Vermont will see a $28 million windfall thanks to a settlement between the state Attorney General’s Office and the tobacco industry.
In announcing the settlement deal on Thursday, officials said $14 million will go toward the state’s ongoing efforts to combat the opioid-addiction crisis.
The other $14 million is up for grabs. And it arrives at a fortuitous time, as lawmakers are working through the details of the state’s fiscal year 2019 budget, which includes some potentially painful cuts.
“We all have different ideas of what to do with the money,” Gov. Phil Scott said. “I can just say, from my standpoint, we’ll work together in order to come to some conclusion that gives the most benefit to Vermonters and gives the highest rate of return.”
Vermont is one of 46 states that receives annual payments from the tobacco industry as part of a “master settlement agreement” inked in 1998. That deal resolved lawsuits filed by states over the health effects of smoking, and the settlement was signed “in order to further the settling states’ policies designed to reduce youth smoking, to promote the public health and to secure monetary payments.”
In fiscal year 2017, Vermont received nearly $34.8 million from the master settlement agreement. That money was divided among the Agency of Human Services, the Department of Health, the Attorney General’s Office, the Agency of Education, the Department of Liquor Control and the Judiciary.
Each year, the majority of Vermont’s tobacco money is allocated to Agency of Human Services’ “global commitment” budget in order to draw down matching federal funds for health initiatives and other issues.
The money announced Thursday, however, is separate from that annual allocation.
Instead, it has to do with a complex mechanism by which a state’s yearly settlement payment risks being reduced unless that state can show in arbitration that it “diligently enforced” tobacco laws against cigarette manufacturers that didn’t sign the 1998 agreement.
There’s a lot of money at stake for states in those deliberations, which can be protracted and costly. But Vermont officials now say they have settled 14 years of arbitration disputes, resulting in an additional payment of $28 million from the tobacco companies.
Theoretically, Vermont could have gotten millions more by fighting over and winning adjustment disputes for each year. But state Treasurer Beth Pearce said she reviewed the attorney general’s settlement and found it satisfactory.
“We think it’s the best possible deal for the state and in the taxpayers’ interest today,” Pearce said. “When you talk about money, a dollar in the present is worth more than a dollar in the future because of inflation and the interest rates.”
There’s always a risk, Pearce said, of losing money as a result of unsuccessful litigation. That risk is real when it comes to tobacco-payment disputes, as officials say a state that loses in arbitration could lose its entire master settlement allocation for that year.
“In addition to avoiding financial risk, the settlement today avoids the time and cost of potential litigation,” Pearce added.
Chris Curtis, chief of the attorney general’s Public Protection Division, said there’s an “escalator clause” that increases Vermont’s allocations for the later years covered by the settlement. For example, the state is getting only 54 percent of the disputed amounts for 2004-2012, but that rises to 75 percent for 2015-17.
“We got a progressively better result for Vermonters over time,” Curtis said.
State officials have decided that half of the settlement will be earmarked for opiate-related initiatives. Given the source of the money, that’s fitting, Attorney General TJ Donovan said.
“When you look at the master settlement agreement in 1998 … that was to address the biggest public health issue that was facing our country at that time,” Donovan said. “I think we could say that, in Vermont and across this country, the biggest public health issue today is the opiate crisis.”
It’s not yet clear what addiction initiatives the state will prioritize. Scott said he will seek guidance from his Opioid Coordination Council and will focus on prevention, treatment, recovery and enforcement.
“With the guidance of the (council), I propose we invest in responses to this crisis that focus on what we can do together, as a community,” Scott said. “In the coming days and weeks, we will be working to identify the most impactful ways to invest these dollars.”
The remainder of the money could end up just about anywhere: Officials said there are no restrictions on its use.
House Speaker Mitzi Johnson noted that “we’re in the final stages of finalizing the House’s version of the state budget” for fiscal 2019.
A team led by House Human Services Chair Ann Pugh, D-South Burlington, and House Appropriations Chair Kitty Toll, D-Danville, is “working hard to define precisely how this $14 million could be spent,” Johnson said.
“I want to be sure that we’re not using that $14 million to just sort of patch holes here and there, but we’re strategically investing it in things that are really going to help Vermont,” she said.
Toll said the money should be used for one-time allocations rather than for ongoing obligations. She followed Pearce’s lead in suggesting that the cash could help shore up Vermont’s pension fund, but Toll also emphasized the value of cash reserves.
“This committee has stated how important it is to build our reserves to be prepared for the next downturn,” Toll said.
Senate President Pro Tem Tim Ashe said it’s a “very wonderful legislative problem to have more dollars than we anticipated to meet all the needs that we have in the state.”
But Ashe said he wanted to focus on the idea that “some sense of public health justice has been achieved today.”
“The reason this money is available is because there was an industry that was knowingly ruining people’s health,” Ashe said.
