State Tobacco Settlement Funds & TBED: Where Are They Now?

Following the 1998 Master Tobacco Settlement Agreement, states across the country set out to dedicate significant amounts of funding from their share of the settlement to support research and other TBED programs.

Several states expressed concern in 2003 when a $10 billion judgment against Philip Morris threatened settlement payments for that year. The judgment required a $12 billion bond to appeal the case and the tobacco company considered filing bankruptcy (see the April 4, 2003 issue of the Digest). According to a press release from the New Mexico Attorney General's office, attorneys general from across the country urged the presiding judge to modify the bond order to assure states would receive their annual payment. The court accepted a new order that reduced the bond almost in half the day before the annual payment was due, and Philip Morris subsequently confirmed the $2.6 billion annual payment would be made.

Over the years, the Digest has covered several of these proposals and initiatives. Following is an update to proposals covered previously in the Digest, in addition to new initiatives being considered:

Arkansas

The legislature approved a plan in 2001 to place the first $100 million tobacco settlement funds into the Arkansas Century Trust Fund. All other settlement funds go to the Tobacco Settlement Trust Fund, which includes an annual disbursement of 22.8 percent to biomedical research. Also included in the legislation is a stipulation providing $5 million of each year's payment must be used to pay the debt service for $60 million in capital bonds issued to improve the University of Arkansas Bioscience Center.

In 2004, RAND Corp. issued a draft recommendation that, in order to meet higher priority needs of the state, the Arkansas Tobacco Settlement Commission should reduce its medical research funding by 20 percent (see the Aug. 9, 2004 issue of the Digest). However, after discussions with the Commission regarding the success of the research program, RAND Corp. dropped the recommendation from its final report.

Recent investments include funding two new facilities that will serve the Arkansas Bioscience Institute (ABI) and may include incubation space. The Arkansas Development Finance Authority provided $25 million for an 85,000-square-foot building at the University of Arkansas for Medical Sciences to house ABI research and BioVentures activities and $20 million for an 80,000 square-foot research building at Arkansas State University, including wet labs and greenhouses for agbiotech projects.

Connecticut

In 2000, the legislature created the Biomedical Research Trust Fund to provide grants to eligible institutions for biomedical research in the fields of heart disease, cancer, and other tobacco related diseases (see the June 16, 2000 issue of the Digest). Disbursements from the Tobacco Settlement Fund include $4 million per year to the Biomedical Research Trust Fund. However, facing a large budget deficit in 2002, then Gov. John Rowland transferred most of the tobacco settlement payment for that year from the Tobacco and Health Trust Fund and the Biomedical Research Trust Fund to the general fund. According to the Government Performance Project's Grading the States 2005 Report Card, the state again transferred earmarked money from the Tobacco Settlement Fund to the general fund in both fiscal years 2004 and 2005.

With passage of Senate Bill 934 last spring, the legislature allotted $10 million of the Tobacco Settlement Fund during each of the next 10 years to support Connecticut's new Stem Cell Research Fund (see May 30, 2005 issue of the Digest). These funds are in addition to the $4 million that is apportioned to the Biomedical Research Trust Fund.

Georgia

Georgia placed one-third of its tobacco settlement funds in the OneGeorgia Authority, which was established in 2000 to support economic development initiatives. Approximately $1.6 billion is expected to be available over the 25 years of the settlement. A portion of these funds goes to the EDGE Fund to help communities compete with other states to attract businesses. The Georgia Cancer Coalition (GCC), which coordinates cancer-dedicated expenditures from the state's Tobacco Settlement Trust Fund, focuses on fostering fundamental and translational cancer research. Through FY 2004, more than $178 million has been allocated to GCC from the Tobacco Settlement Trust Fund.

In early 2005, the governing board of the OneGeorgia Authority approved a budget of $10 million to create the Strategic Industries Loan Fund. The fund will provide low-interest loans to stimulate growth in strategic industries. The Authority plans to release a list of industries that will be targeted for the loan program in November.

Michigan

In 1999, former Gov. John Engler signed a bill committing $1 billion over 20 years from the tobacco settlement for life sciences research, development and commercialization (see the Aug. 20, 1999 issue of the Digest).  Budget restraints have slowed the commitment in recent years, although Gov. Jennifer Granholm has stated that she intends to restore the Life Science Corridor's budget to the original investment in the near future. To date, Michigan has invested $220 million into this initiative. The Life Sciences Corridor, now called the Michigan Technology Tri -Corridor, is a grant and loan program dedicated to building research capacity and commercialization success. In 2003, the program was expanded to include homeland security and automotive technology. The program receives $10 million annually from the tobacco settlement.

Voters denied a constitutional amendment in 2002 that would have reallocated 90 percent of the state's tobacco settlement money from life science initiatives and Merit Scholarships to fund health care proposals. Michigan's FY 2005 budget included a commitment of 75 percent of the state's settlement payments to the Merit Scholarship Fund for higher education.

Missouri

Former Gov. Bob Holden signed an executive order committing $21.5 million of the state's tobacco settlement funds to biotech research during FY 2002 (see the July 13, 2001 issue of the Digest). In 2003, the General Assembly enacted legislation allocating 25 percent of the overall tobacco settlement funds for life science research, commercialization and technology transfer activities. The legislation directs the funds, which equal about $36 million per year from 2007 through 2025, into a Life Sciences Trust Fund. Beginning in 2007, public and nonprofit research institutions within the state may submit research grant applications to a seven-member board charged with managing the Trust.

In FY 2004, the legislature passed a settlement carve-out to fund life science business development in the state, and in FY 2005 the annual payment went to the general fund with a portion specifically dedicated to life science research.

North Carolina

Lawmakers created Golden LEAF (Long-term Economic Advancement Foundation) in 1999, which uses half of the state's tobacco settlement for long-term economic development. In 2002, the foundation announced an $85.4 million economic stimulus package including a $42 million investment in bioscience and biotechnology companies (see the Aug. 23, 2002 issue of the Digest). Golden LEAF committed another $64.5 million in 2003 to train workers in the field of biotechnology. Earlier this month, the state broke ground on a Biomanufacturing Training and Education Center on the campus of North Carolina State University in Raleigh, according to the governor's office. The 91,000-square-foot facility is slated to open in 2007 and uses $33.5 million of the state's tobacco settlement money.

The foundation also provides funding to train workers in biotech-related positions through its BioNetwork program. To date, the program has provided nearly $6.8 million through 63 grants to support BioNetwork Centers, curricular development and specialized process technology equipment at Community Colleges to provide hands-on training for the biomanufacturing and pharmaceutical industries.

Legislation introduced earlier this month proposes using $10 million from the state's tobacco settlement proceeds to help fund embryonic stem cell research, according to the News & Record. The measure will remain alive for the legislature to consider during its 2006 session, the article states.

Ohio

Gov. Bob Taft created a task force in 1999 to determine the best use of the tobacco settlement funds. A portion of the funding was put into the state's Biomedical Research and Technology Transfer Partnership Program, which provides grants to support biomedical and biotechnology research leading to technology commercialization. Between 2001 and 2004, approximately $55.5 million from the tobacco settlement has been invested in bioscience R&D. Funding for biomedical projects and biomedical Wright Centers of Innovation was provided this year, as was in the previous two years.

Oklahoma

The State Regents for Higher Education proposed in 1999 spending $500 million in tobacco settlement funds to develop a state-of-the-art cancer research center in Oklahoma City and a satellite clinic in Tulsa. To date, no funds have been used for development of the cancer center. However, last year, a tobacco sales tax increase that is designated specifically for the cancer center was passed. Tobacco settlement funds are governed by a 2000 ballot initiative, which established the Tobacco Settlement Endowment Trust Fund. The Trust's Board has committed the first five years of funding to support only tobacco prevention and cessation programs.

Pennsylvania

In 2001, the state enacted a plan for its share of tobacco settlement money that included $160 million in one-time outlays for research and commercialization of life sciences technologies (see the June 29, 2001 issue of the Digest). Of the total, $100 million was slated for three Life Sciences Greenhouses based at research universities in Philadelphia, Pittsburgh, and Central Pennsylvania. Each Greenhouse receives $33 million in start-up funding over five years, and each has developed a mechanism to support commercialization research or early-stage financing. The program is coordinated with a parallel initiative that invests in three bioscience-oriented venture capital funds in the state. In 2003, Pennsylvania's Tobacco Settlement Board (TSIB) approved a commitment of up to $20 million to Birchmere Ventures III LP to invest in life sciences companies. The commitment will leverage the Tobacco Settlement money three-to-one by raising $30 million from other sources to an initial $10 million made available by the TSIB (see the Dec. 5, 2003 issue of the Digest).

Virginia

Earlier this month, Virginia's Tobacco Commission approved $38 million in grants for various economic development projects. Approximately $23 million is slated for 16 technology-related projects, including installing high-speed fiber-optic networks and telecommunications in several communities. In May, the commission announced it had secured a $389 million endowment to support technology and economic development projects. The commission distributes its funds through several economic-development related initiatives including: small business financing to support entrepreneurship programs in the Southside and Southwest regions of Virginia; an industrial inducement fund called the Tobacco Region Opportunity Fund; and, an economic development fund. The commission anticipates receiving more than $572 million in tobacco settlement funds annually through 2007, then dropping to $152 million each year after that until 2017.

Sources for this story include: State Tobacco Settlement Report available at: http://www.tobaccofreekids.org/reports/settlements/, and Laboratories of Innovation: State Bioscience Initiatives 2004 available at: http://www.bio.org/local/battelle2004/