds should be used to improve and optimize the health of Arkansas, 2) Funds should be spent on long-term investments that improve the health of Arkansas, 3) Future tobacco-related illness and healthcare costs in Arkansas should be minimized through this opportunity, and 4) Funds should be invested in solutions that work effectively and efficiently in Arkansas.

These points are highlighted in the language of the act, particularly Section 17(i), establishing grant qualification criteria. After any administration costs, deposits into the ATSC Fund have been distributed to seven health-related programs: the Arkansas Department of Health Tobacco Prevention and Cessation program, Medicaid expansion programs, research and health education (via the Arkansas Biosciences Institute), and other “targeted state needs programs” (including the University of Arkansas for Medical Sciences College of Public Health, the Arkansas Aging Initiative, and the Minority Health Initiative).

To monitor the effectiveness of the administration of the ATSC, the Rand Corporation was commissioned to review operations in the form of a biennial report given to the governor and the Arkansas General Assembly. In discussing the progress made through the programs initiated through the act, the 2011 edition of the Rand Corporation report summary noted that, while Arkansas has made “substantial progress…in reducing smoking rates and tobacco-related health outcomes among its residents…the state still ranks near the bottom nationally in smoking rates, other health-related behaviors, healthcare access, and health outcomes,” further noting that, while “in most cases, programs fulfilled their missions,” several programs “did not use all of their resources in the intended fashion,” with the Minority Health Initiative being highlighted for having significant financial management problems.

In May 2017, the Arkansas General Assembly, during a special session of the legislature, voted to transfer approximately $105 million in tobacco settlement money to the state’s long-term reserves, where the money could be used in case of future budgetary shortfalls. The act was somewhat controversial, given that the decision went against the original stipulation that tobacco settlement money be used exclusively for health-related purposes.

For additional information:
Arkansas Tobacco Settlement Commission. http://www.atsc.arkansas.gov (accessed October 19, 2021).

Engberg, John, Deborah Scharf, et al. “Evaluation of the Arkansas Tobacco Settlement Program.” RAND Corporation. http://www.rand.org/content/dam/rand/pubs/technical_reports/2012/
RAND_TR1261z1.pdf (accessed October 19, 2021).

Doug Luman
Conway, Arkansas