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S. HRG. 108–1015 

STATE SPENDING OF 

TOBACCO SETTLEMENT REVENUES 

HEARING 

BEFORE THE

COMMITTEE ON COMMERCE, 

SCIENCE, AND TRANSPORTATION 

UNITED STATES SENATE 

ONE HUNDRED EIGHTH CONGRESS 

FIRST SESSION 

NOVEMBER 12, 2003 

Printed for the use of the Committee on Commerce, Science, and Transportation 

( 

(II) 

SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION 

ONE HUNDRED EIGHTH CONGRESS 

FIRST SESSION 

JOHN MCCAIN, Arizona, Chairman 

TED STEVENS, Alaska 

CONRAD BURNS, Montana 

TRENT LOTT, Mississippi 

KAY BAILEY HUTCHISON, Texas 

OLYMPIA J. SNOWE, Maine 

SAM BROWNBACK, Kansas 

GORDON H. SMITH, Oregon 

PETER G. FITZGERALD, Illinois 

JOHN ENSIGN, Nevada 

GEORGE ALLEN, Virginia 

JOHN E. SUNUNU, New Hampshire 

ERNEST F. HOLLINGS, South Carolina, 

Ranking 

DANIEL K. INOUYE, Hawaii 

JOHN D. ROCKEFELLER IV, West Virginia 

JOHN F. KERRY, Massachusetts 

JOHN B. BREAUX, Louisiana 

BYRON L. DORGAN, North Dakota 

RON WYDEN, Oregon 

BARBARA BOXER, California 

BILL NELSON, Florida 

MARIA CANTWELL, Washington 

FRANK R. LAUTENBERG, New Jersey 

JEANNE BUMPUS, Republican Staff Director and General Counsel 

ROBERT W. CHAMBERLIN, Republican Chief Counsel 

KEVIN D. KAYES, Democratic Staff Director and Chief Counsel 

GREGG ELIAS, Democratic General Counsel 

(III) 

C O N T E N T S 

Page 

Hearing held on November 12, 2003 ...................................................................... 1 

Statement of Senator Lautenberg .......................................................................... 37 

Prepared statement .......................................................................................... 37 

Statement of Senator Lott ...................................................................................... 39 

Statement of Senator McCain ................................................................................. 1 

Prepared statement .......................................................................................... 2 

Statement of Senator Nelson .................................................................................. 47 

WITNESSES

Durbin, Hon. Richard, U.S. Senator from Illinois ................................................. 42 

Prepared statement .......................................................................................... 42 

Healton, Dr. Cheryl G., President and CEO, American Legacy Foundation ...... 3 

Prepared statement .......................................................................................... 5 

Hudson, Hon. Deborah, Chair, Revenue and Finance Committee, Delaware 

House of Representatives, On behalf of the National Conference of State 

Legislatures .......................................................................................................... 16 

Prepared statement .......................................................................................... 19 

Moore, Hon. Mike, Attorney General, State of Mississippi .................................. 30 

Prepared statement .......................................................................................... 33 

Myers, Matthew, President, Campaign for Tobacco-Free Kids ............................ 8 

Prepared statement .......................................................................................... 10 

Scheppach, Raymond C., Executive Director, National Governors Association . 24 

Prepared statement .......................................................................................... 25 

APPENDIX

Article dated November 14, 2003 from MMWR Weekly entitled ‘‘Tobacco Use 

Among Middle and High School Students—United States, 2002’’ ................... 65 

Letter dated November 14, 2003 to Hon. John McCain from Cheryl G. Helton, 

Dr.P.H., President and CEO, American Legacy Foundation ............................ 64 

Letter dated November 24, 2003 to Hon. John McCain from John F. Scruggs, 

Vice President, Government Affairs, Altria Group, Inc. ................................... 70 

Letter dated October 17, 2003 to Hon. Dennis Eckhart, Senior Assistant 

Attorney General, State of California from Howard A. Willard III, Senior 

Vice President, Youth Smoking Prevention, Philip Morris USA ..................... 73 

Ross, Sheila M., Washington Representative, Alliance for Lung Cancer Advocacy, Support and Education (ALCASE), prepared statement ......................... 62 

Seffrin, Ph.D., John R., Chief Executive Officer, American Cancer Society, 

prepared statement .............................................................................................. 59 

(1) 

STATE SPENDING OF 

TOBACCO SETTLEMENT REVENUES 

WEDNESDAY, NOVEMBER 12, 2003 

U.S. SENATE, COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION, Washington, DC. 

The Committee met, pursuant to notice, at 9:30 a.m. in room SR– 

253, Russell Senate Office Building, Hon. John McCain, Chairman 

of the Committee, presiding. 

OPENING STATEMENT OF HON. JOHN McCAIN, 

U.S. SENATOR FROM ARIZONA 

The CHAIRMAN. Good morning. Today’s hearing gives the Committee an opportunity to learn more about how states are spending 

revenues derived from the $247 billion Master Settlement Agreement, MSA, that was reached in 1998 between the states and the 

Nation’s four largest tobacco companies. As this month marks the 

5-year anniversary of the MSA, now is an appropriate time to revisit the effects of the agreement. 

I would like to have our witnesses come forward now. 

In the U.S. alone, an estimated 400,000 people die each year as 

a result of a smoking-related illness, which equates to approximately 1,200 smoking-related deaths per day. Nearly 2,000 children start smoking each day. Sixty percent of smokers in this country begin before the age of 14, and nearly 90 percent become addicted by age 19. While the Surgeon General estimates that 75 percent of smokers want to quit, only slightly over 2 percent actually 

succeed each year. Globally, the World Health Organization estimates that eight out of a hundred people who are currently alive 

will die from smoking. 

These statistics underscore the importance of both investing in 

tobacco prevention programs and preventing targeted tobacco marketing designed to allure our children. The MSA settled lawsuits 

filed by numerous states seeking reimbursement for decades of 

healthcare expenditures on tobacco-related illnesses and deaths. 

While the MSA does not direct how states allocate their settlement 

payments, one of the most recurring and dominant refrains of state 

officials pursuing litigation was the critical need to reduce the use 

of tobacco products by our youth. In fact, several of the recitals set 

forth in the beginning of the MSA expressly indicate the settling 

state’s intention to dedicate significant MSA fundings to the reduction of youth smoking. 

In addition, in a resolution that was passed in 1999 and 2001 by 

the members of the National Governors Association, the Nation’s 

2 

Governors committed to spending, ‘‘a significant portion of the settlement funds on smoking-cessation programs.’’ However, the state 

legislatures have committed their settlement revenues for other 

purposes. The NGA’s promises have eroded over time. This fact is 

most apparent in its 2003 resolution that omits any reference to 

spending settlement funds on smoking-cessation programs. 

The Campaign for Tobacco-Free Kids is expected today to release 

a report that confirms that the vast majority of states are failing 

to live up to their promises to fund tobacco-related programs. The 

report will show that only four states are funding tobacco prevention programs at the minimum recommended level suggested by 

the U.S. Centers for Disease Control, a level that typically amounts 

to only a fraction of a state’s overall tobacco revenue. Despite the 

nearly $20 billion the states expect to receive from the MSA in Fiscal Year 2004, states will spend less than 3 percent of that total 

on tobacco prevention programs, which is less than half the CDC’s 

recommended funding level. 

We are all fully aware of the budget shortfalls that are being experienced by the states, but isn’t an ounce of prevention better 

than a pound of cure, from both a long-term economic perspective 

and a moral perspective? I’d like to better understand why states 

are, to a large degree, ignoring the problem of youth smoking. 

The Surgeon General testified in the year 2000, before this Committee, that smoking prevention programs work and that proper 

funding of these programs could cut smoking rates in half by 2010. 

I believe that the MSA settlement revenues may be our best chance 

to dramatically reduce smoking rates, especially among our children. 

Before we proceed any further, I want to mention my disappointment that the U.S. Department of Health and Human Services declined our invitation to have the CDC appear today. Perhaps that’s 

an indication of the Department of Health and Human Services’ involvement and interest in this issue. 

[The prepared statement of Senator McCain follows:] 

PREPARED STATEMENT OF HON. JOHN MCCAIN, U.S. SENATOR FROM ARIZONA

Good morning. Today’s hearing gives the Committee an opportunity to learn more 

about how states are spending revenues derived from the $247 billion Master Settlement Agreement (MSA) that was reached in 1998 between the states and the Nation’s four largest tobacco companies. As this month marks the five-year anniversary 

of the MSA, now is an appropriate time to revisit the effects of the agreement. 

In the U.S. alone, an estimated 400,000 people die each year as a result of a 

smoking-related illness, which equates to approximately 1,200 smoking-related 

deaths per day. Nearly 2,000 kids start smoking each day. Sixty percent of smokers 

in this country begin before the age of 14, and nearly 90 percent become addicted 

by age 19. While the Surgeon General estimates that 75 percent of smokers want 

to quit, only slightly over two percent actually succeed each year. Globally, the 

World Health Organization estimates that eight out of 100 people who are currently 

alive will die from smoking. These statistics underscore the importance of both investing in tobacco prevention programs, and preventing targeted tobacco marketing 

designed to lure our children. 

The MSA settled lawsuits filed by numerous states seeking reimbursement for 

decades of health-care expenditures on tobacco-related illnesses and deaths. While 

the MSA does not direct how states allocate their settlement payments, one of the 

most recurring and dominant refrains of state officials pursuing the litigation was 

the critical need to reduce the use of tobacco products by our youth. In fact, several 

of the recitals set forth in the beginning of the MSA expressly indicate the settling 

3 

states’ intention to dedicate significant MSA funds to the reduction of youth smoking. 

In addition, in resolutions passed in 1999 and 2001 by the members of the National Governors Association (NGA), the Nation’s Governors committed to spending 

‘‘a significant portion of the settlement funds on smoking cessation programs.’’ However, as state legislatures have committed their settlement revenues for other purposes, the NGA’s promises have eroded over time. This fact is most apparent in its 

2003 resolution that omits any reference to spending settlement funds on smoking 

cessation programs. 

The Campaign for Tobacco Free Kids is expected today to release a report that 

confirms that the vast majority of states are failing to live up to their promises to 

fund tobacco-related programs. The report will show that only four states are funding tobacco prevention programs at the minimum recommended level suggested by 

the U.S. Centers for Disease Control (CDC), a level that typically amounts to only 

a fraction of the states’ overall tobacco revenue. Despite the nearly $20 billion the 

states expect to receive from the MSA in Fiscal Year 2004, states will spend less 

than three percent of that total on tobacco prevention programs; which is less than 

half of the CDC’s recommended funding level. 

We are all fully aware of the budget shortfalls that are being experienced by the 

states, but isn’t an ounce of prevention better than a pound of cure? From both a 

long-term economic perspective and a moral perspective, I would like to better understand why states are, to a large degree, ignoring the problem of youth smoking. 

The Surgeon General testified in 2000 before this Committee that smoking prevention programs work, and that proper funding of these programs could cut smoking rates in half by 2010. I believe that the MSA settlement revenues may be our 

best chance to dramatically reduce smoking rates, especially among our children. 

Before we proceed any further, I want to mention my disappointment that the 

U.S. Department of Health and Human Services (HHS) declined our invitation to 

have the CDC appear today. I thank the witnesses for being here and I look forward 

to your testimony. 

The CHAIRMAN. Our witnesses today are the Honorable Mike 

Moore, Attorney General of the State of Mississippi; Mr. Matt 

Myers, President of Campaign for Tobacco-Free Kids; Mr. Raymond 

C. Scheppach, the Executive Director of the National Governors Association; the Honorable Deborah Hudson, Delaware State Legislature; and Dr. Carol Healton, President and CEO of the American 

Legacy Foundation. 

Dr. Healton, we’ll begin with you. 

STATEMENT OF DR. CHERYL G. HEALTON, PRESIDENT AND 

CEO, AMERICAN LEGACY FOUNDATION 

Dr. HEALTON. Chairman McCain, Senator Hollings, and other 

distinguished Members of the Committee, I deeply appreciate this 

opportunity to testify on behalf of the American Legacy Foundation. 

Our mission is to build a world where young people reject tobacco 

and anyone can quit. Every day in America, 1,200 lives are lost to 

tobacco-related disease. On that same day, 4,400 young people 

under the age of 18 smoke their first cigarette. 

We are the national foundation born of the Master Settlement 

Agreement and funded through dollars directed to us by the states. 

Among the members of our Board are two—of directors—are two 

representatives each, designated by the National Association of Attorneys General, the National Governors Association, the National 

Conference of State Legislatures. I am especially pleased to serve 

on a panel with these organizations. 

Governor Napolitano, of Arizona, currently serves as one of the 

NGA representatives on our board, and she sends her special greetings to you, Chairman McCain. 

4 

We are here, not to lobby today, but rather to assist the Committee in its oversight responsibilities by sharing our insights and 

experiences regarding the use of the MSA funds by the states. Perhaps because of our board’s structure, Legacy is sensitive to the 

Solomon-like choices that must be made by states facing unprecedented budget deficits and escalating demands for resources. Nonetheless, we must add our voice to the public-health chorus that 

would remind states of the long-term consequences of today’s decision to rob Peter to pay Paul. The tobacco epidemic costs the U.S. 

$158 billion a year and hundreds of thousands of lives needlessly 

lost. 

Because only a small proportion of the original funds disbursed 

to the states via the MSA have been spent by the states to prevent 

or reduce tobacco use, and because of recent budget shortfalls, Legacy has become a de facto safety net at the national level. It is a 

role that will be increasingly difficult for Legacy to fulfill. 

At a time when state programs are critically wounded or disappearing, including some of the most effective, like those in California, Florida, Massachusetts, or Oregon, Legacy is faced with its 

own funding cliff, which is shown on the charts here. 

Payments would be made to Legacy under the agreement only if 

the participating manufacturers controlled 99.05 percent of the 

market share of tobacco sales nationally. Last April, Legacy received what it believes to be its last major payment, pursuant to 

the MSA, and that payment would be $330 million, so the wound 

is quite critical. In 2001 alone, the tobacco industry spent a record $11.2 billion marketing their products, up by $5 billion since the MSA was 

signed, and outspending Legacy’s national public-education campaign 200-to-one. 

So far, Legacy, along with others, has been able to hold its 

ground in the David-versus-Goliath struggle, and youth smoking is 

now at its lowest level in 28 years. We are proud of the role Legacy 

has played in this life-saving effort. Programs like our award-winning Truth Youth Counter-Marketing Campaign have been cited as 

one of the reasons for the sharp and accelerating declines in youth 

smoking. Circle of Friends, another of our signature programs, provides social support for women smokers, 70 percent of whom want 

to quit. I am wearing a Circle of Friends pin, which symbolizes my 

support for the 20-million-plus women who are struggling to quit 

smoking. The encouraging trends in youth smoking rates and the 

number of people who have quit smoking could end tomorrow, but 

they don’t have to end. 

I’d like to conclude my testimony by issuing four challenges to 

the Committee and a pledge from Legacy. We must recommit, as 

a Nation, to youth smoking prevention. The American Legacy 

Foundation pledges to partner with the states to fund programs 

like Truth. Already, Legacy has spent over $3 million in coops with 

the state and has committed six million next year of our own foundation funds for cooperative agreements with 15 states, including 

some of those Committee Members represent. 

We must turn our attention to the 47 million Americans who are 

smokers, most of whom want to quit, and the 177 million remaining Americans who should help them. Over the course of the comVerDate Nov 24 2008 06:23 Aug 10, 2016 Jkt 075679 PO 00000 Frm 00008 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\21176.TXT JACKIE
5 

ing year, the American Legacy Foundation is committed to leading 

a consortium of partners to raise $100 million, about $2 per smoker, to assist the states and the Nation in motivating and helping 

smokers to quit. 

We must encourage new and expanded public-private partnerships to help increase the lifesaving benefits of prevention programs and smoke-free workplaces throughout the country. Legacy 

proudly salutes those private sector partners that have already 

joined with us, including Avon, QVC, Novartis, the BlueCross/ 

BlueShield Association, and the Entertainment Industry Foundation. 

Finally, Legacy urges this Committee and the U.S. Congress to 

continue your oversight responsibilities, tracking the progress of 

the MSA, and encouraging the Federal Government to find appropriate avenues to become a more direct partner in tobacco prevention and cessation programs at the national level. 

Legacy’s role as a crucial funding and strategic counterweight 

against the tobacco industry will continue. We pledge that our efforts to partner with those states and organizations that are genuinely committed to the moral contract they made in the MSA will 

be redoubled in the months and years ahead. 

Mr. Chairman, I commend you for holding today’s important 

oversight hearing, and thank you for including the American Legacy Foundation on the panel. I would be pleased to respond to 

questions. 

[The prepared statement of Dr. Healton follows:] 

PREPARED STATEMENT OF DR. CHERYL G. HEALTON. PRESIDENT AND CEO, 

AMERICAN LEGACY FOUNDATION

Chairman McCain, Senator Hollings, and other distinguished Members of the 

Committee, I deeply appreciate this opportunity to testify on behalf of the American 

Legacy Foundation. Our mission is to build a world where young people reject tobacco and anyone can quit. 

We are the national foundation borne of the Master Settlement Agreement (MSA) 

and funded through dollars directed to us by the states. Our Board of Directors includes among its members two representatives each designated by the National Association of Attorneys General, the National Governors Association, and the National Conference of State Legislatures. I am thus especially pleased to serve on a 

panel with representatives from those organizations. Governor Napolitano of Arizona currently serves as one of the NGA representatives on our Board and she 

sends her special greetings to you Chairman McCain. 

Chairman McCain and Members of the Committee, let me say at the outset that 

Legacy is prohibited from lobbying pursuant to the terms of the MSA. Today, we 

are here not to lobby, but rather to assist the Committee in its oversight responsibilities, by sharing our insights and experiences regarding the use of MSA funds. Because of the unique circumstances of our birth, the American Legacy Foundation is 

a creature of the states. Therefore, we feel well qualified to share our views regarding the significant progress that has been made at the state level as a result of the 

MSA. And, we are equally qualified to point out where states have fallen short— 

despite the infusion of funds by the MSA—because of competing fiscal priorities. 

The Centers for Disease Control (CDC) issued their Best Practices for Comprehensive Tobacco Control Programs guidelines in August of 1999, with a call to action 

on the percentage of funds that should be spent by each state for tobacco control 

programs. These recommendations became an important benchmark for the public 

health community. In 2003, the states will spend only 8 percent of the total tobacco 

settlement revenues they are expected to receive this year. That translates to just 

$682 million dollars that are committed to tobacco control programs of $8.7 billion 

total. Most states have failed to meet the minimum recommendations set forth by 

the CDC to promote tobacco prevention programs, let alone the ideal funding level 

6 

which could aggressively address the epidemic of tobacco-related death and disability. 

Every day in America, 1,200 lives are lost to tobacco-related disease. On that 

same day, 4,400 young people under the age of 18 take their first puff of a cigarette, 

steering many of them down the road to a lifetime of tobacco addiction. Because 

lives are at stake, advocates from the tobacco control, medical and public health 

communities in the states are understandably disappointed that so few of the MSA 

dollars have been devoted to tobacco control programs. And the alarming trend 

shows no sign of abatement. Compounding the problem, some of the most effective 

state programs have already been lost or critically wounded, including California, 

Massachusetts, Oregon and Florida. Many feel strongly that the States have squandered an unprecedented opportunity to save lives and have argued that decisions 

to direct all—or virtually all—MSA dollars to other programs are especially short 

sighted in economic terms since smoking cessation dramatically reduces the enormous sums needed to treat sick and dying smokers in the long term and greatly 

curtails productivity losses. The tobacco epidemic costs the U.S. 158 billion dollars 

a year. 

Perhaps because of our board structure, Legacy is uniquely sensitive to the Solomon-like choices that often must be made by states that are facing unprecedented 

budget deficits and escalating demands for resources. However, we must nonetheless add our voice to the public health chorus that would remind States of the long 

term consequences of today’s decision to rob Peter to pay Paul—including millions 

of lives needlessly lost and billions of dollars spent on preventable death and disease. 

Because only a small portion of the original sums disbursed to the States via the 

MSA have been spent by the states to prevent or reduce tobacco use, Legacy has 

become a de facto safety net at the national level to fill many of these gaps. It is 

a role that will be increasingly difficult for Legacy to fulfill. 

Notably, at a time when state programs are disappearing, Legacy is facing its own 

funding cliff as a result of what was in essence a ‘‘sunset provision’’ in the MSA. 

That cliff is shown on the chart here. 

Specifically, Legacy was only guaranteed major payments from the states via the 

participating manufacturers for the first five years. Thereafter, payments would be 

made to Legacy only if the participating manufacturers controlled 99.05 percent 

market share of tobacco sales nationally. Because of the number of small companies 

not participating in the MSA, the 99.05 threshold was never met—although there 

were strong incentives built in to join the agreement. Last April, Legacy received 

what it believes will be its last major payment pursuant to the MSA. 

The sun is setting at a time when the industry is spending more than ever before 

on its marketing and advertising campaigns. In 2001 alone, the tobacco industry 

spent a record $11.2 billion dollars marketing their products—up by 5 billion dollars 

since the MSA was signed. Although Legacy does its share of counter marketing 

through the truth® campaign and other programs, the industry routinely outspends 

us by 200 to 1. 

So far, Legacy—along with others—has been able to hold its ground in this David 

vs. Goliath battle. But the threat of litigation haunts any successful tobacco-control 

advertising campaign—as you have witnessed in the State of California—and as the 

American Legacy Foundation currently finds itself engaged in the State of Delaware. Simply put, our foundation is working to save lives and the tobacco companies 

are in business to sell cigarettes. Effective efforts to reduce smoking that significantly decrease industry marketshare, have been met with long-term litigation that 

serves to distract us from our mission, rob us of limited resources and if successful, 

can ultimately silence our work and close our doors. 

Smoking is at its lowest level in 28 years. The American Legacy Foundation is 

proud of this achievement by the community as a whole, including the states. 

We are also proud of the role Legacy has played in securing this success through 

our programs, such as truth® our award-winning youth counter marketing campaign that has been cited as one of the reasons for the sharp declines in youth tobacco use. We are also proud of ‘‘Great Start,’’ our innovative cessation program for 

pregnant women, which was the brainchild of the former First Lady of Utah, Jackie 

Leavitt. The program worked with 20 First Ladies to spread the word to women 

about the benefits of quitting before and during pregnancy and staying smoke free. 

‘‘Circle of Friends’’ is another signature foundation campaign designed to provide 

social support for women smokers, 70 percent of who want to quit but need strong 

social support to be successful in the long-term. I am wearing a Circle of Friends 

pin today, which symbolizes my support for the over 20 million women who are 

struggling to quit smoking. 

7 

Mr. Chairman, on the anniversary of the MSA, we are at a crossroads. The encouraging trends in the number of people who have quit smoking and the number 

of youth who never start could end tomorrow. But they don’t have to end. The MSA 

still has decades left to achieve the vision of a smoke free society—and the American Legacy Foundation is committed to staying the course, to help shape a society 

where all young people reject tobacco and anyone can quit. 

The past five years have taught us a great deal about what works in the effort 

to get the truth® about tobacco to the American people—especially our youth. We’ve 

also learned that it takes a partnership between states, Federal agencies, and private organizations such as Legacy to address the nationwide tobacco epidemic. We 

are working aggressively to forge partnerships with our colleagues in tobacco-control 

and public health as well as states, national organizations and corporate America, 

who share in our conviction that working together, we can eliminate tobacco addiction and achieve healthier and longer lives for all Americans. But, these partnerships require the states to remain committed to the spirit of the MSA and require 

all of us to remain actively engaged. 

I’d like to end my testimony by issuing four challenges to the Committee and a 

pledge from Legacy: 

(1) We must re-enforce and renew our commitment as a nation, and in the individual states, to youth tobacco prevention. The American Legacy Foundation 

pledges to partner with the states in funding programs like truth®. Already, 

Legacy has spent over $3 million—with a commitment to spend $6 million— 

of our own foundation funds on cooperative agreements with 15 states from 

coast to coast, like Alaska, Arkansas, Indiana, Kentucky, New Mexico, New 

York and Wisconsin, to leverage state dollars with Legacy funds to provide 

sustainable state-led efforts. 

(2) We must turn our attention to the 47 million Americans who are smokers, 

most of whom want to quit, and the 177 million remaining Americans who 

need to help them quit. Over the course of the coming years, the American 

Legacy Foundation is committed to leading a consortium of partners in raising 

100 million dollars—about $2 per smoker—to assist the states and our Nation 

in motivating and assisting smokers to quit. 

(3) We must encourage new and expanded public/private partnerships between 

business, unions, communities, states and the Federal Government that will 

help us expand the life-saving benefits of prevention programs and smoke-free 

workplaces throughout the country. Legacy proudly salutes those private sector partners that have already joined us including Avon, QVC, Novartis, the 

Blue Cross Blue Shield Association, the Entertainment Industry Foundation 

and others. We need more businesses, associations and organizations to join 

us in these efforts. 

(4) Finally, Legacy urges this committee and the United States Congress to continue your oversight responsibilities, tracking the progress of the MSA and encouraging the Federal Government to find appropriate avenues to become a 

more direct partner in tobacco prevention programs at the national level. 

Here, as well, Legacy pledges our support and full partnership with you. 

We are putting our faith in the proven power of partnership to help us achieve 

the promise of a smoke-free future. Legacy’s role as a crucial funding and strategic 

counter-weight against the tobacco industry will continue, and I pledge to this committee that our efforts to partner with those states and organizations who are genuinely committed to the moral contract they made in the MSA will be redoubled in 

the months and years ahead. 

Mr. Chairman, smoking is the number one killer in America today and all of these 

deaths are completely preventable. The American Legacy Foundation offers our resources, depth of knowledge and fierce determination to help states, and the Nation 

as a whole, meet these challenges. We commend you for holding today’s important 

oversight hearing and thank you for including The American Legacy Foundation’s 

on the panel. 

The CHAIRMAN. Thank you very much. 

Mr. Myers? 

8 

STATEMENT OF MATTHEW MYERS, PRESIDENT, 

CAMPAIGN FOR TOBACCO-FREE KIDS 

Mr. MYERS. Mr. Chairman and Members of the Committee, first 

I want to thank you very much for holding this hearing. The spotlight you shine on how the tobacco settlement money is one of the 

most important public health issues of our time. 

Let me briefly summarize our testimony. As you correctly said, 

when the states sued the tobacco industry and when they settled, 

they said that they were both suing and settling for very specific 

purposes. They were trying to stop an epidemic of tobacco use 

among children, and they were trying to stop the crushing rise in 

Medicaid costs the states were experiencing due to tobacco-related 

diseases. 

These quotes are typical. Pennsylvania Attorney General Mike 

Fisher, ‘‘Emphysema, heart disease, cancer, more than 20,000 

Pennsylvanians die from tobacco-related diseases each year. This 

money will not bring back those who have died, but it may be used 

to keep others from starting this deadly habit.’’ 

West Virginia Attorney General Darrell McGraw, ‘‘The reason we 

got into this fight was to protect public health and prevent underage smoking. A significant portion of this money should go toward 

these curses.’’ 

When the states came to this Committee and to Congress in 1999 

and asked you to waive any potential right the Federal Government had to direct the spending of that money, or to its share of 

that money so that the Federal Government would have more 

funds to fight this battle, they also made specific promises. You correctly quoted the National Governors Association’s resolution. But 

in May 1999, the National Governors Association said something 

else, and I quote, ‘‘States are already spending state funds on 

smoking-cessation programs and will substantially increase funding as the effectiveness of these programs is established.’’ 

Mr. Chairman and Members of the Committee, as I will note 

later on in our report, the effectiveness of these programs has been 

established, and the states have done just the opposite. 

Three years ago, you held a hearing. At that time, you were 

harshly critical, as were we, of the fact that the states were only 

spending 9 percent of the tobacco settlement money at that time 

on tobacco prevention programs. Well, today we and the American 

Cancer Society, the American Heart Association, and the American 

Lung Association are issuing a new report entitled, ‘‘A Broken 

Promise To Our Children.’’ What it shows is that the case has become substantially worse. The amount of money the states are now 

spending on tobacco prevention has dropped by 28 percent in the 

last 2 years. It is now down to $541.1 million out of a total of that 

the states have received this year from tobacco excise taxes and tobacco settlement money of over $19 billion. 

Mr. Chairman and Members of the Committee, we can’t win this 

war if we don’t wage it, and currently we are not waging it. 

The situation is even worse in another respect. The cuts in tobacco spending have decimated some of the most effective programs 

this Nation has ever seen, programs whose effectiveness is beyond 

debate, programs that have already saved lives, programs in California, Massachusetts, and Florida, which have proven they can 

9 

dramatically drive down tobacco-use rates. And yet today, Massachusetts and Florida’s programs barely exist, and California’s program has been cut in half. 

This tragedy comes about at a time when the need for strong action is greater, not less than it was 5 years ago. We had hoped that 

the tobacco industry would take advantage of the Master Settlement Agreement to decrease their targeting of young people and 

young people’s exposure to tobacco marketing. The data shows that 

they have done just the opposite of that. There’s a chart in our report that shows that in the 3 years after the Master Settlement 

Agreement, tobacco marketing actually increased by 66 percent to 

a record $11.5 billion. What does that mean today? It means that 

today the tobacco industry is spending $20 marketing this product 

for every dollar the states are spending to prevent the sale of its 

product. What it means is that in 3 weeks, the tobacco industry 

spends more money marketing its products than all of the states 

combined spend in an entire year. 

What does that mean? The variation from state to state is dramatic. States like Maine and Delaware, that have committed substantial funds to this program, are only being outspent three to 

one, and it’s the reason we’re seeing results in those states. But a 

state like Florida, whose program was a model for the Nation when 

it was created, whose program resulted in the most dramatic decrease in youth tobacco use in history over a 4-year period, is now 

being outspent 655 to one by the tobacco industry. We’re already 

seeing smoking rates among the youngest kids in Florida turn 

around. It isn’t an accident that it’s happening. 

And that’s the critical fact, Mr. Chairman. We’re not asking the 

states to spend money on unproven programs. We’re asking the 

states to spend money on programs that are scientifically based, 

that have been fully evaluated, and that have been found to reduce 

tobacco use. 

Attorney General Moore, at the end, today, will talk about what’s 

going on in Mississippi, but Mississippi is not an isolated case. In 

Maine, they used the Master Settlement money to fund comprehensive tobacco prevention programs, increased excise taxes, and expanded clean indoor air. Maine went, in 4 years, from a state with 

the worst youth smoking rates to one of the best, from over 39 percent to 20 percent. 

Mr. Chairman, we have—we have an antidote to lung cancer. We 

know how to prevent lung cancer from ever happening if we would 

only spend the money that the states promised to spend. We know 

that budget times are tight. But when you compare the results of 

our study with the published data from the states, what you find 

is that in this fiscal year the states are spending more money on 

tobacco farmers than they’re spending on tobacco prevention. 

Our organization has worked with tobacco farmers. We want to 

help them. But it is a tragedy beyond comprehension, it is political 

malpractice, for a nation to be spending its money this way. 

They’re hard choices. That’s why we elect public officials, to make 

hard choices. These funds came for a specific purpose. We don’t 

need to spend all of them. If the states will spend just 8.2 percent 

of the tobacco revenue they’re receiving on tobacco prevention and 

10 

cessation programs, they can meet the minimum recommended by 

the CDC. This is not a partisan issue. 

The current director of the CDC issued a report only 2 months 

ago that carefully evaluated the effectiveness of tobacco prevention 

programs and isolated the impact of tobacco prevention from smuggling, excise taxes, and other factors. And this is what the current 

director of the CDC said at that time, ‘‘This study provides our 

clearest evidence to date that tobacco control programs are an excellent investment in public health.’’ 

Mr. Chairman, we applaud this Committee for holding this hearing. Literally, the lives of millions of our children are at stake. We 

hope this hearing is the first step in a real focus in asking the 

question how we can ensure that the states spend the money that 

they say they received to deal with the problem of tobacco control 

to help protect our Nation’s children. 

Thank you. 

[The prepared statement of Mr. Myers follows:] 

PREPARED STATEMENT OF MATTHEW MYERS, PRESIDENT, 

CAMPAIGN FOR TOBACCO-FREE KIDS

Good morning Mr. Chairman, and members of the Committee. My name is Matthew Myers. I am the President of the Campaign for Tobacco-Free Kids, a national 

organization created to protect children from tobacco by raising awareness that tobacco use is a pediatric disease, by changing public policies to limit the marketing 

and sales of tobacco to children, and by actively countering the special interest influence of the tobacco industry. 

Mr. Chairman, I want to thank you for your continued leadership on the issue 

of tobacco control. Many others and I are very grateful for your willingness to stand 

up for our kids, take on the tobacco companies, and hold the states accountable for 

living up to their commitment to spend a significant portion of the funds they received from the tobacco industry in settlement of their cases to prevent kids from 

starting to smoke and help adults to quit. 

Summary of Key Points 

Let me summarize my key points: 

(1) When the states sued the tobacco industry and then again when they settled 

their cases against the tobacco industry, they said they were doing so because 

of what they described as a tragic epidemic of tobacco use among children and 

the crushing and rising burden of tobacco-related disease on state Medicaid 

expenditures. Their goal and their promise was to insure that the states had 

adequate funds to address these problems. 

(2) When the states came to Congress in 1999 and asked the Federal Government 

to waive its claim to a portion of these funds, the leaders of the National Governors Association pledged to spend ‘‘a significant portion of the tobacco settlement funds on smoking cessation programs, health care, education and programs benefiting children’’ if Congress agreed to waive its right to any of these 

funds. 

(3) Over three years ago you held a hearing on the use of revenues from the tobacco settlement. This hearing took place before the states faced serious budget crises. At that hearing we released a report that showed the states were 

not then living up to their promise. Today we are releasing an update of that 

report and the picture has become significantly worse. The report released 

today by the Campaign for Tobacco-Free Kids, the American Cancer Society, 

the American Heart Association and the American Lung Association demonstrates that far fewer states are spending a significant amount of their tobacco settlement money on tobacco prevention and cessation. As of October 

2003, 24 states have cut their funding for tobacco prevention and cessation, 

including several of the programs that have proven most successful at reducing youth tobacco use, such as the programs in California, Massachusetts and 

Florida. It appears, sadly, that there is no relationship between success and 

continued funding. 

11 

(4) The failure of the states to do as they promised will have tragic consequences 

for the health of our Nation’s children and the amount taxpayers are forced 

to pay in the future to cover the costs of tobacco-related Medicaid expenditures. The scientific evidence is now conclusive-comprehensive tobacco prevention programs have been proven to be effective in reducing tobacco use, particularly among our Nation’s children. 

Every state that has implemented a well-funded tobacco prevention program in 

accordance with the guidelines issued by the Centers for Disease Control and Prevention (CDC) has experienced a significant reduction in tobacco use. The data from 

California, Washington, Oregon, Arizona, Minnesota, Alaska, Maine, Mississippi, 

Florida, New York, Massachusetts and Indiana all tell the same story. These programs work. 

As the current Director of the CDC, Dr. Julie Gerberding, said just two months 

ago in conjunction with the release of the most authoritative study ever done on the 

impact of tobacco control programs, ‘‘This study provides our clearest evidence to 

date that tobacco control programs are an excellent investment in public health.’’ 

Thus, the failure of the states to do what they promised their citizens and Congress is having very real world consequences. We too often think of tobacco in statistical terms. To tobacco victims-parents, children, grandchildren, husbands, wives 

and siblings tobacco’s victims are not statistics. A couple of examples from our 

website, ‘‘Voices Against Tobacco’’ show that: 

Ever since I was 3 there was a big green oxygen tank sitting in the front room 

of my house and a small portable one sitting next to it. They were there to help 

my mother breathe because she was dying from emphysema, a smoking disease. 

My family was never able to do the things that most families could do, like go 

on vacations and weekend camping trips because we always had to worry about 

my mom. When I was 9 she died, at the age of 49, it was hard growing up without a mother. She wasn’t there for the mother daughter talks that all my 

friends were having with theirs. I promised myself that I will never let that 

happen to me. 

Joyce R., West Valley City UT, November 10, 2003 

On March 23, 2000, l lost my sister, Mary, to lung cancer. She started smoking 

at age 13 and stopped when she was 32. She had a lot of stress in her life when 

she was diagnosed with lung cancer. She was 46 years old. She was 47 years 

old when she passed away. Watching her wither away and suffer through the 

inability to breathe was very painful. It’s something you never forget. I miss her 

a lot. 

Eileen R., Dimondale MI, November 10, 2003 

I lost my father to a tobacco-related heart attack. It was just 10 days after my 

13th birthday in 1996. I was home getting ready to go to my Boy Scouts meeting and watching TV and my mom and myself received the phone call that my 

dad had died that day. He was just 48 yrs old when he died. I lost more than 

just a father because anyone can be a father but it takes someone special to 

be a dad and I lost my dad. Everyday I think about my dad and wonder if he 

would be proud of me. April 30th, 2003 will be 7 years I have had to live without my dad because he smoked cigarettes. Is that fair? 

Ray L., Punta Gorda FL, May 29, 2003 

The funds from the Master Settlement Agreement gave the states an historic opportunity to improve the lives of their citizens. Former U.S. Surgeon General David 

Satcher who testified at your hearing three years ago concluded that investing tobacco settlement dollars in these comprehensive prevention programs represented 

the greatest opportunity in public health since the polio vaccine. Unless the public 

officials who make the decisions about how these funds or the funds from state tobacco excise taxes are used, literally millions of citizens will die prematurely from 

wholly preventable tobacco-caused deaths. We can do better and we must hold our 

public officials accountable. 

Background 

Mr. Chairman, as you know, between 1994 and 1998 every state sued the tobacco 

companies. In state after state Attorneys General indicated that the primary purpose for filing the lawsuits was that far too many children were smoking, the tobacco companies were targeting minors with their marketing campaigns and the 

states could no longer afford the rising costs from tobacco-related Medicaid expenditures. Something had to be done to address these problems, these public officials 

said, and these lawsuits were the answer. 

12 

On November 23, 1998, 46 states settled their lawsuits against the major tobacco 

companies to recover tobacco-related health care costs, joining four states (Mississippi, Texas, Florida and Minnesota) that had reached earlier, individual settlements. These settlements required the tobacco companies to make annual payments 

to the states in perpetuity, with total payments over the first 25 years estimated 

at $246 billion. The multi-state settlement, known as the Master Settlement Agreement (MSA), also imposed limited restrictions on the marketing of tobacco products. 

At the press conference announcing the settlement, the tobacco settlement was 

presented as an historic opportunity to attack the enormous public health problem 

posed by tobacco use in the United States. As described by state Attorneys General 

and Governors, the promise of the settlement was two-fold: It would significantly 

increase the amount of money the states were spending on programs to prevent kids 

from starting to use tobacco and help those already addicted to quit, and it would 

greatly reduce youth exposure to tobacco marketing. 

Mr. Chairman, while the multi-state settlement did not dictate how states should 

spend the money, state Attorneys Generals and Governors from across the Nation 

pledged that they would use the tobacco companies’ own money to address the tobacco problem. 

Why did we think these cases were about reducing the death toll from tobacco? 

Listen to what our public officials said: 

New Jersey Governor Christine Whitman: ‘‘Every penny of these funds should be 

used for health purposes including prevention programs and counter advertising 

to protect kids, cessation programs and community partnerships to serve those 

who have already put their health at risk by smoking, in addition to existing 

important health programs such as charity care and Kidcare’’ 

Indiana Governor Frank 0’Bannon: ‘‘This money can go a long way toward preventing Hoosier Kids from ever getting hooked on tobacco and toward helping 

our citizens stop smoking and recover from smoking-related illness.’’ 

Utah Attorney General Jan Graham: ‘‘Utah has a moral duty to invest a good 

part of this money in keeping our kids away from cigarettes. One-third of kids 

who start smoking will die of smoking caused disease’’ 

Pennsylvania Attorney General Mike Fisher: Emphysema, heart disease, cancer 

more than 20,000 Pennsylvanians die from tobacco-related diseases each year.’’ 

‘‘I sued the tobacco industry because it conspired to increase the addictive properties of tobacco products and suppressed vital information about the deadly nature of tobacco. This money will not bring back those who have died, but it may 

be used to keep others from starting this deadly habit.’’ 

West Virginia Attorney General Darrell V. McGraw: ‘‘The reason we got into this 

fight was to protect public health and prevent underage smoking. A significant 

portion of this money should go toward these causes.’’ 

North Carolina Governor Jim Hunt: the consent decree gives North Carolina ‘‘a 

balanced approach’’ to allocate tobacco settlement money. ‘‘It will address our efforts to crack down on underage smoking and to protect the health and wellbeing of North Carolinians.’’ 

State officials made similar promises to Congress less than a year later. Shortly 

after the settlement, the Health Care Financing Administration (HCFA) notified the 

states that Medicaid related recoveries would be subject to recoupment under Medicaid third party recovery provisions. 

The Clinton Administration indicated a willingness to let the states keep all of 

the funds but wanted to require the states to spend a portion of the funds on reducing teenage smoking among others things. Instead, the states pressed Congress to 

change the existing Medicaid law to allow them to keep the Federal Government’s 

share of the settlement without any strings attached. The states promised Congress 

that they would do the right thing with the funds and that they were committed 

to reducing tobacco use. 

In order to persuade Congress, the states made explicit promises. The National 

Governors’ Association, the National Conference of State Legislators and others 

stated 

‘‘[We] are committed to spending a significant portion of the tobacco 

settlement funds on smoking cessation programs, health care, education, and programs benefiting children.’’ 

In May 1999, the National Governors Association told Congress, 

13 

‘‘States are already spending state funds on smoking cessation programs and will substantially increase funding as the effectiveness of 

these programs is established.’’ 

Some made an even more explicit commitment according to Washington State Attorney General Christine Gregoire. According to Attorney General Gregoire, 

‘‘The representations we (the states) made to them (Congress) were that 

states would use not less than 50 percent of the money for health and 

anti-tobacco causes.’’ 

Five years after the November 1998 state tobacco settlement, we find that most 

states have failed to keep their promise to use a significant portion of the settlement 

funds to reduce tobacco’s terrible toll on America’s children, families and communities. We also find that the settlement’s marketing restrictions have done little to 

reduce the tobacco companies’ ability to market their products aggressively in ways 

effective at reaching and influencing our children. 

Disturbingly, in the past two years the states have cut funding for their tobacco 

prevention programs by more than a quarter, and several states have completely 

eviscerated some of the most successful and promising tobacco prevention and cessation programs in history. Remember the program in Florida that received so much 

publicity because it reduced tobacco use by 35 percent among high school students 

and by 50 percent among middle school students in just four years? In 2003 Florida’s governor and legislature virtually eliminated it. Massachusetts is another case 

in point. In the 10 years its program was in existence, cigarette consumption 

dropped by 36 percent versus just 16 percent in the rest of the country. Nonetheless, 

in the last two years Massachusetts’ governor and legislature also virtually wiped 

out the program and with this decision, we can expect to see a decade of progress 

gradually eroded. 

As the report we release today details, the states lack credible excuses for their 

failure to do more to protect our children from tobacco. They are collecting record 

amounts of tobacco revenue from the tobacco settlement and tobacco taxes. To protect our children states only need to spend a small portion—20 to 25 percent per 

state and an even smaller percentage of a state’s total tobacco revenues from the 

tobacco settlement and tobacco taxes—of those funds on tobacco prevention and cessation programs to meet the minimum levels recommended by the CDC. 

The findings for this year: 

• Only four states—Maine, Delaware, Mississippi and Arkansas—currently fund 

tobacco prevention programs at minimum levels recommended by the CDC. 

Last year Maryland and Minnesota were in this category, but both cut funding. 

• Only eight other states are funding tobacco prevention programs at even half 

the minimum levels recommended by the CDC. Last year a total of 15 states 

fell into this category. 

• Thirty-three states are spending less than half the CDC’s minimum amount. 

Another five states—Michigan, Missouri, New Hampshire, South Carolina and 

Tennessee—and the District of Columbia allocate no significant state funds for 

tobacco prevention. 

• In the current budget year, Fiscal Year 2004, the states cumulatively plan to 

spend $541.1 million on tobacco prevention programs. This amounts to just 33.8 

percent of the CDC’s minimum recommendations for all the states, which total 

$1.6 billion. 

• Over the past two years, the states have cut total annual funding for tobacco 

prevention by 28 percent, or $209 million (from a high of$749.7 million in Fiscal 

Year 2002 to $674.4 million in Fiscal Year 2003 and $541.1 million in Fiscal 

Year 2004).These cuts have decimated three of the Nation’s longest standing 

and most successful tobacco prevention programs, in Florida, Massachusetts 

and Oregon, and they have seriously hampered some of the Nation’s most promising new programs, including those in Indiana, Maryland, Minnesota, Nebraska and New Jersey. 

• While many states have cut funding for tobacco prevention, the tobacco industry 

increased its marketing expenditures to record levels, up 66 percent in the three 

years after the settlement to a record $11.45 billion a year, or $31.4 million a 

day, according to the Federal Trade Commission’s most recent annual report on 

tobacco marketing. While the FTC report was for calendar year 2001, there is 

strong evidence that tobacco industry marketing expenditures have continued 

to increase. Based on the latest FTC figures, the tobacco companies are spending more than twenty dollars marketing their deadly products for every dollar 

the states spend to prevent tobacco use. Put another way, the tobacco compaVerDate Nov 24 2008 06:23 Aug 10, 2016 Jkt 075679 PO 00000 Frm 00017 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\21176.TXT JACKIE
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nies spend more in three weeks marketing their products than all 50 states 

spend over a full year trying to prevent tobacco use. 

The settlement included important restrictions on tobacco marketing, but since 

the settlement, the tobacco companies have simply shifted their resources and 

increased spending on other forms of marketing that appeal to kids, especially 

promotions in convenience stores and other retail outlets. These include payments for highv·isibility store placements and displays, price discounts 

that make cigarettes more affordable to kids, and free gifts with purchase. The 

settlement’s restrictions on tobacco marketing, thus, did not succeed in reducing 

the tobacco companies’ ability to market their products aggressively to either 

children or adults. The need for the states to act is no less today than it was 

when the settlement took place five years ago. 

• The states this year will collect $19.5 billion in tobacco-generated revenue from 

tobacco taxes and the tobacco settlements. It would take just 8.2 percent of this 

total for every state to fund tobacco prevention programs at the minimum levels 

recommended by the CDC ($1.6 billion for all the states). The states are spending only about one-third of what the CDC recommends for tobacco prevention, 

amounting to only 2.8 percent of their total tobacco revenue. (Looking only at 

settlement money, the National Conference of State Legislatures recently reported that in Fiscal Year 2004 states are spending just three percent of their 

tobacco settlement money on tobacco prevention.) 

• At least 20 states and the District of Columbia have also sold to investors, or 

securitized, their rights to all or part of their future tobacco settlement payments for a much smaller, up-front payment, or have passed laws authorizing 

such action. Several states used the revenue generated to balance budgets for 

just one year. Securitization eliminates or reduces the amount of settlement 

money available to fund tobacco prevention and meet other needs in the future. 

Why States Should Increase Funding for Tobacco Prevention Programs 

The states’ funding of tobacco prevention and cessation is woefully inadequate 

given the magnitude of the tobacco problem. The amount the states are spending 

on tobacco prevention today pales in comparison to the enormity of the problem. Tobacco use is the number one cause of preventable death in the United States, claiming more than 400,000 lives every year. The annual cost of treating tobacco-caused 

disease exceeds $75 billion. Despite recent progress in reducing youth smoking 

rates, more than a quarter of high school seniors (26.7 percent) still graduate as 

smokers, and every day another 2,000 kids become regular, daily smokers, one-third 

of whom will die prematurely as a result. These children are the tobacco companies’ 

valued ‘‘replacement smokers.’’ 

The evidence is conclusive that state tobacco prevention and cessation programs 

work to reduce smoking, save lives and save money. Every scientific authority that 

has studied the issue, including the National Cancer Institute, the Institute of Medicine and the U.S. Surgeon General, has concluded that when properly funded and 

implemented, these programs reduce smoking among both kids and adults. 

For example, the 2000 Surgeon General’s report, Reducing Tobacco Use, provides 

an in depth analysis of tobacco intervention strategies. This report offers a sciencebased blueprint for achieving the goal of reducing tobacco use among both adults 

and children. A key conclusion of the Report is that the Federal Government’s 

Healthy People 2010 objectives with regard to tobacco can be achieved, but only if 

comprehensive tobacco prevention and cessation approaches to tobacco control are 

implemented. 

In September 2003 a study conducted jointly by the Research Triangle Institute, 

the CDC, and the University of Illinois published in the Journal of Health Economics, provided the most powerful evidence yet of the effectiveness of comprehensive 

tobacco prevention programs. The study found that states with well-funded, sustained tobacco prevention programs during the 1990s—Arizona, California, Massachusetts and Oregon—reduced cigarette sales more than twice as much as the country as a whole (43 percent compared to 20 percent). This is the first study to compare cigarette sales data from all the states and to isolate the impact of tobacco prevention program expenditures from other factors by controlling for changes in excise 

taxes, cross-border sales and other state specific factors. The study shows that the 

more states spend on tobacco prevention, the greater the reductions in smoking, and 

the longer states invest in such programs, the larger the impact. The study concludes that cigarette sales nationwide would have declined by twice as much as they 

did between 1994 and 2000 had all states fully funded tobacco prevention programs. 

These studies are buttressed by the real life examples of every state that has committed significant funds to tobacco prevention in accordance with the CDC guideVerDate Nov 24 2008 06:23 Aug 10, 2016 Jkt 075679 PO 00000 Frm 00018 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\21176.TXT JACKIE
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lines. A case in point: In 1997, Maine had one of the highest youth smoking rates 

in the country at almost 40 percent. That year, Maine increased its cigarette tax 

and used a portion of the funds to establish a comprehensive tobacco prevention program known as the Partnership for a Healthy Maine. Maine subsequently expanded 

its program with settlement money to meet the CDC’s minimum funding level and 

has now achieved dramatic results. Between 1997 and 2003, smoking among 

Maine’s high school students declined by an astounding 48 percent, falling from 39.2 

percent to 20.5 percent. Smoking among middle school students declined by 59 percent, from 21 percent to 8.7 percent. This report ranks Maine first in the Nation 

in its funding of tobacco prevention. 

Mississippi, which has also used settlement funds on a comprehensive program 

and ranks third among the states in funding tobacco prevention, reduced smoking 

by 48 percent among public middle school students and by 29 percent among public 

high school students between 1999 and 2002. As Mississippi Attorney General Mike 

Moore often states, ‘‘What state has an excuse to not fund tobacco prevention when 

we have done it in Mississippi, one of the poorest states.’’ 

Maine and Mississippi’s experience is similar to what happened in other states. 

Programs in Washington, Alaska, Oregon, Arizona, Florida, Minnesota, New York, 

California, Massachusetts and Indiana all have reduced tobacco use. The only place 

these programs haven’t worked is where they haven’t been seriously tried. 

Florida is a very visible example of the power of these programs to save lives and 

what happens when a state guts a successful program. Florida’s once innovative and 

successful program served as a model around the country. Despite the program’s 

success, the Florida legislature and Governor cut the funding for the program each 

year since the program’s inception and then virtually eliminated the program in 

2003. Florida’s kids are already paying a price for the decision to dismantle a program that reduced high school smoking by 35 percent and middle school smoking 

by 50 percent in four years. In 2002 there was no decline in smoking among middle 

school students. Even more disturbing, smoking between 6th and ih grades and between 7th and 8th grades rose in 2001 and the increases in smoking between 6th 

and 7th grades persisted in 2002. There is no excuse and there can be no excuse 

for Florida’s decision to abandon a program whose results were proven and universally applauded. 

The evidence also shows that when sustained over time, comprehensive, wellfunded tobacco prevention programs also save lives and money. Two recent studies 

show that California, which started the Nation’s first tobacco prevention program 

in 1990, has saved tens of thousands of lives by reducing smoking-caused birth complications, heart disease, strokes and lung cancer. Other studies have shown that 

California and Massachusetts, which started their tobacco prevention programs in 

1990 and 1993 respectively, have saved as much as $3 in smoking-caused health 

care costs for every dollar spent on tobacco prevention. 

The states have a clear source of revenue to address the problem. Despite their recent budget shortfalls, the states are actually collecting more tobacco-generated revenue than ever before from the tobacco settlement and tobacco taxes. That is because 

32 states and DC have increased tobacco taxes since January 1, 2002. Altogether, 

the states this year will collect $19.5 billion in tobacco-generated revenue. It would 

take just 8.2 percent of this tobacco revenue, about $1.6 billion, for every state to 

fund tobacco prevention programs at the minimum levels recommended by the CDC. 

That leaves plenty of tobacco revenue to balance budgets and meet other needs. But 

the states are spending barely a third of what the CDC recommends. 

Assessing Other Aspects of the Tobacco Settlement 

Mr. Chairman, the news is not all bad. Smoking rates, particularly among children, are down. While the tobacco settlement has failed to deliver on its promises 

to provide significant funding for state tobacco prevention programs or to curtail tobacco marketing, it has contributed to the significant reductions in tobacco use over 

the last five years. First, the settlement led the major cigarette companies to increase their prices by more than $1.10 per pack between 1998 and 2000. Part of 

these increases was used to pay the states, but about half of the price increases bolstered the tobacco companies’ profits. 

Second, the settlement included about $300 million a year in industry payments 

over five years to create a new national foundation, the American Legacy Foundation, to conduct public education campaigns to reduce tobacco use. Both the settlement-related price increases and the Legacy Foundation’s campaigns along with the 

states that have implemented their own programs have contributed significantly to 

the reduction in youth smoking rates in the last several years. 

While tobacco price increases are effective at reducing smoking, especially among 

children, they are not a substitute for prevention and cessation programs. The reVerDate Nov 24 2008 06:23 Aug 10, 2016 Jkt 075679 PO 00000 Frm 00019 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\21176.TXT JACKIE
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search shows that tobacco price increases are most effective when part of a comprehensive approach that includes prevention and cessation programs and smokefree workplace policies. In addition, the benefits of price increases are difficult to 

sustain over time prices erode with inflation and can be undermined by tobacco industry price reductions. 

The Legacy Foundation’s programs have been highly effective, but it will lose a 

large portion of its funding after this year because of a loophole in the settlement 

that lets the major tobacco companies cease payments after 2003. In addition, Legacy’s programs were always intended to enhance and not to replace state tobacco 

prevention efforts. 

Today we are at a critical juncture in determining the settlement’s long-term impact. Our hope is that this hearing will make a difference. Our nation has made 

important progress in recent years in reducing youth tobacco use. Continued 

progress will not occur unless more states use more of the billions of dollars they 

are receiving from the tobacco settlement, and from tobacco taxes, to fund comprehensive tobacco prevention and cessation programs based on the recommendations of the CDC. If they do, the 1998 state tobacco settlement could yet mark a 

historic turning point in the battle to reduce tobacco’s terrible toll. If they do not, 

it will be a tragic missed opportunity for the Nation’s health. 

In conclusion, Mr. Chairman and Members of the Committee, our policy makers 

in the states are in a rare position on this issue. 

We know exactly what the problem is—that tobacco use is the cause of more than 

400,000 preventable deaths and millions of illnesses each year. 

We have also identified an evidence-based solution to the problem that we know 

will work when implemented. 

We have a clear source of revenue to implement the solution. 

And, we have the support of the voters as 86 percent of Americans support spending a significant portion of tobacco settlement funds on tobacco prevention and cessation. 

We simply have no excuses for not exercising the political will to spend tobacco 

money on tobacco prevention. Thank you. 

The CHAIRMAN. Thank you. 

Ms. Hudson, welcome. 

STATEMENT OF HON. DEBORAH HUDSON, CHAIR, REVENUE 

AND FINANCE COMMITTEE, DELAWARE HOUSE OF 

REPRESENTATIVES, ON BEHALF OF THE NATIONAL 

CONFERENCE OF STATE LEGISLATURES 

Ms. HUDSON. Thank you very much. Good morning. It’s very nice 

to be here. 

Chairman McCain and distinguished Members of the Committee, 

I’m Deborah Hudson, a member of the Delaware House of Representatives, where I serve as Chair of the Revenue and Finance 

Committee, and I’m also on the Delaware Health Fund Advisory 

Committee, which was established in 1999 to make recommendations to the Governor and our General Assembly about how to 

spend Delaware’s allocation of the tobacco settlement funds. But I 

am here today on behalf of the National Conference of State Legislatures to discuss the states’ use of tobacco settlement funds. 

On November 23, 1998, the Attorneys General and other Representatives of 46 states, Puerto Rico, U.S. Virgin Islands, American Samoa, the Northern Marianna Islands, Guam, and the District of Columbia signed an agreement with the five largest tobacco 

manufacturers, ending a 4-year legal battle between the states and 

the industry, a battle that began in 1994, when Mississippi became 

the first state to file suit. The settlement funds became available 

in 2000, and I am honored to be a part of this distinguished panel 

today to talk about the settlement. 

In keeping with the rules, I will be as brief as possible, but I 

need to make four points. One, the states have dedicated the largVerDate Nov 24 2008 06:23 Aug 10, 2016 Jkt 075679 PO 00000 Frm 00020 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\21176.TXT JACKIE
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est percentage of tobacco funds to healthcare services and programs. Second, a growing number of states are securitizing their 

tobacco settlement funds, and many more are expressing interest 

in securitization. Third, the number of nonparticipating tobacco 

manufacturers is growing. And, fourth, Federal legislation is needed to help some states in key areas. 

It is really difficult to discuss all of the programs that the states 

currently support with tobacco settlement funds. It’s even more difficult to compare and contrast among the states. But the Master 

Settlement Agreement provided no direction to states and imposed 

no restrictions regarding the allocation of the tobacco settlement 

funds. So, as such, these funds are treated as state revenue and 

are subject to regular appropriations. Most states, like Delaware, 

do receive continuing feedback from citizens regarding the allocation of these tobacco funds. And, as a result, state tobacco settlement fund expenditures, by and large, reflect the priorities established by citizens of each state. Delaware has dedicated the majority of its tobacco settlement funds to healthcare. We are very comfortable with our decision, but would not venture to second-guess 

the other states that have made different decisions. 

I’ve been asked to talk about other states. NCSL has tracked 

states’ tobacco expenditures since FY–2000 and has divided the expenditures into nine categories: health services, long-term care, tobacco use and prevention, research, education, children and youth 

services, tobacco farmers, endowment and budget, and the other 

category of ‘‘other.’’ 

In nearly 5 years since the beginning of the historic settlement, 

much has changed, though. State fiscal conditions have eroded, tobacco manufacturers are facing their own challenges. 

So how have states spent the funds? Health services, as I said 

before, represents the largest single category of tobacco settlement 

fund expenditures. In FY–2000 and 2001, a third of the tobacco settlement funds went toward healthcare services. Today, these expenditures represent 28 percent of the total fund expenditures. 

The kind of health services vary by state. For instance, in Arizona, our Chairman’s state, the people, in 2000, voted for Proposition 204, which directed the state to use tobacco settlement funds 

to expand eligibility for the Arizona Healthcare Cost Containment 

System. That’s the state’s Medicaid program. 

Now, South Carolina was one of the first states to securitize its 

tobacco settlement fund. The state received $791 million, and distributed the funds as following: 75 percent of the funds to the 

healthcare endowment, 15 percent to the community trust fund for 

farmers affected by the drop in tobacco demand and prices, 10 percent for economic development grants to the I–95 corridor of tobacco communities, and 2 percent for water and sewer projects in 

rural communities. 

In my state, we established the Delaware Health Fund and the 

Health Fund Advisory Committee to make recommendations to the 

Governor, and this has worked very successfully. 

The second largest category of expenditures was, until this year, 

endowments and budget reserves. The dramatic shift in funds allocated from endowments and budget reserves to the ‘‘other’’ program 

18 

is very clear, and a dramatic illustration of the serious fiscal challenges facing states today. 

While experts may differ on the adequacy and level of each 

state’s expenditures for tobacco use and prevention, in the aggregate they remained constant at about 5 percent until the current 

Fiscal Year. This year, states increased the percentage of tobacco 

settlement funds that were allocated to education. Tobacco-producing states also increased the amount of funding allocated to tobacco farmers and as part of their commitment to provide economic 

and educational alternatives to tobacco farmers and the communities in which they live. 

Now, in Delaware, as I said, we have a Health Fund Advisory 

Committee, which is chaired by our Secretary of Health and Social 

Services, which advises the Governor and the legislature of how to 

allocate the funds. I am a member of this committee. The committee has regular open, public meetings, and we maintain a 

Website where our advisory committee meetings are listed, and the 

minutes are listed, as well, so people can see our recommendations. 

All of Delaware tobacco fund settlement money is dedicated to 

healthcare programs and services and to tobacco prevention and 

control. But, like many other states, we have reduced our reserve 

funds this year, but only to assure full funding for state healthcare 

priorities. We’ve slightly increased funding for tobacco prevention 

and control, as people want us to, and have provided level funding 

for most other ongoing programs. We are happy that we were able 

to maintain this. 

But now some states choose to securitize their settlement funds. 

Securitization is the process by which states sell their revenue 

streams of the tobacco settlement payments for a set number of 

years in return for a single up-front payment. Although the upfront payment is less than the normal sum of the annual payment, 

the state receives a lump sum, and the funds are immediately 

available. It is comparable to receiving a lump-sum payment instead of an annuity. 

There has always been a level of uncertainty regarding whether 

tobacco funds would continue into perpetuity, so initial interest in 

securitization was popular among states that feared bankruptcy of 

one or more of the tobacco manufacturers. Now, decreasing state 

revenues, continuing class-action litigation against manufacturers, 

makes this a more vulnerable to bankruptcy, and, therefore, decreasing tobacco sales. 

To date, sixteen states have securitized all or part of their tobacco settlement funds. We’ve seen a dramatic decline in the volume of cigarettes shipped by participating manufacturers. It is due, 

in part, to lower demand for cigarettes, but much of the decline can 

be attributed to the growing number of nonparticipating manufacturers who have entered the market and who sell their products at 

a deep discount. These deeply discounted products are more attractive to children, because they are often sold over the Internet and, 

therefore, are more available. This represents a serious problem for 

states and for people who support reducing youth access to tobacco. 

In addition, there is a reduction in the volume of cigarettes shipped 

by participating manufacturers. 

19 

1Florida, Minnesota, Mississippi and Texas had previously settled with tobacco manufacturers 

for $40 billion. 

Five years ago, the most immediate task for state legislators related to the Master Settlement Agreement was the model statute. 

This statute was designed to provide a level playing field between 

participating and nonparticipating manufacturers by creating a reserve fund into which nonparticipating manufacturers are to pay 

future claims. Since the signing of the Settlement Agreement, we 

have found that the model act needs some fine-tuning to close loopholes in the participating manufacturers. NCSL is working with 

the National Association of Attorneys General to close these loopholes in existing state laws. 

The National Council of State Legislators and individual legislators are also working with Congress to enact Federal legislation 

that would strengthen the Jenkins Act and provide states with additional tools to enforce both the Jenkins Act and existing state 

laws. This legislation will help states reduce youth access to tobacco products and to collect state tobacco tax revenue that is not 

currently being collected. 

A recent Government Accounting Office report advised that 

states would lose approximately—— 

The CHAIRMAN. Ms. Hudson, if you—— 

Ms. HUDSON. Yes. 

The CHAIRMAN.—could—— 

Ms. HUDSON. Yes. 

The CHAIRMAN.—complete your statement. We usually—— 

Ms. HUDSON. I certainly could. 

The CHAIRMAN.—give 5 minutes for—— 

Ms. HUDSON. I’m talking about the part where we would like to 

cooperate with you, and we would like to do that the best way we 

can to make sure that this program is the most effective that it can 

be. 

And we thank you for your time today. 

[The prepared statement of Ms. Hudson follows:] 

PREPARED STATEMENT OF HON. DEBORAH HUDSON, CHAIR, REVENUE AND FINANCE

COMMITTEE, DELAWARE HOUSE OF REPRESENTATIVES, ON BEHALF OF THE

NATIONAL CONFERENCE OF STATE LEGISLATURES

Good morning Chairman McCain, Senator Hollings and Members of the Committee: 

I am Deborah Hudson, a member of the Delaware House of Representatives where 

I serve as chair of the Revenue and Finance Committee. I also serve as a member 

of the Delaware Health Fund Advisory Committee, which was established in 1999 

to make recommendations to the governor and to the General Assembly regarding 

the allocation of Delaware’s tobacco settlement funds. 

I am here today on behalf of the National Conference of State Legislatures 

(NCSL) to discuss the states’ use of tobacco settlement funds. On November 23, 

1998 the Attorneys General and other representatives of 46 states 1, Puerto Rico, 

the U.S. Virgin Islands, American Samoa, the Northern Mariana Islands, Guam and 

the District of Columbia signed an agreement with the five largest tobacco manufacturers, ending a four-year legal battle between the states and the industry. A battle 

that began in 1994, when Mississippi became the first state to file suit. The settlement funds became available to states in 2000. I am honored to be a part of such 

a distinguished panel on a day so close to the fifth anniversary of the historic tobacco settlement agreement. 

20 

In keeping with the rules of the Committee, my oral statement will be limited to 

five minutes. I am submitting my written statement to be included in the hearing 

record. Today I will focus on the following observations: 

(1) States have dedicated the largest percentage of tobacco funds to health care 

services and programs. 

(2) A growing number of states are securitizing their tobacco settlement funds 

and many more are expressing interest in securitization. 

(3) The number of non-participating tobacco manufacturers is growing. 

(4) Federal legislation is needed to help states in some key areas. 

It is difficult to discuss the myriad programs that states currently support with 

tobacco settlement funds. It is even more difficult to contrast and compare among 

the states. The Master Settlement Agreement (MSA) provided no direction to states 

and imposed no restrictions on states regarding the allocation of their tobacco settlement funds. As such, these funds are treated as state revenue and are subject to 

the regular appropriation process. Most states, like Delaware, receive continuing 

feedback from citizens regarding the allocation of tobacco settlement funds. As a result, state tobacco settlement fund expenditures by and large reflect the priorities 

established by the citizens of each state. Delaware has dedicated the majority of its 

tobacco settlement funds to health care. We are comfortable with our decision, but 

would not venture to second-guess states that have made other choices. 

State Tobacco Settlement Expenditures 

I have been asked to provide an overview of how states have spent and are spending their tobacco settlement funds. NCSL has tracked state tobacco settlement expenditures since FY 2000 and has divided expenditures into nine categories: health 

services, long term care, tobacco use prevention, research, education, children and 

youth services, tobacco farmers, endowments and budget, and other. In the nearly 

five years since the signing of the historic tobacco settlement agreement, much has 

changed. 

State fiscal conditions have eroded and tobacco manufacturers are facing their 

own financial challenges. How have states spent the funds? What are the trends? 

Below is a summary of what we have observed. 

Table 1.—Allocation of Tobacco Settlement Funds by Category, FY 2000–FY 2004 

[Dollar figures represent total allocation for the fiscal year] 

FY 2000/FY 2001 

($10.97 billion) 

FY 2002 

($10.97 billion) 

FY 2003 

($9.83 billion) 

FY 2004 

($7.9 billion) 

Health Services 33% 29% 29% 28% 

Long Term Care 3% 7% 8% 6% 

Tobacco Prevention 5% 5% 5% 3% 

Education 4% 8% 3% 5% 

Research 3% 6% 3% 3% 

Children & Youth 

Services 4% 2% 3% 3% 

Tobacco Farmers 3% 3% 2% 4% 

Endowments and 

Budget Reserves 29% 24% 18% 2% 

Other 16% 16.2% 29% 47% 

Source: National Conference of State Legislatures, Health Policy Tracking Service, 2003 

Trends in State Expenditures 

Health Services represents the largest single category of tobacco settlement fund 

expenditures. In FY 2000/FY 2001 a third of the tobacco settlement funds went toward health care services. Today these expenditures represent 28 percent of total 

expenditures. The kinds of health services vary considerably by state. For instance 

in Arizona, the chairman’s state, the people in 2000 voted for Proposition 204 which 

directed the state to use the tobacco settlement funds to expand eligibility for the 

Arizona Health Care Cost Containment System (AHCCCS), the state’s Medicaid program. South Carolina was one of the first states to securitize its tobacco settlement 

funds. The state received $791 million and distributed the funds as follows: (a) 75 

21 

2The initial awards from the endowment supported the state’s pharmaceutical assistance program. 3 Alabama, Alaska, Arkansas, California, Connecticut, Iowa, Louisiana, New Jersey, New 

York, North Dakota, Oregon, Rhode Island, South Carolina, South Dakota, Washington, Wisconsin 4 Under the provisions of the MSA, if the total aggregate market share of the participating 

manufacturers decreases more than 2 percent and an economic consulting firm determines that 

Continued 

percent of the funds to the Health Care Endowment 2; (b) 15 percent to the Community Trust Fund for farmers affected by the drop in tobacco demand and prices; (c) 

10 percent for economic development grants to the I–95 corridor of tobacco communities; and (d) 2 percent for water and sewer projects in rural communities. We established the Delaware Health Fund and the Delaware Health Fund Advisory Committee to make recommendations to the Governor and General Assembly regarding 

the allocation of Delaware’s tobacco settlement funds. 

The second largest category of expenditures was, until this year, endowments and 

budget reserves. The dramatic shift in funds allocated to endowments and budget 

reserves between FY 2003 and FY 2004 to the ‘‘Other’’ program category is a very 

clear and dramatic illustration of the serious fiscal challenges facing the states. 

While experts may differ on the adequacy of each state’s expenditures for tobacco 

use prevention, the level of expenditures for tobacco use prevention in the aggregate 

remained constant at about 5 percent until the current Fiscal Year. This year states 

increased the percentage of tobacco settlement funds that were allocated to education. Tobacco-producing states also increased the amount of funding allocated to 

tobacco farmers as part of their commitment to provide economic and education alternatives to tobacco farmers and the communities, in which they live and work. 

Delaware Health Fund 

The Delaware Health Fund Advisory Committee, a twelve member board, chaired 

by the Secretary of the Delaware Health and Social Services Department, advises 

the governor and the legislature on how to allocate the state’s tobacco settlement 

funds. I am a member of the advisory committee. The committee has regular, open 

meetings and maintains a website where advisory committee meeting minutes and 

the advisory committee recommendations can be read and downloaded. All of Delaware’s tobacco settlement funding is dedicated to health care programs and services 

and to tobacco prevention and control. Like many other states we have reduced our 

reserve fund this Fiscal Year to provide funding for state health care priorities. We 

have slightly increased funding for tobacco prevention and control and have provided level funding for most ongoing programs. We are happy that we are able to 

maintain this commitment despite the fiscal challenges we face. (See Table 2 for details). 

Securitization of State Tobacco Funds 

Securitization is the process by which states sell the revenue stream of its tobacco 

settlement payments, for a set number of years, in return for a single, up-front payment. Although the up-front payment is less than the sum of the annual payments, 

the state receives a lump sum payment and the funds are immediately available. 

It is comparable to receiving a lump sum payment instead of an annuity. There has 

always been a level on uncertainty regarding whether the tobacco funds would in 

fact continue into perpetuity. Initial interest in securitization was among states that 

feared that the bankruptcy of one or more of the tobacco manufacturers would undermine the settlement agreement. Decreasing state revenues, continuing class action litigation against tobacco manufacturers that may in fact make tobacco manufacturers vulnerable to bankruptcy, and decreasing tobacco sales, have increased the 

interest among states in the securitization of tobacco settlement funds. To date, 16 

states 3 have securitized all or part of their tobacco settlement funds. (See Table 3 

for details) 

Growing Number of Non-participating Tobacco Manufacturers 

The dramatic decline in the volume of cigarettes shipped by participating manufacturers is due in part lower demand for cigarettes, but much of the decline can 

be attributed to the growing number of non-participating manufacturers who have 

entered the market and who sell their products at a deep discount. These deeply 

discounted products are more attractive to children and because they are often sold 

over the Internet, are more available to children. This represents a serious problem 

for states and for people who support reducing youth access to tobacco. In addition, 

the reduction in the volume of cigarettes shipped by participating manufacturers 

can result in an overall decrease in state tobacco settlement fund allocations.4

22 

the provisions of the MSA were a significant factor contributing to the market share loss, the 

payments to states may be reduced based on that loss. This reduction in state payments is 

called the non-participating manufacturers (NPM) adjustment. This analysis is done annually. 

A state’s enactment of the model statute is significant because if there is an NPM adjustment 

in any year, a specific state’s share of the funds from the payment in question will not be reduced at all if that state has passed and has in force the model statute. 5The Jenkins Act (18 U.S.C. 375) requires any person who sells and ships cigarettes across 

state lines to anyone other than a licensed distributor, to report the sale to the buyer’s state 

tobacco tax administrator, allowing state and local governments to collect the taxes due. The 

current penalty for violating the Act is a misdemeanor. 6The Contraband Cigarette Trafficking Act (CCTA) (18 U.S.C. 2342) makes it unlawful for 

any person to ship, transport, receive, possess, sell, distribute, or purchase contraband cigarettes. 

Five years ago, the most immediate task for state legislatures related to the Master Settlement Agreement was the consideration and enactment of the ‘‘Model Statute’’ included in the settlement agreement. This model statute was designed to provide a level playing field between participating and non-participating tobacco manufacturers by creating a reserve fund into which non-participating manufacturers are 

to pay future claims. Since the signing of the settlement agreement, we have found 

that the Model Act needs some fine-tuning to close some loopholes the non-participating manufacturers have discovered. NCSL is working with the National Association of Attorneys General (NAAG) to close these loopholes in the existing state laws. 

We are also working with Congress to enact Federal legislation that strengthens 

the Jenkins Act and provides states with additional tools to enforce both the Jenkins Act and existing state laws. This legislation will help states reduce youth access to tobacco products and to collect state tobacco tax revenue that is not currently 

being collected. A recent Government Accounting Office (GAO) report advised that 

states would lose approximately $1.5 billion in tax revenues by the year 2005 if the 

current state of Internet tobacco sales continues. As you know, the Senate Judiciary 

Committee recently reported S. 1177, the Prevent All Cigarette Trafficking Act 

(PACT Act), a bill that amends both the Jenkins Act 5 and the Contraband Cigarette 

Trafficking Act.6 A related piece of legislation, H.R. 2824, amends the Jenkins Act 

and is pending in the House Judiciary Committee. NCSL looks forward to working 

with you to work towards passage of this important legislation. 

I thank you for this opportunity to share NCSL’s thoughts and observations with 

you. I would be happy to answer questions. 

Table 2.—Delaware Health Fund Appropriations State FY 2002–FY 2004 

[in thousands] 

Initiative FY 2002 FY 2003 FY 2004 

Continuing Initiatives 

Strategic Reserve 6,025 9,843 5,291 

DE Prescription Drug Assistance 5,150 7,213 7,500 

Tobacco Prevention/Control 5,005 5,009 5,072 

Medical Coverage for SSI Transition 1,485 1,485 4,485 

DHCC Uninsured Action Plan 1,000 885 500 

Chronic Disease Pilot 500 500 500 

Medicaid Increase for Pregnant Women 409 408 408 

Public Access Defibrillation 375 141 134 

Substance Abuse Transitional Housing 200 200 200 

Lesser-Known Illnesses 150 100 100 

DHCC Staff Assistance 57 57 57 

Heroin Residential Program 500 500 500 

Attendant Care 340 430 430 

Breast & Cervical Cancer Treatment 150 150 150 

Cancer Care Connection 150 150 

The Wellness Community 200 200 

DE Breast Cancer Coalition 40 40 40 

23 

Table 2.—Delaware Health Fund Appropriations State FY 2002–FY 2004—Continued 

[in thousands] 

Initiative FY 2002 FY 2003 FY 2004 

Delaware School survey (Statewide) 48 

New Nurse Formation Programs 750 1,297 

Disease Cost Containment Initiatives 500 500 

Perinatal Association 200 200 

Southbridge Community Health Outreach 120 

University of Delaware/Drug & Alcohol Studies 48 

Instruments for TB & Metabolic Disorders 150 150 

Fire Suppression Program 500 750 

Support for People with Cancer 200 

Gift of Life 105 

Resource Mothers 200 

Council on Cancer Inc. & Mortality 4,938 

DE Ecumenical Council 100 

Total Initiatives $20,325 $19,986 $24,509 

Total Program and Reserves $26,391 $29,829 $29,800 

Source: Delaware Health and Social Services Department, Delaware Health Fund Advisory Committee (http://www.state.de.us/ 

dhss/healthfund.html) 

Table 3.—Securitized State Tobacco Settlement Funds 

State Year Amount Purpose 

Alabama 2000 $50 million Industrial bonds to attract new jobs 

Alaska 2000, 2001 $242 million Remodel and build new schools, rehabilitate 

buildings at the University of Alaska and update several port facilities 

Arkansas 2001 $60 million Biomedical research facilities 

California 2002, 2003 $4.2 billion Deficit 

Connecticut 2003 $300 million General revenue 

Iowa 2001 $644 million Retire capital debt to free up general fund revenue for health care services 

Louisiana 2001 $1.2 billion Millennium Fund (endowment) to be used for 

health care, education and scholarships 

New Jersey 2002 $1.8 billion Deficit 

New York 2003 $4.2 billion Deficit 

North Dakota 2000 $32 million Debt service on water resource and flood control 

projects 

Oregon 2002 $200 million Deficit 

Rhode Island 2002 $685 million Retire capital debt, deficit 

South Carolina 2000 $934 million 73% to the Health Care Endowment 7, balance for 

rural infrastructure and tobacco farmers 

South Dakota 2002 $278 million Education endowment 

Washington 2002 $518 million Deficit Wisconsin 2001 $1.6 billion Deficit 

7The initial awards from the fund supported the state’s pharmaceutical assistance program. 

24 

The CHAIRMAN. Thank you very much. Thank you for coming to 

help us in this very difficult issue. 

Mr. Scheppach, welcome. 

STATEMENT OF RAYMOND C. SCHEPPACH, EXECUTIVE 

DIRECTOR, NATIONAL GOVERNORS ASSOCIATION 

Mr. SCHEPPACH. Thank you, Mr. Chairman and Members of the 

Committee. I thank you for the opportunity to represent the Nation’s Governors before this Committee today. 

The MSA was reached on behalf of the attorney generals of 46 

states, five commonwealths and territories, and the District of Columbia in 1998. That agreement, worth $206 billion over 25 years, 

is actually worth $246 billion, when combined with the other four 

states. 

The MSA did not require set-asides. There was a fundamental 

difference between the settlement reached and the proposals being 

promoted in the late 1990s involving Federal legislation. In fact, on 

May 21, 1999, President Clinton signed into law the measure PL 

106–31, recognizing that decisions about how to spend the tobacco 

settlement dollars were more appropriately made at the state level, 

where Governors and legislators could be the most responsive to 

the unique needs and circumstances of their citizens. 

Over the 2000 to 2003 period, I think states have received about $37 billion from the Master Agreement. Over this period, there has 

been substantial stability in the allocation of these revenues. About 

36 percent went to healthcare services and long-term care, another 

4 percent to tobacco use prevention, 12 percent went to research, 

education, and services for children. Also, states allocated 3 percent 

to tobacco farmers for crop diversification and efforts to reduce the 

state’s dependence on tobacco production. The remainder went to 

endowments, budget reserves, and other programs. 

One area that did witness a major change over the last 3 years 

was in the percent allocated to endowments and budget reserves, 

which went from 29 percent in 2000 to 18 percent in 2003, and to 

2 percent in 2004. 

Throughout the last 2 years, due partly to the budget crisis, as 

well as concerns regarding bankruptcy of tobacco firms, 16 states 

have securitized their tobacco settlement revenues, for total proceeds of about $13 billion. 

The tobacco settlement funds are allowing states to develop a significant number of innovative programs in biotechnology and economic development, smoking cessation, early childhood and prevention healthcare. This period of innovation and experimentation, 

which helped states develop best practices, will pay great dividends 

over time. 

The most important issue facing states today is the dismal fiscal 

situation. States are enduring the worst fiscal crisis since the second world war. And although the national economy is beginning to 

recover, state revenue growth has not yet responded. 

The fiscal situation is driven by two major factors—an obsolete 

tax base and lower revenues, and exploding Medicaid and other 

healthcare costs. Unfortunately, in 2001 states witnessed both a reduction in total state revenues of 5 percent, at the same time Medicaid exploded to grow 13 percent per year. Medicaid has now beVerDate Nov 24 2008 06:23 Aug 10, 2016 Jkt 075679 PO 00000 Frm 00028 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\21176.TXT JACKIE
25 

come the Pac-Man of state budgets, gobbling up every additional 

dollar of revenues. Medicaid growth rate has average 10 percent 

per year during the past two decades and now represents 21 percent of the average state budget, up from 12.5 in 1990. Other 

healthcare costs represent another 10 percent of state budgets. The 

major reason for the Medicaid continued growth is that it serves 

to supplement the Medicare program for many services Medicare 

beneficiaries do not obtain other places. 

It is shocking to note that the Medicaid’s 50 million beneficiaries, 

the six million who are dual-eligible for Medicare and Medicaid, account for 42 percent of the Medicaid budgets. Prior to year 2001, 

state spending over those previous two decades was growing about 

6.5 percent per year. For the last 3 years, spending essentially has 

been flat or negative, essentially no growth. 

This fiscal crisis has had several major impacts—number one, on 

the allocation of funds from the Master Settlement Agreement, two, 

the cost of tobacco products, and, three, total spending on 

healthcare. 

First, settlement dollars that originally were to be placed in 

rainy day funds or specific endowment funds were utilized to balance state budgets. Second, a larger number of states were forced 

to securitize part of their funds. Third, funds for tobacco prevention 

from the MSA were reduced. And, fourth, a large number of states 

enacted significant increases in excise taxes on cigarettes, which 

should have a huge impact on smoking, over time. Since January 

2002, 28 states plus the District have increased cigarette taxes, 

some as high as over a dollar a pack. The median has increased 

to 58 cents from 28 cents, over a hundred-percent increase. We 

have not seen yet the impacts of these tax increases. 

Finally, Medicaid spending growth at 10 percent per year, all 

states have enacted changes to moderate the growth of Medicaid. 

I would say, Mr. Chairman, this is about hard choices. And, unfortunately, Governors and state legislatures have had to look at 

the potential of pushing as many as a million to two million women 

and children off the rolls of Medicaid, and compare that to smoking 

cessation programs. That’s what’s going on, in terms of hard 

choices, when you have virtually no revenue growth. 

In conclusion, given the long history of state expenditures for 

smoking-related illnesses and the fiscal pressures facing states, the 

financial flexibility provided to states in the MSA is not only appropriate, but vitally necessary. The state fiscal crisis will continue, 

and, without flexible use of MSA funds to target emerging priorities, states will be forced to cut education spending and make 

painful cuts in Medicaid expenditures for prescription drugs and 

other programs. 

Thank you, Mr. Chairman. I’d be happy to answer any questions. 

[The prepared statement of Mr. Scheppach follows:] 

PREPARED STATEMENT OF RAYMOND C. SCHEPPACH, EXECUTIVE DIRECTOR, 

NATIONAL GOVERNORS ASSOCIATION

Chairman McCain, Senator Hollings, and members of the Committee, my name 

is Ray Scheppach and I’m the Executive Director of the National Governors Association. Thank you for the opportunity to represent the Nation’s Governors before this 

committee today. 

26 

The tobacco Master Settlement Agreement (MSA) was reached on behalf of the 

Attorneys General of forty-six states, five commonwealths and territories, and the 

District of Columbia on November 23, 1998. That agreement, worth $206 billion 

over a 25-year period, is actually worth $246 billion when combined with previous 

settlements on behalf of Florida, Minnesota, Mississippi, and Texas. 

The MSA Contains Many Important Provisions to Discourage Smoking 

Two major programs in the settlement are dedicated to reducing teen smoking and educating the public about tobacco-related diseases. A total of $250 million was 

used to fund the creation of the American Legacy Foundation, a national charitable 

organization, to support the study of programs to reduce teen smoking and substance abuse as well as prevent diseases associated with tobacco use. An additional 

$1.45 billion was utilized to create a National Public Education Fund to counter 

youth tobacco use and educate consumers about tobacco-related diseases. 

In addition, the price of tobacco has increased. Immediately after the MSA, the 

price of tobacco products jumped by 40 to 50 cents per pack. Additional price increases have occurred as companies attempt to maintain profit margins and make 

settlement payments. These price increases will substantially reduce smoking over 

time. 

The settlement agreement also has a significant number of restrictions on advertising and promotion. The settlement prohibits targeting youth in tobacco advertising, including a ban on the use of cartoon or other advertising images that may 

appeal to children. The settlement also prohibits all outdoor tobacco advertising, tobacco product placement in entertainment or sporting events, and the distribution 

and sale of apparel and merchandise with tobacco company logos. Further, the settlement places restrictions on industry lobbying against local, state, and Federal 

laws. These restrictions on tobacco companies’ ability to market their products to 

children and young adults will eventually have a major impact on smoking. 

The MSA Did Not Require Set-Asides 

There is a fundamental difference between the settlement we reached and the 

proposals being promoted in the late 1990s involving Federal legislation. For that 

reason, Congress acted wisely in 1999 in declaring that decisions about the MSA 

funds should be made at the state and local level. 

In the original lawsuits, states filed complaints that included a variety of claims, 

such as consumer protection, racketeering, antitrust, disgorgement of profits, and 

civil penalties for violations of state laws. Medicaid was not mentioned at all in a 

number of cases and was only one of a number of issues in many others. Further, 

the state-by-state allotments were determined, not based on Medicaid expenditures, 

but on an overall picture of health care costs in a given state. 

It is important to note that, ultimately, the master settlement agreement bore no 

direct relationship to any particular state lawsuit. The master settlement agreement 

represents a global settlement approach that encompassed states who sued for Medicaid, states that had Medicaid claims thrown out of court, and other states that 

simply did not sue at all. The attorneys general were attempting to obtain a fair 

monetary recovery for all states considering the variety of claims and requests for 

relief and the common goals of the multistate settlement process. 

The Federal Government was invited to participate in the state lawsuits, but declined. Therefore, states were forced to bear all of the risk initiating the suits and 

the entire fiscal burden of carrying forth the unprecedented lawsuits against a well 

financed industry that had never lost such a case before. It was not until after state 

victory was ensured that the Federal Government began to pay renewed attention 

to state activities. 

Simply put, the master settlement agreement negotiated between the Attorneys 

General and the tobacco companies is separate and distinct from the agreement that 

was proposed in the 105th Congress. That proposal would have represented almost 

50 percent more money, $368 billion compared to the current settlement of $246 billion. That agreement was much more comprehensive, representing both state and 

Federal costs and requiring congressional approval. In the context of the negotiations over the $368 billion amount, the Federal Government may have had a legitimate claim to a share of the settlement, but the proposal’s inability to garner 

enough votes for passage in Congress fundamentally changed the debate. Without 

passage of supporting legislation, states were forced to proceed with their own lawsuits and negotiate settlements based on nonfederal claims. 

Congress Acted Definitively to Give States Spending Authority 

On May 21, 1999, President Clinton signed into law a measure (P.L. 106–31) recognizing that decisions about how to spend the tobacco settlement dollars were most 

appropriately made at the state level, where Governors and legislators could be the 

27 

most responsive to the unique needs and circumstances of their citizens. Championed by a large bipartisan group of Senators led by Sen. Kay Bailey Hutchison 

(R-Tex.) and Sen. Bob Graham (D-Fla.), the provision was successfully added to the 

FY 1999 Emergency Supplemental Appropriations bill. 

State Spending 

Over the 2000 to 2003 period, states have received $37.5 billion from the Master 

Settlement Agreement. Over this period there has been substantial stability in the 

allocation of revenues. About 36 percent went to health services and long-term care. 

About four percent went to tobacco use prevention. Another 12 percent went to research, education, and services for children. Also, states allocated three percent to 

tobacco farmers for crop diversification efforts to reduce their states’ dependence on 

tobacco production. The remainder went to endowments, budget reserves, and other 

programs. 

The one area that witnessed a major change over the three year period was the 

percent allocated to endowments and budget reserves, which went from 29 percent 

in 2000 to 18 percent in 2003 and then two percent in 2004. This was caused by 

the worst state fiscal crisis since World War II. Regardless of this crisis, 37 states 

continued to spend funds on health services and about 33 maintained their commitment to tobacco use prevention. 

Throughout the last two years, due partly to the budget crisis as well as concerns 

regarding the bankruptcy of tobacco firms, 16 states have securitized their tobacco 

settlement revenues. The proceeds from this securitization were about $13 billion. 

Innovative Programs 

The tobacco settlement funds allowed states to develop a significant number of innovative programs in biotechnology and economic development, smoking cessation, 

early childhood, and preventive health care. This period of innovation and experimentation, which helped states develop ‘‘best practices’’, will pay dividends for a 

long time. States are proud of the smoking cessation initiatives and other programs 

they’ve developed with the tobacco settlement funds. 

There are several innovative programs designed to prevent maternal smoking that 

are showing great promise. Smoking during pregnancy is currently responsible for 

20 percent of all low-birth weight babies, 8 percent of preterm births, and 5 percent 

of all perinatal deaths. Several states have invested a portion of its tobacco settlement to target smoking cessation among pregnant women. These include both classes and one-on-one counseling on the dangers of smoking; effective protocols for 

breaking the smoking habit; statewide quit lines, and media campaigns aimed at 

women of childbearing age. Besides traditional cessation education and counseling, 

these services address a range of barriers to cessation, including weight gain, by 

providing support such as free enrollment in sports clubs. 

Other states have used portions of the settlement to develop unique approaches 

to enhance education opportunities for low-income and disadvantaged students; 

strengthening foster care and child welfare initiatives; and expanding options for 

early childhood development and Healthy Start programs. 

Many states have used tobacco settlement funds to make critical investments in 

pharmaceutical assistance programs for seniors and home and community-based 

care programs for people with disabilities. As many as 16 states have invested funds 

in biomedical research or research on cancer and other tobacco-related illnesses. The 

dividends that these investments pay will benefit all the other states as well. 

Finally, the largest investment has been in traditional health care. States have 

invested billions in funds for indigent care programs, primary care, increasing insurance coverage for the working poor, for hospital charity care, community health centers as well as Medicaid and the State Children’s Health Insurance Program (S– 

CHIP). 

Fiscal Condition of the States 

The most important issue facing the states today is the dismal fiscal situation. 

States are enduring the worst fiscal stress since World War II, and although the 

national economy is beginning to recover, state revenue growth has not responded, 

and historically has lagged Federal recoveries by upwards of 18 months. In fact, the 

current state crises are likely to endure well into Fiscal Year 2005. These fiscal conditions are driven by two major factors, sagging revenues and exploding Medicaid 

costs. 

States have responded sensibly to these difficult conditions. Although the need for 

services has increased rapidly, state spending has only increased by 1.6 percent over 

the last two years, and our estimates for 2004 are that state spending will actually 

decrease by 2–3 percent State spending will have been essentially flat for three 

years. 

28 

On the spending side, the program that has been responsible for the deteriorating 

fiscal condition is Medicaid, the state-federal health care entitlement for the poor, 

the elderly, and the disabled. Now larger than Medicare in terms of total population, total expenditures, and annual growth rate, Medicaid has become the ‘‘PacMan’’ of state budgets, gobbling up every additional dollar of revenue. Medicaid’s 

growth rate has averaged 10 percent per year during the past two decades and now 

represents 21 percent of the average state budget, up from 12.5 percent in 1990. 

The major reason for Medicaid’s continued growth is that it quietly serves to supplement the Medicare program for the many services Medicare beneficiaries can not 

obtain anywhere else. Medicaid pays for the prescription drugs and long-term care 

that Medicare does not cover, and subsidizes the significant cost-sharing burdens 

that Medicare places on its poorest beneficiaries. 

It is shocking to note that of Medicaid’s 50 million beneficiaries, the six million 

people eligible for both programs (the ‘‘dual eligibles’’) account for 42 percent of 

Medicaid’s budget. Therefore, 42 percent of a $280 billion budget is being spent on 

people who are already receiving the FULL Medicare benefits package. State budgets simply cannot sustain this growing cost shift. 

The 2001–2004 state fiscal crisis has had major impacts on: 

• The allocation of funds from the Master Settlement Agreement; 

• The cost of tobacco products in the states; and 

• Total spending on health care. 

First, settlement dollars that originally were to be placed in rainy day funds or 

specific endowment funds were utilized to balance state budgets. Second, a larger 

number of states were forced to securitize part or all of their funds. Third, funds 

for tobacco prevention from the MSA were reduced. Fourth, a large number of states 

enacted significant increases in excise taxes on cigarettes which should have a huge 

impact on smoking cessation over the next 20 years. The proceeds from some of 

these taxes went into other endowment funds that are being used for smoking cessation. Finally, with Medicaid spending growing at 10 percent per year all states 

enacted changes to moderate the growth in Medicaid. 

Tobacco Prevention and Control is Important to the States 

The Federal and state governments have always had the responsibility of ensuring and protecting the public health of its citizens. Smoking, as the leading cause 

of preventable death and disease, results in $150 billion in direct and indirect medical costs per year. 

In 2001, 22.8 percent of the population were reported to be smokers, a reduction 

from 25 percent reported in 1993. Progress continues to be made in meeting national goals related to reduction in the percentage of the population who smoke. 

States are leaders in these efforts—through direct program efforts and changes to 

public policy. 

• Twenty states increased funding in Fiscal Year 2003 for tobacco prevention. 

• Forty three states have laws restricting smoking in public places, 45 restrict 

smoking in government buildings, and 25 have laws restricting smoking in private work places. 

• Five states have comprehensive laws with statewide restrictions on indoor 

smoking in restaurants, bars, and other public places. 

• Between 1990 and 2000, cigarette sales fell 20 percent. 

Since January 2002, 28 states and the District of Columbia have implemented or 

enacted new cigarette tax increases. These increases are as high as $1.01 per pack 

in Connecticut and are more than 50 cents per pack in a dozen states. This raises 

the median tax rate to 58 cents per pack, an increase from 28 cents in July 2002. 

Conclusion 

The nation’s Governors feel strongly that the states are entitled to all of the funds 

awarded to them in the tobacco settlement agreement without Federal restrictions. 

The master settlement agreement is fundamentally different from the earlier proposals considered by Congress. It is a global settlement of myriad claims. 

Given the long history of state expenditures for smoking related illnesses and the 

fiscal pressures facing states, the financial flexibility provided to states in the MSA 

is not only appropriate, but vitally necessary. The state fiscal crisis will continue, 

and without flexible use of MSA funds to target emerging priorities, states will be 

forced to cut education spending and make painful cuts in Medicaid expenditures 

for prescription drugs and long-term care as well as other public health and health 

promotion activities. 

29 

I thank you again for the opportunity to appear before the Committee, and I 

would be happy to answer any questions you may have. 

Cigarette Tax Increases Since January 2002 

Rank State Increase Per 

Pack Effective Date 

1 Connecticut $1.01 April3, 2002 and March 15, 2003 

2 Massachusetts 0.75 July 25, 2002 

2 Vermont 0.75 July 1, 2002 and July 1, 2003 

4 New Jersey 0.70 July 1, 2002 

4 New Mexico 0.70 Jul1, 2003 

6 Pennsylvania 0.69 July 15, 2002 

7 Oregon 0.60 November 1, 2002 

7 Washington 0.60 January 1, 2003 

9 Arizona 0.58 November 25, 2002 

10 Kansas 0.55 July1, 2002 and July 1, 2003 

11 Montana 0.52 May 1, 2003 

12 Michigan 0.50 August 1, 2002 

12 Rhode Island 0.50 May 1, 2002 and July 1, 2003 

14 Wyoming 0.48 July 1, 2003 

15 lllinois 0.40 July 1, 2002 

15 Indiana 0.40 July l, 2002 

17 New York 0.39 April 3, 2002 

18 West Virginia 0.38 May 1, 2003 

19 District of Columbia 0.35 January 1, 2003 

20 Maryland 0.34 July 1, 2002 

21 Ohio 0.31 July 1, 2002 

22 Hawaii 0.30 October 1, 2002 and July 1, 2003 

22 Nebraska 0.30 October 1, 2002 

24 Idaho 0.29 June 1, 2003 

25 Arkansas 0.25 June 1, 2003 

26 South Dakota 0.20 March 18,2003 

27 Utah 0.18 May6, 2002 

28 Louisiana 0.12 August 1, 2002 

29 Tennessee 0.07 July 15, 2002 

Source: Federation of Tax Administrators and news reports 

State Excise Tax Rates on Cigarettes, 2003 

Rank State Cents Per Pack Rank State Cents Per Pack 

1 Connecticut 151.0 26 Idaho 57.0 

1 Massachusetts 151.0 27 Indiana 55.5 

3 New Jersey 150.0 28 Ohio 55.0 

3 New York 150.0 28 West Virginia 55.0 

3 Rhode Island 150.0 30 South Dakota 53.0 

6 Washington 142.5 31 New Hampshire 52.0 

7 Hawaii 130.0 32 Minnesota 48.0 

8 Oregon 128.0 33 North Dakota 44.0 

9 Michigan 125.0 34 Texas 41.0 

10 Vermont 119.0 35 Iowa 36.0 

11 Arizona 118.0 36 Louisiana 36.0 

12 Alaska 100.0 37 Nevada 35.0 

12 Maine 100.0 38 Florida 33.9 

12 Maryland 100.0 39 Delaware 24.0 

12 Pennsylvania 100.0 40 Oklahoma 23.0 

16 Illinois 98.0 41 Colorado 20.0 

17 New Mexico 91.0 41 Tennessee 20.0 

18 California 87.0 43 Mississippi 18.0 

19 Kansas 79.0 44 Missouri 17.0 

20 Wisconsin 77.0 45 Alabama 16.5 

21 Montana 70.0 46 Georgia 12.0 

22 Utah 69.5 47 South Carolina 7.0 

23 Nebraska 64.0 48 North Carolina 5.0 

24 Wyoming 60.0 49 Kentucky 3.0 

25 Arkansas 59.0 50 Virginia 2.5 

Source: Campaign for Tobacco-Free Kids, May 2003 

30 

The CHAIRMAN. Thank you. 

Attorney General Moore, welcome. 

STATEMENT OF HON. MIKE MOORE, ATTORNEY GENERAL, 

STATE OF MISSISSIPPI 

General MOORE. Thank you, Senator McCain. And it’s great to 

see my friend, Senator Lautenberg, back again, and Senator Durbin, Senator Nelson, and my hometown Senator, Senator Lott. It’s 

good to be with you. 

I will just talk from my heart a little bit today. Some of the information that I’ve just heard just grieves me just a little bit, and I 

think we might ought to rewind history a little bit and remember 

what this was all about. 

I know the courage that Senator McCain showed, and Senator 

Lott and others, who worked with us to put this bill in the Commerce Committee back in 1997. People seem to forget about that, 

that there was really an original settlement that came before Congress that turned into the McCain bill. It had FDA jurisdiction in 

it, something that a lot of the naysayers said, ‘‘Oh, we’ll get that 

through the courts.’’ Well, we didn’t. It had, eventually, $550 billion 

worth of dollars in there, some that would go to the Federal Government, some that would go the State Government. It had advertising and marketing restrictions way beyond anything any publichealth person had ever even thought about. 

In my opinion, had the McCain bill passed the United State Senate, we would have seen a 50 percent or greater reduction in teen 

smoking in this country by this point. We certainly wouldn’t be 

having this argument with the states about how they’re spending 

the money. But, unfortunately, we’re not there. 

In 1997, Mississippi settled its case that it had fought for about 

4 years. Florida followed, settling its case. Texas followed, and Minnesota. Later on, Plan B, which was the 46-state settlement, which 

didn’t have the same type advertising and marketing restrictions, 

and much less money, because the leverage had changed in those 

years. 

All those things that the naysayers said were going to happen 

didn’t happen. We lost FDA. A lot of the states’ cases were lost. 

And so by the time of the 1998 settlement, basically the leverage 

was lessened. 

My point about that is, if you rewind history a little bit, a couple 

of things come to mind. When we settled our case and Florida settled their case, the tobacco companies gave us an extra amount of 

money while the bill was pending in Congress. To do what? To 

start prevention programs. I got $62 million extra, on top of my 

settlement, to immediately start a pilot program to find out what 

worked on prevention. Florida got $200 million. Texas got above 

$200 million. 

Mississippi, one of the poorest states in America, and Florida, 

started their programs. We began to see immediate reduction in 

teen smoking and even adult smoking in our states over the first 

two or 3 years. The plan was for us to use that as a template for 

all the other states, should there be a national settlement. 

Texas—it hasn’t been pointed out, but I’ll point out—never even 

used the $200 million that they were given, on top of their settleVerDate Nov 24 2008 06:23 Aug 10, 2016 Jkt 075679 PO 00000 Frm 00034 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\21176.TXT JACKIE
31 

ment, for prevention programs statewide. They expended it in just 

a few counties. They put the money in the bank, even though their 

settlement said they ‘‘shall have a prevention program.’’ And, unfortunately, that didn’t occur. 

So, fast forward. The settlement occurs in 1998, the MSA that 

everybody talks about. And then all of a sudden we start getting 

letters. Senator Lott will remember this, because I think that was 

the first phone call I made. Donna Shalala sent me a letter and 

said she wanted 80 percent of my money, in Mississippi. And I remember what happened. The Governors of the country, the legislators of the country, and attorneys general of the country, what we 

said together was, ‘‘The states fought this fight. The Federal Government didn’t fight this fight, even though we invited them in. 

They thought we were foolish and we didn’t have a chance to win.’’ 

I’ll never forget them telling me that when I went to see them in 

1994. So what we did is, we asked Congress, the House and the 

Senate, ‘‘Please pass a bill, let the states keep all the money. And, 

if you do, so there won’t be any Medicaid claim, trust us’’—I remember it, because I was one of the messengers going to each and 

every one of your offices and saying this—‘‘trust us, we’ll spend the 

money on prevention and public health matters.’’ Trust us. The 

Governors said that, the national legislative groups said that. 

Trust us. There was even a debate—Senator Lott, you will remember, ‘‘I don’t know if we can trust the states or not, maybe we ought 

to have a set-aside,’’ and Senator Lott—I guess I can say it now— 

was helping us, ‘‘Maybe we should have as much as a 25 percent 

set-aside.’’ Some wanted 50 percent. But, ‘‘No,’’ we heard from the 

Governors and others, ‘‘let the states decide how to spend this 

money. But, trust us, we’ll spend it on this prevention program.’’ 

This was a tobacco lawsuit. It didn’t have anything to do with 

highways. It didn’t have anything to do with sewers. It didn’t have 

anything to do with creating a morgue out in North Dakota. It 

didn’t have anything to do, in Michigan, for creating college scholarships for middle- and upper-class students. This was about the 

number one public health problem in America. Now, whether people believe it or not, more people die from this cause than any 

other cause in this country. 

And I was glad to hear my friend, Matt Myers and Senator 

McCain, say that now only 2,000 kids start smoking a day. When 

we were debating this in Congress, it was 3,000 kids start smoking 

a day, and it was 430,000 people die. Now it’s only 400,000 people 

a year die from tobacco-related disease. 

My point to you is, if you know that more people die from one 

thing than anything else in this country—I remember the debate. 

You guys debated this for a solid year on the floor of the Senate 

and the House, and I didn’t hear, one time, people talking about 

budget deficits. What I heard was, ‘‘We need—help our children, 

protect our children. Prevent the tobacco companies from hooking 

them into a horrible addiction that will turn out to lung cancer and 

heart disease and emphysema.’’ And I heard about all the great 

things that Senator Lautenberg did, and Senator Durbin, Senator 

Wyden, and all these courageous people before us that did this. It 

was just a great cause. It was the number one story on every newspaper, TV show. It was a great thing, and people were really going 

32 

to do something. We were going to change the public health of this 

country. 

And then guess what happened? We settled the cases. We got the money to do it. Not a little bit of money. $246 billion. To do what? 

To clean up the mess. 

And are we cleaning up the mess? I’ve been to 44 states giving 

a speech called ‘‘Spend The Money On What The Fight Was 

About.’’ And one of the analogies I use, and I’ll say it very quickly, 

is, what if, in Alaska, when the Exxon Valdez ship crashed, and 

the oil spilled out into the beautiful, pristine Sound and all the little oily fish and oily birds and the pristine environment was destroyed—what if the Governor and the legislature in Alaska had 

said, ‘‘You know, when we get this money from Exxon, we need 

some new schools. You know, we need to build some new roads. 

You know, we have a budget deficit this year. We’ve got a hole in 

our budget. Leave the mess out there. Leave the oil out there.’’ You 

see, everybody in this country and the world would have been in 

an outrage. Why? Because you can see the mess. I mean, you can 

see the birds and the fish and all the terrible environmental disasters that are occurring, so of course they had to clean up the mess. 

I’m not talking about oily fish here, Senator. I’m not talking 

about little floppy birds. I’m talking about 400,000 grandmas and 

grandpas and uncles and aunts, and I’m talking about 2,000 real 

children who are beginning a life that, one third of them, are going 

to die from it. And I’m talking about having the antidote, having 

the penicillin, having the substance that we can inject and make 

a change. 

Some say I’m in the poorest state in America in Mississippi. 

Sometimes I think we’re the richest state in America. Who has an 

excuse in this room? Mississippi takes all of its money from the tobacco settlement, places 100 percent in a healthcare trust fund, by 

statute. On top of that, we’ve spent over $20 million on a prevention program. And, Senator Lott knows this, we’ve reduced teen 

smoking in Mississippi by over 30 percent. We’ve reduced middleschool smoking by 50 percent. We’ve reduced adult smoking by 20 

percent. That’s the astounding number. We have 70 percent more 

smoke-free homes now than we had when we started. 

The only place that prevention programs don’t work are where 

they’re not being tried. I’ve used some strong words in my speeches 

across the country. I call it ‘‘moral treason.’’ I remember why we 

filed these cases. With all due respect to the Governors and the legislators in this country who are making decisions about this, this 

money didn’t fall out of heaven. It really didn’t fall out of heaven. 

It has a connection with a lawsuit that we filed that was real. And 

if it wasn’t real, we wouldn’t have settled, we wouldn’t have won 

this money. 

Governor Chiles, in Florida, God rest his soul, would turn over 

in his grave today if he knew what had happened in Florida to his 

program. Tremendous gains. And then all of a sudden, well, we’re 

successful, so let’s quit doing it. 

Every single state in this country that’s doing the right thing, including Delaware, by the way, are making a difference. So if I 

sound like I’ve got a hollow place in my belly about this, I do. I’m 

proud of my state, and we’re doing good, and we—Senator McCain, 

33 

we lived up to what I told you. I told you, ‘‘Trust us. You let us 

keep all the money, and we’ll do the right thing.’’ But the majority 

of the states in this country, frankly, think the money fell out of 

heaven, and I really wish that Congress would do something about 

this injustice. We had one chance to change the public health of 

this country for the better, and I think we’re wasting it. 

Don’t tell me about the budget deficits. Don’t tell me about needs 

coming Mississippi. I’m going to have a $700 million budget deficit 

next year, in Mississippi. $700 million bucks. That’s a lot of money. 

They’re not going to attack my prevention program. Do you know 

why? Because in the long run, every dollar you invest in prevention 

in tobacco saves you three dollars. 

All this woe about the Medicaid program? Why do you think we 

filed this lawsuit? The majority of people who smoke are the folks 

who are on Medicaid. They’re the poorest people in this country. If 

you reduce the number of people that are the poorest from smoking, you will stop heart disease and lung cancer and emphysema 

and all those things, and you will, therefore, reduce your Medicaid 

budget tremendously. 

So it is shortsighted thinking to securitize your money, to sell off 

the future of your children and your people. It is shortsighted 

thinking to take the money that you have and spend it on other 

things because you have a budget deficit. My question to the Governors and the legislators today is, What would you have done if 

we didn’t have a tobacco settlement? 

Thank you, Senator. 

[The prepared statement of Attorney General Moore follows:] 

PREPARED STATEMENT OF HON. MIKE MOORE, ATTORNEY GENERAL, 

STATE OF MISSISSIPPI

Good morning, Chairman McCain and Members of the Senate Commerce Committee. 

It is my pleasure to again appear before you and address the important public 

health issues concerning the historic tobacco settlement. I remember very well the 

days, weeks, months, and years put into the historic battle with the tobacco companies. I remember the legal battles, the political battles, and the legislative battles. 

Mississippi filed the first case against the Tobacco Industry in May of 1994. We 

claimed the tobacco companies were killing 430,000 people a year, attracting 3,000 

new teenage smokers every day by their marketing and advertising, and costing our 

state millions of dollars a year in the medical treatment for those indigent citizens 

in our health care programs. 

The industry responded that the use of their product did not cause death and disease, that nicotine was not an addictive drug and they certainly didn’t advertise and 

market to children. They were proven wrong on all counts. In June of 1997 a historic settlement was announced among all the states Attorneys General and the Tobacco Industry. That settlement provided Food and Drug Administration (FDA) regulation over nicotine, $368 billion for the states and various Federal programs, 

major marketing and advertisement restrictions and much more. This Committee 

with the leadership of Senator McCain brought forward the settlement in legislation, held hearings, added many refinements and strengthened the original settlement. Unfortunately, that fell a few votes short of the requisite 60 votes needed to 

pass the Senate. In the interim between June of 1997 and June of 1998 the 

landscaped had changed. Mississippi, Florida, Texas, and Minnesota settled their 

cases, taking away some of the toughest cases against the industry. Some of the 

states had legal setbacks, FDA regulation looked shaky and thus leverage had shifted. In November of 1998 a settlement of $206 billion that included some of the advertising and marketing provisions of the original settlement was announced by the 

remaining 46 states. Known as the Master Settlement Agreement (MSA) this settlement did not require any Congressional approval and settlement dollars began to 

34 

flow to all the states in the next year. A huge public health victory-we had what 

we needed to immediately impact the number one cause of death in this country. 

Since the Tobacco Settlements I have been in 44 states giving a speech called 

‘‘spend the money on what the fight was about.’’ I have discovered that some governors and state legislators must believe that the tobacco settlement dollars fell out 

of heaven . . . that the dollars have no connection to the public health lawsuit that 

we brought. The money is being spent on one-time budget deficits, college scholarships, tobacco warehouses, roads, anything but prevention, cessation, and improving 

public health of this country. 

If tobacco really kills 430,000 people a year in America-If tobacco related disease 

really is the number one cause of preventable death in America-then why is it we 

get $246 billion to do something about the problem and only a few states are using 

the money at a substantial level to make a difference. Comprehensive tobacco prevention programs work. They have worked everywhere they have been implemented. 

The only place they don’t work is where they have not been tried. 

In Mississippi, one of the poorest states in this country, we take all the money 

from our tobacco settlement and place it by law in our Health Care Trust Fund. 

These dollars can only be spent on public health matters. We spend $20 million a 

year on a prevention/cessation program call the Partnership for a Healthy Mississippi. It is truly a successful comprehensive program. In the first few years we 

have reduced the number of public high school students smoking by more than 20 

percent and middle school students smoking by almost 50 percent. That means that 

there are 28,000 fewer kids smoking in Mississippi since the start of the program. 

We have dramatically reduced adult smoking by 20 percent and changed attitudes 

across our state about the importance of clean indoor air increasing the number of 

smoke-free homes by 63 percent since 2000—that means 406,000 people are no 

longer exposed to second-hand smoke in their homes. 

I have heard all the arguments by those states that have chosen not to live up 

to the purposes of the tobacco fight. 

1. That the settlement documents don’t say we have to spend the money on tobacco prevention and cessation. To them I say the preamble of the settlement 

provides ample language that public health improvements, protection of our 

children, and the reduction of death and disease from tobacco form the basis 

of the agreement. When did doing the right and moral thing have to be spelled 

out? These same public officials promised Congress in 1999 that if Congress 

would prevent the Department of Health Human Services from requiring the 

states to reimburse the Federal Government the Federal percentage of Medicaid from the tobacco settlement dollars they would spend appropriate 

amounts on tobacco prevention and cessation. Governors and legislators all 

over the country rallied and lobbied to keep Secretary Donna Shalala from 

seizing the Federal share, promising they would do the right thing-I was there, 

I heard it, they said ’trust us’. Congress agreed, passed the appropriate legislation and most of the states have not lived up to word. 

2. I also hear ‘‘we have a budget problem-a hug deficit, so we need this money 

to fill the hole.’’ This short-term thinking makes little sense when compared 

with the dollars saved by a long term investment in reducing deaths and disease from tobacco use and preventing our children from starting. We have had 

the capability to reduce the deaths, disease and the billions spent in health 

care costs by half. This public health campaign should have begun in every 

state in American in 1999 but unfortunately it has not. 

I congratulate all those states like Maine who just announced dramatic reductions 

in youth smoking this month. Florida, Massachusetts, and California all had great 

results but have now been cut back. I know we can do better. The Attorneys General 

of this country fought long and hard to achieve this important public health victory, 

I hope that this committee will take action to make sure that this victory does not 

tum into another defeat by Big Tobacco. 

Senator NELSON. Mr. Chairman, may I take a point of personal 

privilege to commend the attorney general of Mississippi, who was 

one of the great leaders in this fight, and I was aware of it at the 

time, as a statewide elected official in Florida, where Florida and 

Mississippi, our two attorneys general, Bob Butterworth and Mr. 

Moore, consulted so frequently. And there is a tale of two states. 

The State of Mississippi today, that all that tobacco money is being 

spent as it was intended, on prevention, and the State of Florida, 

35 

the chart that makes that chart pale by comparison, having $840 

million a year coming in, and they are spending on prevention now 

one million dollars. It’s a sad commentary. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Well, thank you very much. 

I’d like to mention that Senator Lott was the Majority Leader at 

the time we passed this bill through this Committee with a vote 

of 13 to 1. He was the one that allowed us to spend weeks on the 

floor of the U.S. Senate in an effort to get that bill passed. And I’m 

grateful for his support. And I understand why we had to pull the 

bill. And so I want to personally thank him and all others who 

were involved in this issue. 

You know, Mr. Scheppach, my beloved friend, Mo Udall, used to 

have a saying. He said, ‘‘There’s a politician’s prayer that goes, 

‘May the words that I utter today be tender and sweet, because tomorrow I may have to eat them.’ ’’ 

[Laughter.] 

The CHAIRMAN. Here’s what our public officials said at the time 

of the MSA. New Jersey Governor Christine Whitman, quote, 

‘‘Every penny of these funds should be used for health purposes, including prevention programs and counter-advertising to protect 

kids, cessation programs, and community partnerships to serve 

those who have already put their health at risk by smoking, in addition to existing important health programs, such as Charity Care 

and Kid Care.’’ New Jersey now ranks 30th amongst the states. 

Indiana Governor Frank O’Bannon, ‘‘This money can go a long 

way toward preventing Hoosier kids from ever getting hooked on 

tobacco and toward helping our citizens stop smoking and recover 

from smoking-relating illness.’’ They now rank 26th. 

It goes on and on. It’s really disturbing, because Attorney General Moore and others came to us and said, ‘‘Stay out of this. Don’t 

make the states devote any money to prevention and treatment of 

tobacco illness. Trust us. Trust us.’’ 

North Carolina Governor Jim Hunt, the consent decree gives 

North Carolina, quote, ‘‘a balanced approach to allocate tobacco settlement money. It will address our efforts to crack down on underage smoking and to prevent the health and well-being—protect the 

health and well-being of North Carolinians.’’ They now rank 33rd 

in the country. 

Dr. Healton described what’s going on here. 

My first question is to you, Mr. Scheppach, and I know you’ll 

spout the party line, just as you did in your opening statement, but 

how do you answer Attorney General Moore’s statement, if Mississippi can do it, the poorest nation in the country, why is it that 

other states in this country can’t live up to the promises and commitments they made to their citizens and to Congress when they 

made this deal? 

Mr. SCHEPPACH. Well, I’m sorry it wasn’t somewhat better, in all 

honesty. I mean, the—I wish the percentage was 8 to 10 percent, 

rather than 4 percent, in this particular area. I do, however, say 

that it does take us awhile—yes, I think we do know what our effective programs are now, but I don’t know that we knew that, necessarily, 3 or 4 years ago. 

36 

Plus, this fiscal crisis has really been impacted very differentially 

across the states. When I say, ‘‘This is the worst fiscal crisis since 

the second world war,’’ I mean it. In 2001, revenues were down 

over 5 percent. We have never had a year of negative revenue 

growth for states since the second world war. We’ve had quarters, 

but we’ve never had a year. We were down negative five percent. 

Medicaid growth over the boom period, 1995 through year 2000, 

was down to 5 percent. Those are the baselines we were working 

with. Medicaid jumped, in 2001, to 13 percent growth, and other 

healthcare, which is another 10 percent of the budget, jumped, as 

well. So I think states were caught in a very, very difficult situation. And it was differential. Places like New Jersey, New York, 

and California were hit extremely hard, where other states were 

hit less hard. 

So I wish it was better. My hope is that, as revenues turn around 

and begin to grow, that larger amounts of money go into these particular programs. States have experienced when they’ve taken 

money from trust funds in the past that they have, in fact, replenished them when revenues did grow. 

The CHAIRMAN. Well, I thank you, Mr. Scheppach, and I understand what your job is, and I appreciate you coming here today, unlike the Department of Health and Human Services. 

But I just—and I don’t—it’s not useful for me to keep kicking you 

around, but a resolution adopted by your members in 1999 states, 

‘‘The Nation’s Governors are committed to spending a significant 

portion of the settlement funds on smoking cessation,’’ unquote. In 

a 2001 NGA resolution, the same commitment is repeated. In 2003, 

silence. This is what gives politicians a bad name. 

Ms. Hudson, securitization, I understand that you think that 

that’s a good idea. Is that right? 

Ms. HUDSON. I do not. 

The CHAIRMAN. You do not. Isn’t this—and maybe the other witnesses—well, I’m about out of time—isn’t this, sort of, a commitment to keep the use of tobacco products as a viable way of continuing revenue? 

Ms. HUDSON. Well, I just think that states should have done 

what Delaware did, and put it into an account and spend it for 

health. Securitization is so risky, and it really hasn’t been that successful. And it doesn’t necessarily solve the problem, in that it’ll be 

spent in the right way when they do have it to spend. I also think 

it would be good if states would pass a clean indoor-air bill, so that 

there wouldn’t be an opportunity to smoke in indoor public places, 

that would go with all of this, and many states are doing that. 

The CHAIRMAN. Thank you. 

Dr. Healton, do you want to comment on that? 

Dr. HEALTON. On securitization? 

The CHAIRMAN. Yes. 

Dr. HEALTON. Well, I think securitization is the penultimate example of robbing the—you know, robbing the fund and making the 

chance that a poor decision during a fiscal crisis can be changed 

in the future. I think that’s the great tragedy. And I also think— 

I don’t know the exact percentage—but it’s fiscally foolish, given 

the amount that’s being paid on the dollar at this juncture, given 

37 

the liability situation and the litigation situation for the tobacco industry. 

The CHAIRMAN. Senator Lautenberg? 

STATEMENT OF HON. FRANK R. LAUTENBERG, 

U.S. SENATOR FROM NEW JERSEY 

Senator LAUTENBERG. Thanks, Mr. Chairman. And I thank you 

for your interest in resolving this dispute over tobacco. You’ve been 

a staunch supporter. 

My work on tobacco began here, and Dick Durbin was on the 

other side of the Capitol. We did it together, started in 1986, it was 

our activity in 1987, we got a bill passed. And it’s very disappointing to see the reduction in prevention funds that we are 

regularly dealing with. 

I want to say this, as kind of a start. First, Mr. Chairman, I 

want to ask consent that my full statement be included in the 

record. 

The CHAIRMAN. Without objection. 

[The prepared statement of Senator Lautenberg follows:] 

PREPARED STATEMENT OF HON. FRANK R. LAUTENBERG, 

U.S. SENATOR FROM NEW JERSEY

Mr. Chairman: 

I know that you and I both are dedicated to protecting Americans—especially our 

youth—from the dangers of tobacco. I applaud your leadership in this regard and 

thank you for holding this important hearing. 

Today, five years after the settlement agreed to by 46 states and five major tobacco companies, tobacco control remains one of America’s most pressing public 

health issues. 

It is estimated that direct medical expenditures attributed to smoking now total 

more than 75 billion dollars per year. 

I used to smoke—a lot. Fortunately, my daughter, when she was a young girl, 

convinced me to quit. Since then, I have been fighting the tobacco industry. I’m 

proud to say that my work on the public health side of the tobacco debate started 

long before tobacco control became a mainstream issue. 

I authored the law banning smoking on airplanes, which protected people from 

deadly secondhand smoke. That law changed our culture’s attitudes about smoking 

in public places. 

I also wrote the laws banning smoking in all federally-funded places that serve 

children. And I have consistently supported higher tobacco taxes to pay for expanding health coverage for children and the uninsured. 

We have made progress over the past several years but we still have so much further to go. Tobacco use continues to be the No. 1 leading cause of preventable death 

and disease. Each year, tobacco claims over 400,000 lives here in the United States. 

According to the Centers for Disease Control (CDC), if current tobacco use patterns persist in the United States, an estimated 6.4 million children will die prematurely from a smoking-related disease. Every day, nearly 5,000 young people try 

cigarettes for the first time. On a positive note, smoking among adults has slowly 

but steadily declined since 1993; however, 46.5 million American adults still smoke. 

After the flawed ‘‘Global Tobacco Settlement’’ proposal failed, and Chairman 

McCain’s good tobacco bill was killed by the industry, the states struck their own, 

separate settlement with the tobacco industry. 

While this ‘‘master settlement’’ did not tell states how they should spend the 

money, the governors and other officials from many of the States promised that they 

would use the funds for tobacco prevention and anti-smoking campaigns targeted to 

children. 

At the time I was skeptical of the state settlement because it did not earmark 

funding for health. Unfortunately my doubts proved correct. 

A study by the Campaign for Tobacco Free Kids found that only four states currently fund tobacco prevention programs at the level recommended by the CDC. 

38 

This is deeply disturbing. Especially when you consider that tobacco companies 

continue to spend more than 20 times as much to market their deadly products as 

the States spend to protect kids from tobacco. 

The states are facing their biggest fiscal crisis since World War II or, in some instances, the Depression. It’s no surprise that financially-strapped State officials are 

diverting tobacco settlement funds. But it’s disappointing and it’s short-sighted. 

Spending settlement money on tobacco control now will save money down the road 

by reducing health care costs. More important, spending settlement money on tobacco control now will save lives down the road as well. 

Thank you, Mr. Chairman. 

Senator LAUTENBERG. And that is that we suffer from a depletion 

of funds. And, you know, Attorney General Moore and Matt Myers 

and—we had a lot of contact. It’s been several years since I’ve seen 

you. You’re looking well. 

And also, oh, for those days when we were constantly on the 

press and doing the right thing, and we thought that this was a 

role that was going to really curb smoking, and we wind up dealing 

with what I’ll say is an opposition that never stops writhing, never 

stops fighting back, in such devious ways, at times, we don’t recognize what’s happening. 

But I do want to say that the reduction in Federal funding in the 

states has caused us great distress. And I don’t approve of what 

New Jersey did, and I don’t approve of what other states have 

done, either. But some of it is to reduce pollution, which causes lots 

of lung problems, and some of it is designed to reduce accidents, 

which causes death and destruction. None of them have the impact, 

however, of tobacco. 

And a dear friend of mine, who stopped smoking 30 years ago, 

just in the last couple of months was diagnosed with a lung cancer 

that evolved from his smoking days, and the future is bleak. Even 

though he’s a mature man, the fact is that he was in the good state 

of life. 

Matt Myers, I want to ask, should the FDA—should we continue 

to fight that fight and see if we can get tobacco regulated under 

the FDA? Can we trust them to do the job? What do you think? 

Mr. MYERS. Senator Lautenberg, thank you for your question. 

We need a comprehensive approach. We need the states living up 

to their promise and spending tobacco settlement money on tobacco 

prevention. But we also need to regulate tobacco. It remains the 

least regulated consumer product in this Nation. We need to do 

both. 

It’s shocking that if Philip Morris sells macaroni and cheese, they 

have to test the ingredients, notify consumers of the ingredients, 

label the ingredients. If they put a known carcinogen in Marlboro, 

they don’t have to do any of those things. We need to do that, and 

we need to do it soon. 

But it’s also not a substitute for states doing the right thing. I 

mean, Mike Moore said it correctly. If states as poor as Maine and 

Mississippi can find a way to protect their children from tobacco, 

every state can find a way to protect their children from tobacco. 

Senator LAUTENBERG. I think that’s fair to say. Again, not defending state action and not doing these things, but the states are 

in a pinch that has not been seen, perhaps, for 50 to 60 years. 

Mr. MYERS. You know, while we all talk about that as a critical 

issue, and it is, tobacco has actually come to the rescue of revenue 

39 

in over half the states in this nation, because they’ve increased 

their excise taxes, as did New Jersey. If the states would devote 

just a small percentage of those excise-tax increases, even after 

they securitize, we can protect our children. All we really need is 

them to spend about 8.2 percent of their tobacco revenue. This is 

money that came off of the backs of smoking so that we can do 

both. We shouldn’t have to choose, in this country, between protecting our kids. 

If we announced that, because of a budget crisis, we were going 

to withdraw polio immunization from our children, would anyone 

be saying, ‘‘Well, there’s a budget crisis. That’s OK’’? That’s what 

we’ve done with regard to tobacco. 

Senator LAUTENBERG. That’s a pretty good comparison. The problem is that it takes a long time for the impact of tobacco to—— 

Mr. MYERS. Actually, we see relatively rapid results in certain 

areas. For example, Massachusetts and California both targeted 

pregnant women. They reduced smoking among pregnant women 

by 50 percent, and paid for the entire cost of the program by doing 

so. They also reduced heart disease caused by tobacco within 12 

months. That’s not a 20 year lag time, as for lung cancer. Tobaccoprevention programs begin to pay dividends immediately. 

Senator LAUTENBERG. Mr. Chairman, there is lots more that we’d 

like to hear from our witnesses. It’s an excellent panel, and we 

thank you, but time is up. I don’t know whether you intend to—— 

The CHAIRMAN. Sure. 

Senator LAUTENBERG.—go around again. 

The CHAIRMAN. Be glad to, Senator. 

Senator LAUTENBERG. Thank you. 

The CHAIRMAN. Senator Lott? 

STATEMENT OF HON. TRENT LOTT, 

U.S. SENATOR FROM MISSISSIPPI 

Senator LOTT. Well, first, thank you, Mr. Chairman, for having 

this hearing and having this very good panel here this morning. 

And thanks to all of you for being here. I apologize for not directing 

a lot of questions to the other four panelists, but he is from my 

home state and my hometown, so I’m going to address most of my 

questions to our attorney general from Mississippi. 

And I want to say we appreciate the job you have done. You 

know, if people want to know why Mississippi was able to put this 

money where it needed to go and handle it in the right way, the 

simple answer is because Mike Moore wouldn’t let them do otherwise. But you did also, I guess, we’d have to say, have cooperation 

from the state legislature to set it up in the way that it was done, 

and I’m very proud of how our state is handling it. 

As a matter of fact, those funds are being used in ways that do 

some things that would need to be done by regular funding from 

the state if they didn’t have this fund, so it’s not a zero-sum game. 

We’re taking some of the programs that needed funding and are 

taking care of it. 

But let me ask you some specific questions for the benefit of 

those that have not been as wise as Mississippi. What did you do 

to make sure it was handled this way in Mississippi? Other than 

being a watchdog and snarling at anybody that started breathing 

40 

heavily on it. What did you and the state legislature and the Governor do to set it up the way it was done? 

[Laughter.] 

General MOORE. Well, if you’ll remember, we didn’t get a lot of 

cooperation from the Governor. The Governor actually sued me to 

try to stop the lawsuit, so we—that wasn’t going to work. The Governor at the time was opposed to it. So the first thing we did was, 

I got it written in our court order that settled our case, that the 

money should just be used for healthcare and prevention programs. 

And that could be challenged, the legislature could have challenged 

that, but when presented with a court order, let’s just say they 

were cajoled very easily into saying that we ought to spend—pass 

a law that says create a healthcare trust fund, put all the money 

in there, and the original idea was just to spend the interest on expanded healthcare programs in Mississippi. And that worked for 

the first two or 3 years. The last couple of years, one of the things 

they could spend some money on is the expansion of new programs 

for Medicaid, so they took some money out to spend on Medicaid. 

But separate and apart from that, we also put in a court order 

the establishment of the Partnership for a Healthy Mississippi, 

which is our comprehensive prevention program, and that has remained unchallenged through the years. Part of it is cooperation, 

Senator Lott. Truthfully, part of it is its success. Had it been a failure, had numbers not gone down in Mississippi, I guarantee you 

I would have had folks challenge me in court about the validity of 

the court order, and they would have tried to dismantle the Partnership for a Healthy Mississippi. But because it’s been just a remarkable success, you know, we don’t believe in shutting down success in Mississippi when you get it going, like some of the other 

states have done. I think Senator Nelson mentioned that, in Florida. 

Senator LOTT. But the legislature did pass the legislation to set 

up the—— 

General MOORE. The healthcare trust fund, absolutely. 

Senator LOTT. What is it being spent on? Other than, you know, 

the prevention programs, the programs that have been targeted at 

children, trying to make sure they understand that they shouldn’t 

be smoking. You mentioned some of the Medicaid programs. Could 

you give me just two or three examples? 

General MOORE. Sure. We’ve expanded some Medicaid programs, 

covering more folks, which was the original intention of the settlement. Matt will remember this, when we were in discussions with 

the White House and others, part of this money—Senator Lautenberg and—or, he’s gone—Senator Durbin, you will remember—to 

fund the extra part of children’s healthcare, the match for the Federal—and we’re using part of our money—matter of fact, the first 

2 years, we took $6 million from the interest that funded the entire 

match for Mississippi to expand our children’s healthcare by 50,000 

folks. We set up trauma centers in hospitals that didn’t have any 

trauma centers, a lot of things for the disabled. So it’s been—it’s 

done very well. 

Senator LOTT. OK. All right. So we have a problem, though, in 

all these other states that have not followed your example and our 

example. What is the solution? And is this going to be resolved 

41 

again in the courts? Do we need to come back and address it again 

at the Federal level? 

General MOORE. Well, you know, for years—and you and I have 

talked, Senator McCain and I have talked—about the possibility, 

and especially when you had the hearing 3 years ago—I always, in 

these speeches, tell folks, you know, what Congress gives, Congress 

can take away. You know, you gave an exemption for the expenditure of this tobacco money, basically saying that there wouldn’t be 

any Medicaid claim. I would certainly hope that Congress didn’t do 

that, but it might be that this statute ought to be revisited and 

take a look at how the states are spending their money, because 

it was a deal. 

I mean, the reason I remember it is, I was up here every single 

day, walking into offices, talking to legislators, saying, ‘‘Believe me, 

trust us, we’re going to do this the right way.’’ And we met with 

the Governors Association, met with the legislators, and they just 

wanted autonomy, but they said, ‘‘Trust us.’’ If they’d never said 

that, you would have never passed that bill. Kay Bailey Hutchison, 

in your body, and Chairman Bilirakus, in the other body, never 

would have gotten those things passed had we not said, ‘‘Trust us, 

we’ll spend the money the right way.’’ 

So I’m saying most of the states have reneged on the deal they 

made with the U.S. Congress to get that historic change in the 

Medicaid law. Maybe we should revisit it. 

Senator LOTT. Well, thank you for being here. I’m proud to hear 

the statistics that you’ve given about, you know, what’s happened 

in our State of Mississippi. It’s been a good week, with this information and beating Auburn, too. 

[Laughter.] 

General MOORE. That’s exactly right. 

Senator LOTT. We’re on a roll. Let’s keep it going. 

General MOORE. Six-and-oh, Senator, and we’re—and thank you, 

again, too, for the leadership that you provided to us and the help 

behind the scenes, especially with this issue. 

The CHAIRMAN. In all due respect to the great State of Mississippi, isn’t it true that Mississippi has been noted as the poorest 

state in America; and it is the poorest people, generally speaking, 

lowest income people, that are addicted to smoking. 

Senator LOTT. Right. 

The CHAIRMAN. So, therefore, what’s been achieved in Mississippi 

is truly remarkable, when put in that context. Is that right, Mr. 

Myers? 

Mr. MYERS. That’s exactly right, Your Honor, and—I mean— 

Your Honor—— 

[Laughter.] 

Mr. MYERS.—Mr. Chairman. You like that, too. 

The CHAIRMAN.—you’re talking to Senator Lott. 

[Laughter.] 

Mr. MYERS. That’s exactly right. And when we talk about crushing Medicaid burden, that’s what we have to understand, is that 

states like Mississippi and Maine and several others have proved 

that we can literally lift that burden off our poorest citizens, who 

can least afford it, and that’s a burden that falls on every taxpayer, 

42 

because it translates into billions of Medicaid dollars that are needlessly spent. 

We can do something about state budgets if we lower smoking 

rates among the poorest citizens. And programs like the program 

in Mississippi, the program that originally existed in Florida, were 

doing just that. 

The CHAIRMAN. Senator Durbin? 

STATEMENT OF HON. RICHARD DURBIN, 

U.S. SENATOR FROM ILLINOIS 

Senator DURBIN. Mr. Chairman, thank you for inviting me here. 

I’m not a Member of this Committee, and I came to testify, and you 

were kind enough to let me come take a seat. Bill Nelson was kind 

of enough to let me precede him in questioning. And I’d like to 

make my statement part of the record, with your permission. 

The CHAIRMAN. Without objection. You’re welcome here, Senator 

Durbin. 

[The prepared statement of Senator Durbin follows:] 

PREPARED STATEMENT OF HON. RICHARD DURBIN, U.S. SENATOR FROM ILLINOIS

Mr. Chairman, Ranking Member Hollings, and Members of the Committee, thank 

you for holding this important hearing on how states have allocated their settlement 

revenues since signing the 1998 Master Settlement Agreement (MSA). I would like 

to commend you, Mr. Chairman, for your work 6 years ago to try to enact comprehensive legislation to hold the tobacco industry accountable for the harm it has 

caused to so many millions of Americans. While it was an assignment you might 

not initially have sought, you worked valiantly to promote a public health-oriented 

solution. And while your bill did not become law, I think it is fair to say that the 

Master Settlement Agreement between the states and the tobacco companies would 

not have been as strong as it was without your efforts. 

I also salute you, Senator Hollings, for standing up for public health and accountability with a position that must have required a deft handling of some of your constituents back home. 

I am sure that a lot will be said today about the importance of holding states to 

their commitment to use a significant portion of the settlement funds to attack the 

enormous public health problem posed by tobacco use in the United States. As we 

reach the 5th anniversary of the MSA, I agree that states have a responsibility to 

adequately fund these prevention programs. 

The Institute of Medicine, the Surgeon General, and the National Cancer Institute 

have all issued reports on reducing youth tobacco use. These reports signal that 

state funds spent on tobacco prevention and cessation will produce important results 

for the health of our country. In fact, in its August 2000 report, the Surgeon General 

found that the United States could make unprecedented progress and reduce tobacco use by 50 percent in one decade through the implementation of nationwide 

prevention and cessation programs. 

Clearly, state tobacco programs play a vital role in decreasing tobacco use among 

youth, and it is critical that we take a close look at how states have been using the 

settlement funds. However, we must also recognize that an overwhelming majority 

of states, facing severe budget constraints, have turned to settlement funds to provide essential services, such as health care. I would hope that as the economy improves and the gaps in states’ budgets are filled in, they will devote more of their 

MSA funds to launch tobacco prevention programs. But, we cannot ignore the fact 

that the ultimate responsibility of reducing youth tobacco use rests with the tobacco 

industry. 

It is no accident that more than 80 percent of adult smokers today started smoking before the age of 18 and over half before the age of 16. Despite claims that their 

products are intended for adults, for years tobacco companies have targeted kids 

and have been deceptive about their alleged efforts to reduce youth tobacco consumption. 

Eighteen months prior to the signing of the MSA, the tobacco industry claimed, 

during negotiations on a broader proposed agreement, that youth smoking would decline by approximately 40 percent over a 5-year period and 67 percent over a 10- 

43 

year period. If those targets weren’t reached, the industry agreed to be subject to 

penalties. The tobacco industry appeared to be committed to these goals. However, 

when I offered an amendment to include these ‘‘lookback’’ provisions in the tobacco 

settlement bill and hold individual companies accountable for their share of the reductions to which they agreed the previous year, these same companies opposed my 

amendment. 

So, here we are, five years later. Has the tobacco industry followed through on 

its promise, on its commitment to our Nation’s children? The answer to this question, I am sad to say, is a resounding NO. 

While youth smoking has decreased, we have not reached the goals that would 

have been established in the lookback. The decline has largely been the result of 

cigarette tax increases despite the industry’s insistence that youth smoking is not 

price sensitive. Five years have passed, yet we find ourselves still fighting the same 

battle, youth smoking. 

So, let’s take a look back. Since 1998, tobacco companies have launched youth anti 

smoking campaigns, buying full page ads in the Washington Post, the New York 

Times, and the Wall Street Journal, saying that they adamantly oppose the sale of 

tobacco to kids. Hearing these claims, one would assume that the tobacco industry 

had turned over a new leaf, finally committing itself to reducing youth smoking. 

But, a California judge thought differently, and just a year ago, fined R. J. Reynolds 

$20 million for continuing to target kids through their advertisements in youth oriented magazines ads, which directly violate the MSA. 

So, why would tobacco companies continue to advertise their products in magazines with high youth readership when their products are intended for adults? The 

answer is so simple that I will quote directly from a 1981 Philip Morris report: 

‘‘Today’s teenager is tomorrow’s potential regular customer, and the overwhelming majority of smokers first begin to smoke while still in their teens.’’ 

It is no surprise that in the first year after the MSA was signed, advertising in 

youth-oriented magazines, especially for the three brands most popular with youth, 

increased by 15 percent, jumping from $58.5 million in 1998 to $67.4 million in 

1999. 

We can no longer tum a blind eye to what is going on. The tobacco companies 

have continued to wage a war against our communities, and our youth are the most 

innocent of its victims. Clearly, as the system stands today, the tobacco industry 

continues to benefit from youth smoking. There is no incentive for the tobacco industry to truly work to prevent kids from smoking, so we must get rid of that profit 

motive that makes teen smoking attractive to them. 

We cannot ignore the critical foundation that was laid five years ago by the state 

attorneys general in fighting youth tobacco use, and I agree that we must hold 

states accountable for their use of settlement funds. But we must broaden this discussion to include holding the tobacco industry to its promises as well. 

I hope that out of this hearing today, we will develop a plan to successfully tackle 

this problem of youth smoking. I think it is time resurrect the lookback mechanism 

to hold each company accountable for its share of youth smoking. We owe it to our 

nation, our communities, and especially to the 5 million kids who are regular smokers and find themselves facing a deadly addiction. 

I commend this Committee for taking the first step in that important direction. 

Again, thank you Mr. Chairman. I appreciate the opportunity to share my views. 

It is important that we continue to monitor this issue, and I look forward to working 

with you in that regard. 

Senator DURBIN. Thank you. 

Mr. Chairman, let me start by saying thank you. We don’t talk 

about tobacco anymore around this place. There hasn’t been a good 

conversation about tobacco on Capitol Hill in a long, long time. 

Thank goodness you’re an exception and are willing to step out and 

continue to lead on this issue. It really is a matter of life and 

death. And the fact that you’re showing this political leadership is 

not lost on this Senator and a lot of your colleagues and people who 

are following these hearings. 

Tobacco has been an important part of my life, personally and 

politically. When I was a sophomore in high school, my father died 

of lung cancer. He was 53 years old. I didn’t stand by his bedside 

as he gave his last breath and say, ‘‘I’ll get even with those basVerDate Nov 24 2008 06:23 Aug 10, 2016 Jkt 075679 PO 00000 Frm 00047 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\21176.TXT JACKIE
44 

tards,’’ but when I was elected to Congress and started facing these 

tobacco issues, whether it was wasted money on the so-called ‘‘safe 

cigarette’’ research or some of the things we’re doing to promote tobacco in other places, it wasn’t lost on me that there were a lot of 

people around America who shared the same life experience that 

I did and my family did. And that’s why I joined Senator Lautenberg—and we were successful many, many years ago now, Frank— 

in banning smoking on airplanes, and why I stood and watched, 

with real admiration, Senator McCain, as you led the way in trying 

to show some Federal leadership on this issue. 

Today, we are discussing the obvious. We are not putting money 

into tobacco prevention, and more children are becoming addicted, 

and those addicted children will ultimately—at least one out of 

three of them—die from this addiction. That’s the simple fact of the 

matter. 

We’ve talked about the lack of money that’s there. But, in my 

mind, it is not so much a depletion of revenue, but a depletion of 

resolve. A depletion of resolve at the State and Federal level. 

Attorney General Moore, thanks for your leadership. You have 

been a national leader on this issue. And, Matt Myers, you and I 

have been colleagues on this for a long, long time. I would just say 

your Prince William Sound Exxon Valdez analogy—I’d take it a 

step further, for Mr. Scheppach and the Governors. How many of 

these Governors are willing to walk away from earmarked funds, 

from gasoline taxes, and highway trust funds, and say, no, we’re 

going to spend those on Medicaid? You know what would happen 

in my state capital and most others? The contractors and the labor 

unions and the mayors would all be there screaming bloody murder, ‘‘Wait a minute. That money was for highways. That money’s 

not for Medicaid.’’ And yet when it comes to the tobacco money to 

save the lives of people in those states and to prevent death and 

disease among children, there isn’t this same level of anger. 

And at the Federal level, I was afraid, when Senator Hutchison 

offered her amendment, that we’d be sitting here today, 5 years 

later, saying, ‘‘They didn’t keep their word.’’ The states didn’t spend 

the money as they were promising they would, and we let them off 

the hook. We let them off the hook here on Capitol Hill, and that 

is sad and unfortunate. 

Dr. Healton, I want to tell you something. I really admire what 

Legacy’s done. And I watch those Truth ads and think, ‘‘Right on.’’ 

If we could get those ads on the air on the right program and 

across America, it’ll have as great an impact as raising the cost of 

the product does with children. 

I read your testimony and hear that you may be going away. Is 

that a fact? 

Dr. HEALTON. Well, our revenue source has declined by 90 percent because of a provision in the Master Settlement Agreement. 

It required that the participating manufacturers collectively represent 99.05 percent of the market for us to receive a payment. If 

they represent 99.04, we do not receive a payment, which, in essence, is a sunset clause, though Mike Moore may want to comment a little more on it. 

So our existence is threatened. But, because the board wisely set 

aside some of the payments to us, we will operate at a level, but 

45 

it will be so substantially below the current level that we will be 

unable to provide a national ad campaign. 

And I would just comment, Senator Durbin, that I want to thank 

you for coming to the event that we had here on the Hill for staffers about the Truth Campaign, and just also point out that presently spending about $75 million in the advertising marketplace for 

the Truth Campaign and bringing it to the highest risk kids, it has 

been enormously successful, and it’s probably responsible for about 

half of the decline that has been observed in youth smoking. 

If the rates stayed where they were in 1997, when you folks were 

talking about this issue here on the Hill, two million more young 

people would be regular smokers than are today. So I think we 

should all collectively be proud of the successes we have had, while 

we remain vigilant about what still needs to be done. And I thank 

you for your interest in the program and your support for, at times, 

a controversial campaign that’s intended to grab the hearts and 

minds of our most at-risk adolescents. 

Senator DURBIN. Mr. Chairman, the voice of Truth, the voice of 

the Legacy campaign, is a small voice against the roar of tobacco 

advertising, but it’s so good that we can’t let it go away. I don’t 

know what I can do. I hope that you’ll join me, Frank Lautenberg, 

and Bill Nelson, and any other Senator. We can’t let this go away. 

If this is all that we make a commitment to do, we can’t force Governors to spend this money at this point, but we can’t let this go 

away. And I hope we can find a way to find the revenue to keep 

you on the air. 

Thank you, Mr. Chairman. 

Mr. SCHEPPACH. Mr. Chairman, can I make a comment? 

The CHAIRMAN. Yes, sir. 

Mr. SCHEPPACH. Since everybody’s talking about the commitment 

of the Governors, I just want to read from our resolution that was 

longstanding, and it was that they’re committed to—— 

The CHAIRMAN. In what year, Mr. Scheppach? 

Mr. SCHEPPACH. Well, this goes all the way back, I believe—it’s 

been in existence from probably 1997 or so. 

But the commitment was to spend a significant portion of the 

settlement funds on smoking cessation, healthcare, education, and 

programs benefiting children. Now, I think that that depends upon 

what you define as significant, but I think 45 percent of the money 

is, in fact, going to those areas. Now, everybody has focused on cessation, and, you know, our hopes are that that can be increased 

over time. But as far as I remember, that was our commitment. 

Now, I can’t speak for any individual Governor, but as far as the 

organization is concerned, I think that’s been our commitment. 

The CHAIRMAN. Well, I guess that deserves a response. Mr. 

Moore? 

General MOORE. What I know is that, you know, it’s great to put 

something down on a piece of paper and have a vote and read it. 

The people who came up here and lobbied Congress, we would have 

never gotten Congress to pass the exemption that they passed with 

a, you know, ‘‘We’ll spend a little money,’’ or, ‘‘Don’t worry about 

it, we’ll take care of it.’’ I mean, it was—you remember, President 

Clinton and Donna Shalala, from the Administration, were against 

this bill, and they were only for it if the states spent the money 

46 

on prevention programs and expansion of children’s healthcare and 

had four categories that he was for. So I can’t imagine that we 

would have been successful without the cohesiveness of Governors 

and legislators and others at least telling a convincing story that, 

‘‘Trust us, we’ll spend the money the appropriate way.’’ 

And I understand all the excuses. I’ve heard them all. I live in 

Mississippi. I hear all the excuses about needs and deficits and all 

those kind of things. But this was a lawsuit against tobacco. This 

had nothing to do with any of those other things. 

Mr. MYERS. Mr. Chairman, could I just also respond to—because 

I think it’s important to note—and it’s very disturbing—that when 

the National Governors Association was seeking the waiver, they 

came forth with a resolution to contain the commitment. But when 

Congress stopped looking, they revised the resolution, and they 

took out that paragraph, that promise. 

I don’t think that was a promise for 2 years or 3 years. That 

money is coming in in perpetuity. I thought that was a long-term 

promise that the states and the Governors made to Congress, not 

that they would change the second that no one was looking. 

The states do face hard choices. But, in 2000, they spent 43 percent of the money on health, now it’s down to 28 percent. In 2000, 

they spent 9 percent on tobacco prevention, now it’s down to 3 percent. 

If we’re going to solve the problem with tobacco, it requires a 

straight-up, honest commitment of a long-term and sustained nature, not that we go somewhere else as soon as someone stops looking. I don’t think we can afford to see this continued diversion of 

funds if we’re going to protect our kids. 

The CHAIRMAN. Mr. Scheppach, I don’t want—again, I don’t want 

to continue this debate, because I think facts will take care of this 

argument. But these two statements, of 1999 and 2001, clearly 

they are talking about healthcare and education as related to tobacco. That’s why policy position tobacco settlement funds policy. I 

mean, when you read the entire statement, in 1999 and 2001, you 

draw the obvious conclusion we’re not talking about taking care of 

Medicare. We’re talking about tobacco-related illnesses. That’s certainly the way that I read this statement. 

Now, you can draw out—say, ‘‘Oh, healthcare, so it’s OK for us 

to spend the money on our Medicaid programs,’’ but that’s not the 

way that reads in its context, at least from my viewpoint and that 

of others. 

And I also, again, want to repeat, I know that you are here to 

defend your organization, and I appreciate that. But I can’t let it 

go, just say, ‘‘Well, we said that it would be healthcare.’’ It’s clear 

that this statement is about health-related illness—tobacco-related 

illnesses and could be—I don’t see how you could interpret it any 

other way. 

And, in interest of fairness, please, you respond if you would like 

to. 

Mr. SCHEPPACH. Yes. I mean, you have the advantage of, in report language and other things, of knowing what the debate was. 

I think I was there at the time and listened to the debate. We did 

a lot of analysis on the effectiveness of cessation programs at the 

time, and the feeling was you couldn’t put $8 billion or $10 billion 

47 

a year of additional money in cessation programs and make them 

effective. So I think—— 

The CHAIRMAN. Well, I—— 

Mr. SCHEPPACH.—we were talking more broadly. 

The CHAIRMAN. Are you talking about treating health-related illnesses, too—tobacco-related illnesses? 

Mr. SCHEPPACH. Well, you get into problems, I think, of defining 

what is specifically tobacco related. I think, you know, you’ve got 

to deal with those in the broader programs that we’ve got. 

The CHAIRMAN. Well, I guess I wish that I had been in there 

when the debate and discussion took place, because then I would 

have had a different position about earmarking funds that—and 

making it mandatory that it be spent for certain purposes. And I 

thank—— 

General MOORE. Senator, if I could respond for just 1 second? 

The CHAIRMAN. Yes, sure. 

General MOORE. Just very quickly. I don’t want anybody to be 

confused. In 1999, when this decision was made, the California results had been in for years and years and years and years, about 

the reduction in their program. The Florida numbers had come in 

that year, humongous reduction. Massachusetts numbers were in. 

We knew, in this country, what worked. And the reason I know 

that is, we modeled our program in Mississippi, starting in 1998, 

on the successful programs of Florida and Massachusetts and California and others. 

And another point, and I’ll quit, is that we’re not talking about if a state receives $100 million a year, to take that $100 million 

and spend it on TV anti-tobacco. What we’re saying is if you even 

spent 20 percent of that money—if you took 20 million out of that 

hundred and take the 80 and do whatever it is you want to do with 

it—if you took 20, you could have a huge impact on this problem. 

But what we’re doing is, we’re taking 3 percent nationwide, and 

that’s just not—it’s not good. 

The CHAIRMAN. Senator Nelson? 

STATEMENT OF HON. BILL NELSON, 

U.S. SENATOR FROM FLORIDA 

Senator NELSON. Mr. Chairman, what we’ve heard here is shocking to me; it’s not surprising. And I must say that I am chagrined, 

Mr. Chairman, that the states being in the fiscal distress that they 

are, and we had in front of this Congress, earlier this year on the 

tax bill, a question of how much money we were going to send to 

the 50 states who are in fiscal distress. What ultimately emerged 

in the package was $20 billion to the states, close to a billion dollars going to my state alone. There was an amendment that I voted 

for, $40 billion to help the states in their fiscal distress. And yet 

what we’re hearing today, shockingly, is the money that came from 

the tobacco settlement, which was clearly stated at the time that 

a certain portion of this was going to go for prevention so that ultimately the states would have less healthcare costs through Medicaid, that that money is not being spent. That’s unconscionable. 

And, again, I go back with great commendations for Mississippi 

and the attorney general, who’s with us today, of where the recommended spending by the CDC that Mississippi today, years 

48 

later, over half a decade later, after the settlement, that Mississippi is exceeding that in spending on tobacco prevention. 

And then, sadly, I turn to the page on Florida. Florida, having 

settled its case one month after Mississippi, a much bigger state 

than Mississippi, with a lot more dollars coming in, and lo and behold, what the CDC’s recommended spending on tobacco prevention—Florida today is spending 1 percent of the CDC’s recommendation. And yet we send $20 billion to the states, and I 

voted for a version that was to send $40 billion to the states because of their fiscal distress. So it distresses me. 

You know, Mr. Scheppach, one of the things that the Governors 

ought to be asking themselves is how much of the dollars that they 

are spending for smoking-related illnesses—how does that compare 

to what you’re spending for prevention? Are the Governors asking 

themselves that? 

Mr. SCHEPPACH. I would probably disagree that, in the short run, 

there would be significant savings. Medicaid, most of that money 

is going into nursing homes, and people generally are going to end 

up there at some point in time. Women and children are relatively 

inexpensive. Most of the money is in long-term care, drugs, it’s for 

the so-called dual-eligibles for Medicare and Medicaid. That’s 

where all the money is. 

Senator NELSON. Well, do you know what’s happening in Florida 

right now? Now that you brought up nursing homes? What’s happening—under Florida law, a person who is in a nursing home, 

under Medicaid, pays their income to the State of Florida in return 

for being treated. But there are certain exceptions that the State 

of Florida is to deduct for their income—how much they pay out 

for health insurance, how much they pay out-of-pocket healthcare 

costs for deductibles and co-pays. And do you know that the State 

of Florida, right now, is not deducting that money, but, instead, is 

taking that money from the senior citizens to the average of $125 

a month, or, for 15,000 seniors in Florida that are affected, that’s 

$35 million a year that seniors on Medicaid in nursing homes are 

paying that they’re not supposed to be paying, under the eligible 

law, because Florida, the State of Florida, is not adhering to the 

Federal law. So when you start talking about nursing homes, 

you’ve just hit a hot button of mine. 

I want to get back to tobacco. 

Mr. MYERS. Senator, could I also just—a quick comment on getting some facts straight. You do see a quick turnaround in Medicaid costs. Over half the pregnant women who smoke in this country are on Medicaid, because it is so directly related to poverty. A 

low birth weight baby, due to smoking, costs an additional $60,000 

in healthcare costs. If you can dramatically reduce that, not only 

do you improve the life of our youngest, most vulnerable children, 

you save immediate taxpayer dollars, let alone the huge taxpayer 

dollars that you will save over the long run. It’s not just shortsighted. It’s wrong to think that tobacco prevention doesn’t save 

money quickly. 

Senator NELSON. I believe that that’s true. I mean, it just is common sense to understand what you just said. But even if it weren’t 

true, to save those 2,000 children a day that are beginning to get 

49 

hooked every day, and the long-term healthcare costs to the country and to the states? That’s worth it, right there. 

Mr. MYERS. There’s no question about that. 

Senator NELSON. You know, this is something that we shouldn’t 

be divided on. The tobacco companies, I would think, are on the 

same side of this issue of what we’re arguing. And yet the tobacco 

settlement is not being implemented in the way that it was supposed to, with the understanding and the promises. 

Mr. MYERS. To quote a tobacco industry lobbyist this year in the 

state legislature, ‘‘You know, my job would be a lot easier if my 

state had spent the money on roads and other things, like other 

states had.’’ And I fear that that’s true. They recognize that tobacco 

prevention programs work and make an immediate difference. We 

can’t afford not to treat this problem seriously. 

Senator NELSON. Amen. 

Mr.—— 

The CHAIRMAN. Senator—— 

Senator NELSON.—Chairman, that light is red, and I’ve got a 

couple more questions that I need to ask, so I’ll wait. 

The CHAIRMAN. Senator Lautenberg? 

Senator LAUTENBERG. Thanks, Mr. Chairman. 

This settlement-lite, which is what we got, as compared to the 

tobacco industry—and, by the way, just to make sure that people 

understand where the industry is going, you know, we see the ads 

that say, ‘‘Buy nourishing food, and this is where you get it,’’ and 

all that stuff, but lurking behind there, I suspect, is a lot of tobacco 

revenue still coming in there. And what do we do further to acquaint the public with the fact—when they buy a cigarette lite, 

that the fact is that, in many cases, they’re damaging their health 

even more than if they smoked the regular cigarettes? And one of 

the things, Dr. Healton, that we see—and Senator Durbin adequately, I think, described our dismay at the fact that your voice 

isn’t out there. How do we get these messages across, when the 

companies are spending, what, $7 billion a year, I think it is, on 

marketing? 

Mr. MYERS. That’s now up to 11 and a half billion dollars, 31 

million dollars a day. The answer is, we need a sustained publiceducation campaign, both from Truth and from the Federal Government and in each state. The scientific evidence is now conclusive. Lite and low-tar cigarettes are not safer or less hazardous 

than regular cigarettes. Millions of smokers have switched to these 

products thinking that they were reducing their risk, and we now 

know it’s not true. 

We need a sustained media campaign to educate every consumer 

before they make that mistake and to help every consumer understand that the only safe cigarette is the one you don’t smoke. 

Senator LAUTENBERG. We look at the cost—and I thought Senator Nelson was going there some—and that is, the costs of the deferrals of investment in the smoking-cessation programs, have 

we—is there a way to calculate that? That we say, look, this thing 

that you don’t do today will not get you out of a financial obligation, no matter what, that these costs are inherently there, and 

you’re going to just get them. Is there anything that you see that 

has a—that can attract the kind of attention that we’d like to see 

50 

put into this that says, ‘‘Hey, if you don’t spend the money today, 

you’re going to spend it tomorrow,’’ because I agree with much of 

what was said here about the irresponsibility of the states, and 

mine included, that says, ‘‘Hey, spend it on other things. Spend it 

on debt forgiveness.’’ There are other ways that we could generate 

revenues, but, instead, it’s—I guess it’s easier to give away something that people don’t see for awhile. 

General MOORE. I think yours is a salient question. The best way 

I can describe it for you is that, you know, we just talked about 

the numbers—3,000, we used to say, kids start smoking a day, and 

now, 7 years later, we’re at 2,000 a day. The best way to say what 

the cost would be is, what if it was a thousand a day? What if we 

had actually reduced it down to a thousand a day? Then your cost 

is, for not acting, there are a thousand new kids a day who are 

going to start an addiction, and at least we know one third of them 

are going to die, so 333 kids a day times 365 days a year. Those 

are real lives that will be lost, and we forget about that. I mean, 

statistics—you know what statistics are. People just—the numbers 

go over your heard. But they’re real people, Senator Lautenberg. I 

mean, all that you’ve done, all that this Committee’s done, all that 

this settlement has done, we save lives. 

The other thing is the saving in the money. What I don’t understand—and, you know, you talked about polio—or was it you or— 

what if we had the polio vaccine, and we had a lot of folks that 

are infected with polio virus, and we had it here, and we said, ‘‘You 

know, we’re going to put all this money into a trust fund, and we’re 

going to wait a few years before we innoculate folks.’’ Well, what 

would be the result? People would die from polio, right? Or they 

would suffer illness, disability from polio. It’s the same very thing. 

The longer you wait to apply the serum to this problem, the more 

people who are going to be addicted, the more people who are going 

to have lung cancer and heart disease and the like. 

It is just unfathomable to me that we’re waiting to use the funds, 

when we know exactly what works to solve the problem, but we’re 

not doing it. And then our excuses are so weak, ‘‘Well, we need to 

spend money in another area.’’ That’s so weak, when we’re talking 

about real lives. We’re not talking about somebody getting injured 

and recovering. We’re talking about somebody starting a behavior 

that will kill them. 

I mean—and the other thing I’ll mention to you—boy, times have 

changed. When we began this lawsuit, you know, we were telling— 

the tobacco companies were still lying, they were testifying before 

Congress in March 1994 that, ‘‘No, nicotine is not an addictive 

drug,’’ and, ‘‘No, it doesn’t cause cancer, and we certainly don’t 

market and advertise to children.’’ That was in March 1994. Every 

day, you turn on the TV, and there’s Philip Morris with their little, 

you know, message, ‘‘Cigarette smoking causes cancer, cigarette 

smoking is addictive.’’ I mean, of course, they’re doing that for a 

reason, and the reason is because they’ve got lawsuits pending and 

they want to, you know, invade the populace out there and maybe 

even infect the jury pool. I’d do the same thing. But—— 

So the tobacco companies are saying it. I mean, Philip Morris is 

saying, ‘‘This will kill you if you do it.’’ We’ve got $246 billion out 

here to impact the problem. And are we doing it? No, we’re not. I 

51 

mean, even—it’s not just the Matt Myers of the world telling us 

that it’s bad for you, it’s now the tobacco companies who are saying, ‘‘This will kill you.’’ And, in America, what we’re saying is, ‘‘We 

don’t care.’’ 

Senator LAUTENBERG. Yes, it’s an obtuse kind of thing, because 

it gets their name out there. They look like good citizens, but they 

know that those people who are hooked, they are staying hooked, 

and the more they stay hooked, the more the cash register rings, 

and that’s the ultimate mission. It’s like saying, you know, ‘‘If you 

speed, get up to crazy speeds, it can kill you.’’ Does that stop people 

from speeding? I don’t think anybody who is making the decision 

says, ‘‘You know what? If I do this, it could kill me.’’ 

Mr. MYERS. That’s why youth prevention programs are so critical. The way to stop this problem is to get them before they start. 

If we do that, we can save a generation of American children from 

dying. 

Senator LAUTENBERG. If the members of the board of these companies, or the executives of the companies, were wearing a white, 

kind of, dress with a turban, we’d have the FBI and the DEA and 

the Marine Corps and everybody else in there, ‘‘They’re out to kill 

400,000 Americans? What is going on here?’’ The rest is in your 

imagination, which—— 

Mr. MYERS. Senator, you asked an economic question, though, 

and we do have data. You know, we know several things. We know 

that the programs in Florida—in Massachusetts, in California, 

saved between two and three dollars in healthcare costs for every 

single dollar they spent. That’s an enormous savings to our country. We can calculate the reduction in healthcare costs from a reduction in smoking in any state. And we have often provided that 

information to state legislators. What we need to do is get across 

the immediacy of it. This isn’t a long-term problem. We have to 

stop our kids from starting today. 

Dr. HEALTON. I’d like to embellish that a little bit. That report 

that Matt is talking about is a report that was produced by the 

Legacy Foundation and co-branded with many leading publichealth groups, including Tobacco-Free Kids. It did a state-by-state 

analysis of the additional Medicaid revenues that would accrue for 

a 25 percent and a 50 percent decline in smoking within the 50 

states. And it demonstrated the advantages. It excluded adolescents and kids and newborns, and we are now producing another 

report that will be out shortly that very compellingly makes the 

case that Medicaid savings accrue very, very rapidly, because approximately one in ten babies in NICUs are there because of tobacco-related—low birth weight or other tobacco-related complications, not to count the thousands upon thousands of asthma incidents, asthma attacks, otitis media, surgeries, and bed days related 

to that problem. And the one in four fire deaths—one in four of all 

fire deaths in the United States are caused by tobacco. The medical 

care costs associated with that are enormous. Controlling smoking 

in the home can take a huge bite out of that. You don’t hear a lot 

about it. 

And I want to just mention one more thing, for the record. The 

Philip Morris ad campaign does not say the product will kill you. 

52 

And I’ve pointed that out to Steve Parrish, that that’s one item 

that is not mentioned in any of their ads. 

General MOORE. They do say it causes cancer. 

Dr. HEALTON. That’s right. 

The CHAIRMAN. Senator Nelson? 

Senator NELSON. Mr. Chairman, there have been a lot of accolades coming your way. I want to add to that, because the multistate agreement had placed some limits on tobacco product advertising and marketing, but it didn’t go far, as far as your bill. And 

so what we’re left with is that the multi-state agreement does not 

restrict print advertising, it does not restrict Internet advertising, 

or marketing and advertising inside of retail stores, it does not include any provisions limiting youth access to tobacco products, nor 

does it provide for the enforcement of Federal and state minimumage-of-sale laws, and if fails to address the FDA regulation of tobacco products, indoor smoking restriction, and smoking cessation. 

Now, I’m curious, Dr. Healton, tell me—the agreement was to restrict advertising on television, but there seems to be a lot of advertising of tobacco products going on in movies these days. Now, it’s 

one thing, under freedom of speech, to accurately portray whoever 

the actor or actress is portraying and whatever brand of cigarette, 

but it’s another thing if the cigarette companies are paying for the 

placement of that. Your organization recently did a study on this. 

Would you share with us your conclusions? 

Dr. HEALTON. Yes. I would start by saying that we are not in a 

position, though I think the attorneys general are, to prove whether or not money exchanged hands or any form of a quid pro quo 

exists, both of which would be a violation of the MSA agreement 

and possibly also of the FTC reporting requirements, because they 

are indicating that such exchanges are not occurring. 

The findings in the study were highly provocative. What we did 

is, we looked at the prevalence of smoking in R, PG–13, PG, and 

G movies, and we found proportional declines in the presence of 

smoking across each of the ratings, such that it looks as if there’s 

a quota for how much smoking. But, more importantly, and the 

area that I think needs serious evaluation is the ads for the movies 

that are 30- and 60-second spots that are televised and that are 

highly salient to adolescents. I have two adolescents and one 22- 

year-old. They look up when a movie ad starts, because it’s the 

coming attraction. 

A very substantial proportion of those 30- and 60-second spots 

have a smoking scene in them. In the typical movie, only about 2 

to 4 minutes include smoking if it has smoking in the movie. So 

it’s, first of all, statistically bizarre that so many of these televised 

commercials include smoking. But what’s more important and what 

I think may, in fact, be a ‘‘smoking gun’’ is that if there is a brand 

appearing in a movie, the probability that there will be smoking in 

the televised ad is fourfold. 

Senator NELSON. Very interesting. But you, at this point, do not 

have any proof of the actual exchange of remuneration in return 

for that, in effect, cigarette advertising in the movie promotion. 

Dr. HEALTON. Right, because obviously I’m not in the position of 

doing that type of research. But, of course—because that’s a legal 

matter, in my view. However, you, of course, know that for many 

53 

years that practice was legal and did occur. And the tobacco documents, which, thanks to the work of attorneys general like Mike 

Moore, have become available, and the endowment that the Legacy 

Foundation gave to UCSan Francisco to make those forever available to scholars, has unearthed a very large number of communications related to product placement practices, and I think that they 

begin to lay out the roadmap, as do documents that are provided 

to the FTC on an annual basis, what the companies themselves 

represent. We’ve been in a dialogue with the FTC about that information, and we do have some information available to us. 

But, again, what I find most curious is that there’s a steady increase in the amount of smoking that is occurring, there’s a steady 

increase in the amount of smoking on television. I mean, I’ll be perfectly frank, the new show where Whoopi Goldberg appears, who’s 

an actress whose talents, I think, are enormous, she is holding a 

pack of Marlboros in every show. Maybe it’s a coincidence. Maybe 

she just decided to smoke Marlboros on an NBC show. But I think 

it’s pretty extraordinary, and that’s, by no means, the only example. 

A few years ago, a movie came out called ‘‘The Smokers,’’ and it’s 

about a gang of five adolescent girls, who literally had a cigarette 

in their hand for the entire duration of the film. It was shown on 

HBO over and over and over again over the last 2 years. So there’s 

definitely something going on. The question is, what is it? And I 

know that the AGs are looking into it. A coalition of 26 of them 

have begun a dialogue with Jack Valenti, which isn’t a moment too 

soon, in my view. 

Senator NELSON. Do you think the FTC is an appropriate agency 

to further look into this? 

Dr. HEALTON. Well, I think they are. They look into it every year, 

when they ask some very specific questions. And I would point out, 

as I think Mike Moore probably knows, after the settlement, the 

nature of the questions that the FTC asked of the industry tightened up considerably, such that it covers a broader range of activities, including a wink on the golf course. So I think it’s fairly interesting, and they would certainly be one venue. But I don’t think 

they’re the only one. I think that there was—there was very strong 

language in the Master Settlement Agreement, and I’m—as I often 

say, one of my favorite movies involved cutting out all the kisses, 

and it was a, you know, terrific European film in which, at the end, 

the young man looks at all the kisses that the town priests had removed. 

I am a great defender of the First Amendment. I don’t think this 

has anything to do with the First Amendment. I think it has to do 

with maintaining market share in some fashion. Now, I’m speculating, and maybe it’s inappropriate to do so, but I think it deserves serious consideration, particularly given the most recent 

study in The Lancet that, very convincingly—and it’s my understanding Jack Valenti actually agreed that the science was clear 

and did not debate the science—that 50 percent of adolescent uptake of smoking is related to the depictions of smoking in film. 

Senator NELSON. General Moore and Mr. Myers, you all are familiar with the agreement, and certainly the settlements in your 

54 

state. Was it clearly your intent that paid advertising for cigarettes 

be banned from television advertising? 

Mr. MYERS. Actually, that was done by Congress, in 1969. The 

Master Settlement Agreement addressed the issue of paid advertising for product placement in movies, and explicitly banned it. If 

it were happening, the state attorney generals would have an opportunity to take strong—and I would hope would, in fact, take 

very strong and quick action. Finding it is the key. 

Senator NELSON. And so if you found such evidence, General 

Moore, of payment in return for product placement in a movie or 

in a promotional for a movie, what would be the response of the 

attorney general of Mississippi? 

General MOORE. We are in a dialogue right now with the motionpicture industry. I’m not going to prejudge it, but I’m not sure that 

it’s going to bear fruit. There’s supposed to be a meeting very soon 

with Jack Valenti to begin a discussion about how and what is 

going on. Of course, they think that they should have the freedom 

to do this. The thing that they cannot do is to pay money, such as 

the Brown & Williamson documents revealed, that Sylvester 

Stallone, for example, was paid by Brown & Williamson to—you 

know, on one occasion, a half a million dollars to smoke their 

brands in his particular movies. That’s what they’re prohibited 

from doing. 

We’ve got some ramifications from the settlement that we can 

take on in fines, penalties, and I think you would see AG’s file litigation against the industry if we found them doing that. It’s absolutely a direct violation of the agreement, but it—to me, it’s also 

even more egregious than that. If we catch them doing that, then 

there’ll be a whole new series of litigation that we won’t settle until 

the very end. 

I think Dr. Healton mentioned something that’s worth saying, 

that 50 percent of the folks who begin smoking are impressed by 

the smoking in the movies. When that move, the ‘‘Titanic’’ came out 

and, you know, the cute young fellow on the front of the boat was 

smoking a cigarette the whole time, that did more to set us back 

on teen smoking than just about anything that could happen, because Leonardo Di Caprio was up there, and all the little girls 

were, you know, saying, ‘‘Oh, I want to be—you know, be like him,’’ 

or, you know, whatever it might be. It’s just such an image, it’s 

hard for us to impact that. 

And then this idea that they don’t advertise, Matt’s right, they 

got rid of advertising on TV, promoting the brands, but every day 

you can see, whether it’s Philip Morris or somebody else, telling us 

how good they are to us, you know, ‘‘We’re also Kraft Foods, and 

we give to the poor, and we donate money to domestic violence, and 

we do this, and we do that.’’ They spend more on building themselves up in the minds of the public than they do on the prevention 

programs that they ask for so much acclaim for. So I—— 

And then a group comes in my office every single day—it might 

be the 4–H Clubs or the Boy Scouts or whoever it might be, and 

they’re telling me that, ‘‘Well, do you think we ought to take this 

money from Philip Morris? They’re going to give us some money, 

several million dollars, to do so and so.’’ And I said, ‘‘What do you 

have to do for it?’’ ‘‘Well, they want us to—they say really nothing,’’ 

55 

but really what they want is, they want to be able to advertise that 

the Boy Scouts of America or the 4–H Clubs of America have been 

endorsed and supported by Philip Morris Tobacco Company. 

Again, that hurts us in our effort to demonize them, as you will, 

so that people don’t take up smoking. So it’s hard, it’s very hard. 

We’ve got a little bitty small message going out there that says, 

‘‘Don’t smoke,’’ and they have a humongous message that’s really 

overpowering us, saying, ‘‘Do smoke.’’ 

And that’s why this whole hearing is important, Senator McCain. 

It’s an unfair fight. I mean, it’s still an unfair fight. We thought 

we had leveled the playing table, but it—their spending has increased and increased and increased, and the state spending has 

been diminished and diminished and diminished. And, you know, 

but for Legacy’s loud message nationwide in a few spots around the 

country, there’s not another message that says, ‘‘Don’t smoke.’’ 

There are no prevention programs in schools anymore, like there 

used to be. You remember the days of the drug and alcohol abuse 

programs? If you look around this country, those programs have 

slowly gone away, too. So there are very few programs left that tell 

our kids, at a very early age, to stay away from this product. 

So I’m extremely concerned that—in 1997 we had a peak in teen 

smoking, and we’ve gone down, and we’re headed that way. I’m 

afraid that it may go back up if the loud message continues. 

Mr. MYERS. That’s a very important message. There is good 

news. We have seen youth smoking rates decrease every year since 

1997. The question is, what would have happened had the states 

spent the money properly? And the best available data says they 

would have dropped by twice that rate. 

And then the second question is, Now that we know actually how 

to impact these things, will we put our political will behind the scientific knowledge we have? We do have the opportunity, in the 

next 10 years, if we spend the money wisely, literally to decrease 

the number of kids in this country who become addicted to tobacco 

to a very small number, and it’s solely a matter of political will. 

The CHAIRMAN. Dr. Healton wanted to comment. 

Dr. HEALTON. I just wanted to add two comments. One, that the 

last time I looked at it, which was about 2 years ago, Kraft spends 

about a billion, with the networks and magazines alone, and I’m 

certain also spends a considerable amount in product placement in 

film for Kraft products. And I believe the same, in a letter that I 

just looked at that R.J. Reynolds penned to their product placement firm. They, too, at least at that time, had Lifesavers and 

Planters as two products that they were having placed. And there 

was significant discussion in that letter, which I can make available to you, about where they were able to get products appearing 

in film. 

So I think it’s a very complicated web of relationships that one 

would have to look at. And as the final note, my understanding of 

the MSA language—and I may have it wrong, but I was at a meeting with the attorneys general preparing for the meeting with Jack 

Valenti—I believe that it isn’t just paid product placement that 

would be literally a check in exchange for a placement. I think any 

form of quid pro quo also is implied in that. 

The CHAIRMAN. I want to thank—— 

56 

Please, Mr. Scheppach. 

Mr. SCHEPPACH. Just one comment, Mr. Chairman. We seem to 

be saying that all the decrease in smoking is due to cessation programs. I think we underplay the fact that we’re in a market economy, and actually the Master Agreement did raise the price of cigarettes quite considerably. And, second of all, I think the tax increases that states have just done are important, and I suspect 

some of that, in that there is probably some interaction between 

raising of prices and cessation programs. So I think the evidence 

is that at least that group of children that we’re trying to hit, the 

young teens, are fairly responsive to the tax increases. 

So I don’t think it is a one-way street. 

The CHAIRMAN. And I assume that the states that raised taxes 

did it because they said, ‘‘Gee, we’d like to stop kids from smoking, 

so we’ll raise these taxes.’’ 

Mr. SCHEPPACH. Oh, I think it was both, Mr. Chairman. 

The CHAIRMAN. I don’t think so. 

Ms. Hudson, you’ve been strangely unpummeled here. 

[Laughter.] 

The CHAIRMAN. I would like to allow you to speak, but I would 

also like, before you do, to say that I think you should be proud 

of what Delaware has done, but you are here representing, as I understand it, the National Conference of State Legislatures. I don’t 

think you can be proud of what the state legislatures have done. 

Please go ahead. 

Ms. HUDSON. I am not. And that’s what I wanted to say. It 

makes me feel very awkward here. But what I think is important 

is that legislators realize what we did today was discuss with you 

our successes and our failures, and they need to know your frustration and disappointment with the states that are not spending the 

money on tobacco cessation and health-related issues. 

And I will recommend to the National Conference of State Legislatures that they have sessions on this at their conferences and 

they put something, a really good article, in their magazines to let 

legislators know that they really are wrong, and perhaps we need 

to step up our language with them and let them know just how serious we are. 

The CHAIRMAN. Thank you. I hope they would invite our witnesses, all of them, including Mr. Scheppach, to these deliberations 

so that they can hear all sides of this issue. 

We try very hard in these hearings, despite the bias that I may 

bring to it, to allow the other side to be heard. And, Mr. Scheppach, 

I think you have earned your considerable salary this morning at 

this—— 

[Laughter.] 

The CHAIRMAN.—at this hearing. 

Mr. SCHEPPACH. You’ve never seen it, Senator, so—— 

[Laughter.] 

The CHAIRMAN. I do thank you for appearing this morning, and 

I mean that, on behalf of the National Governors Association. 

Attorney General Moore, it’s always a pleasure to see you again. 

Mr. Myers, thank you for your dedicated efforts. Ms. Hudson, 

thank you for being here. And, Dr. Healton, I hope we can do someVerDate Nov 24 2008 06:23 Aug 10, 2016 Jkt 075679 PO 00000 Frm 00060 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\21176.TXT JACKIE
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thing to keep your program alive, and I’ll work with others in trying to see that that happens. 

I thank you all, and this hearing is adjourned. 

[Whereupon, at 11:25 a.m., the hearing was adjourned.] 

(59) 

A P P E N D I X 

PREPARED STATEMENT OF JOHN R. SEFFRIN, PH.D., CHIEF EXECUTIVE OFFICER, AMERICAN CANCER SOCIETY

On behalf of the millions of volunteers and supporters of the America Cancer Society, I thank you, Mr. Chairman, and your Committee colleagues for the opportunity 

to submit testify on the fifth anniversary of the multi-state agreement, the Master 

Settlement (MSA), with the tobacco companies. 

Tobacco is highly addictive and causes more than 440,000 deaths each year in the 

United States, including approximately 150,000 cancer deaths. Put another way, we 

know that one out of every three cancer deaths in this country is caused by tobacco 

use. That is an unacceptable fact. 

Shortsighted states with budget crises and other priorities have frustrated the heroic efforts of tobacco advocates to get states to commit substantial funds for comprehensive tobacco prevention and cessation programs. Out of $11.6 billion the 

states received in Fiscal Year 2003, states spent only $682.3 million on tobacco prevention and cessation. Over the past year, funding levels have fallen even further 

and successful programs in states like Oregon, Florida, Massachusetts, and California have suffered major cuts. 

The American Cancer Society has long been at the forefront of efforts to educate 

the public about the dangers of smoking and to advocate on behalf of policies, including regulation, to reduce disease, suffering, and death caused by tobacco use. 

It is impossible to evaluate the success or failure of the 1998 Master Settlement 

Agreement without awareness that the MSA was the aftermath of the failed effort 

by the state attorneys general to bring about broad comprehensive public health 

change through the settlement of their lawsuits against the tobacco companies in 

June 1997. That settlement led to the comprehensive national tobacco control bill 

proposed by Senator John McCain, as the chairman of the Senate Commerce Committee. 

The McCain bill, launched by a 19–1 vote of the Senate Commerce Committee, 

proposed landmark tobacco control goals far beyond the reach of the MSA. However, 

a combination of tobacco industry opposition and a splintered public health community resulted in the bill’s demise. While the tobacco companies fiercely opposed the 

McCain bill, so did many tobacco control advocates, but not because of its public 

health provisions, which addressed almost every policy objective dreamed of by tobacco control advocates over the past 30 years. They opposed the McCain bill because it set a ‘‘cap’’ at $8 billion on the amount of product liability damages the cigarette companies could be forced to pay out in a single year. This concession to the 

tobacco companies would protect them against a possibility some advocates considered highly likely—that, as Dr. Stanton P. Glantz, a leading opponent, predicted, 

‘‘given patience and hard work, the tobacco industry will lose enough of these cases 

to be brought to their knees.’’ 

The tobacco companies and their supporters in the Senate greeted the public 

health community’s opposition as a welcome opportunity to delay the bill’s passage. 

By the time the Senate was prepared to vote on the McCain bill, the New York 

Times reported that the eight-week national advertising blitz the tobacco industry 

launched in the interim ‘‘has been remarkably successful in turning what tobacco 

opponents view as a bill that would discourage teenage smoking into a tax issue and 

an assault on working stiffs who cannot afford to pay more for cigarettes.’’ 

Even so, the bill came within just three votes of the 60 needed to override a tobacco industry-spawned filibuster on the Senate floor. But those three missing votes 

were enough. Few observers of the White House and the Congress believe we shall 

soon again, if ever, see a serious piece of legislation with the same potential for saving lives as the McCain bill embodied. 

Innovative lawsuits against the tobacco companies brought by state attorneys general led by Mike Moore of Mississippi, Christine Gregoire of Washington, and Hubert Humphrey III of Minnesota, had forced the companies to agree to the June 

1997 settlement that laid the foundations for the McCain bill. The bill’s death, the 

60 

failure of the public health community to support the state attorneys general initial 

settlement efforts, and independent settlements by four states that changed the situation dramatically for all the state attorneys general. Some feared losing at trial. 

Others remained deeply concerned about the public health impact of their cases. But 

the vast majority cared only about the amount of money they could bring home to 

their state. Now the state attorneys general, not the tobacco industry, felt the pressure to settle. 

With this shift in leverage, it was not surprising that what emerged from the 

1998 Master Settlement Agreement negotiations bore no resemblance to the scope 

of the 1997 settlement or to the McCain legislation. Public health advocates were 

united in their concern about its flaws and limited scope. Even the attorneys general who negotiated the MSA were quick to acknowledge that it accomplished far 

less than the changes proposed only a year earlier, although they still argued that 

it would bring about meaningful progress. 

It is in this setting that we should view the MSA and the efforts of tobacco control 

advocates to make the most of the settlement. What was lost when the McCain bill 

died? Has the MSA lived up to its promise of change? 

The core of the MSA focused on marketing restrictions on the tobacco industry, 

funding for the states, and the creation of the independent American Legacy Foundation. The agreement’s stated goals were to curtail marketing to children, to provide the funds necessary for sustained comprehensive tobacco prevention and cessation efforts, and to better address the health problems caused by tobacco. It also 

funded a long-term national public education campaign through the American Legacy Foundation. 

Comparing the MSA to the 1997 settlement and the McCain legislation exposes 

startling contrasts. For example, the McCain bill contained comprehensive restrictions on tobacco marketing that would have sharply curtailed the tobacco industry’s 

ability to reach kids. Since the industry has easily thwarted the MSA’s limited restrictions in this area, despite the enforcement efforts of the state attorneys general. 

True, cigarette billboards have disappeared, along with promotional materials like 

t-shirts and caps with company logos. But the tobacco industry’s marketing expenditures have increased each year since the MSA and the results continue to bombard 

our children. 

Through a penalty scheme that few tobacco control advocates had dared dream 

of, the McCain bill held the tobacco companies responsible if youth tobacco use did 

not fall dramatically: penalties up to $2 billion annually if the companies failed to 

reduce youth smoking by 30 percent in five years; 60 percent in ten years. The MSA 

contained no such provision. The McCain bill and the 1997 settlement specifically earmarked more than $2.5 

billion every year for tobacco prevention and cessation-on top of revenue from the 

uncommitted funds each state was to receive. Unfortunately, states’ budget crises 

and other priorities have frustrated the heroic efforts of tobacco advocates to get 

states to commit substantial funds to comprehensive tobacco prevention and cessation programs. 

The earlier provisions also proposed permanent funding for public education about 

tobacco prevention and cessation without restrictions as to its content. By contrast, 

the MSA’s funding of the American Legacy Foundation prohibits the Foundation 

from ‘‘vilifying’’ tobacco companies. Further, the MSA guarantees funding for the 

Foundation’s public education for only five years. As a result, funding for the Legacy’s education campaign is about to end and the Foundation faces continuing attacks by the tobacco companies. 

Most important, the McCain bill granted the U.S. Food and Drug Administration 

broad power to regulate every aspect of tobacco product manufacturing, distribution, 

and marketing. It authorized a Federal agency, for the first time, to regulate the 

tobacco product itself; it forced the tobacco companies to disclose the ingredients in 

tobacco products and what they knew about the products. Five years later, regulation of tobacco remains an unmet priority. 

Another advantage of the 1997 settlement and the McCain bill was the ability to 

impose additional costs on all tobacco manufacturers. The MSA applied only to the 

specified defendants. The upshot? Other manufacturers can sell cigarettes at far 

lower prices. Some adult smokers who might have quit because of the increased cost 

can still buy low-priced cigarettes. This very likely has reduced the impact of our 

efforts on both youth starting to smoke and adult consumption. 

The 1997 settlement would have provided funding to charities to replace the dollars they would have received from the cigarette companies, so that worthy causes 

would no longer be forced to choose between their desperate need for funds and 

their integrity. But the failure of the 1997 settlement and the McCain bill left open 

a critical window of opportunity for the tobacco companies to resurrect their reputaVerDate Nov 24 2008 06:23 Aug 10, 2016 Jkt 075679 PO 00000 Frm 00064 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\21176.TXT JACKIE
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tions through a big-budget propaganda campaign, focused on their philanthropy and 

new-found acknowledgement of tobacco’s risks. At the same time, they continue to 

buy the silence of many worthy causes that must now rely indefinitely on tobacco 

money. 

From the beginning, the MSA was a missed opportunity to make historic change; 

it is not surprising that, five years later, its achievements pale compared to the 

promise of the 1997 settlement and the McCain bill. To date, the MSA has not lived 

up even to the limited advances it promised. 

The tobacco control movement has nevertheless made significant progress in the 

last five years. And that progress has come from the remarkable level of effective 

advocacy and action from a movement that picked itself up and fought on heroically. 

We have made huge strides in raising tobacco excise taxes, expanding clean indoor 

air protection, and—yes, even in bleak times increasing funds for tobacco prevention 

and control programs. And we have proven to the world that comprehensive programs work. 

A significant number of states funded their programs substantially and these 

states have achieved powerful results. As one inspiring illustration, Indiana, a state 

notably lackluster in its tobacco control until the MSA settlement. Tobacco control 

advocates in Indiana—a notoriously fiscally conservative state—persuaded the state 

legislature to allocate $32.5 million to tobacco control for Fiscal Year 2002 and 2003. 

Under the direction of veteran tobacco control leader Karla Sneegas, Indiana 

launched a comprehensive, state-of-the-art tobacco control program. By the fall of 

2002, when the program conducted the state’s first adult tobacco survey, 193,000 

Indiana adults had quit smoking. Overall cigarette consumption had fallen 18 percent. 

And Maine, with ample funding, has gone from the state with the highest teen 

smoking rate to one of the lowest. Maine has cut smoking among kids literally in 

half. 

Finally, we need to give the MSA credit for two signal achievements. First, it 

changed the debate about what adequate spending is for tobacco control. With the 

MSA and the publication of Center for Disease Control and Prevention’s Best Practices, even half hearted state legislators now acknowledge that meaningful comprehensive tobacco prevention costs more than they assumed-much more. 

The high cost and lack of access to effective smoking cessation therapies are 

among the biggest obstacles to achieving the Nation’s Healthy People 2010 goal of 

reducing smoking rates from 23 percent today to 12 percent by 2010. 

In August 2002, Health and Human Services Secretary Tommy Thompson created 

a Subcommittee on Cessation of the Interagency Committee on Smoking and 

Health. He appointed 16 tobacco policy experts as committee members. The Subcommittee was charged with developing a series of broad-based recommendations to 

substantially increase tobacco cessation in the United States. He asked the Subcommittee to look at action steps that could be employed by the Federal Government as well as the private sector to reduce the number of people who smoke. I was 

privileged to serve as a member ofthe Subcommittee. 

The Subcommittee considered the existing body of scientific evidence regarding effective tobacco dependence strategies and policies. Numerous effective treatments 

exist today to treat tobacco dependence. These treatments can double, triple or even 

quadruple the likelihood that a smoker will be able to quit. There are also proactive 

policies that are being employed to assist smokers in their efforts to quit such as, 

telephone quitlines, paid media campaigns, cigarettes excise tax increases, and reducing out of pocket costs for cessation treatment. 

The report entitled Preventing Three Million Premature Deaths, Helping Five Million Smokers Quit: A National Action Plan for Tobacco Cessation, was submitted to 

the Interagency Committee on Smoking and Health for its approval. The full Committee voted unanimously to accept the recommendations and to transmit the report 

in its entirety to the Secretary. The success of our efforts was due in large part to 

the tremendous work of many organizations and individuals who attended the public hearings, submitted comments, and provided visibility for the Committee’s activity. 

I want to highlight just two of the ten recommendations. 

The Subcommittee’s first recommendation was to establish a federally-funded National Quitline network by 2005 that will provide universal access to evidence-based 

counseling and medications for tobacco cessation. This quitline would work with existing state or regionally managed quitlines. Research has shown that quitlines are 

a very effective tool in assisting smokers to quit. To date thirty-four states provide 

some level of quitline service. 

The American Cancer Society provides Quitline services through our call center 

in Austin, Texas. The center receives approximately 12,000 calls per year from peoVerDate Nov 24 2008 06:23 Aug 10, 2016 Jkt 075679 PO 00000 Frm 00065 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\21176.TXT JACKIE
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ple of all walks of life with one thing in common—they recognize that they need 

help to quit smoking. The trained counselors who answer the quitline work with the 

callers to set a quit date and provide them with materials and other support to help 

them in their efforts. It is important to remember that tobacco is addictive. Therefore, the most successful cessation strategies and policies combine counseling with 

FDA-approved pharmacotherapies. Studies have shown that the combination of 

counseling and drugs substantially increases the likelihood that a smoker will quit. 

The second recommendation of the Subcommittee was to increase awareness by 

launching an ongoing, extensive paid media campaign by Fiscal Year 2005 to help 

Americans quit using tobacco products. 

The American Legacy Foundation’s truth® campaign has been a success, supported by rigorous evaluation. The Foundation has shown that an aggressive, wellexecuted, well funded public education campaign can make a difference at the national level, and it has helped drive down youth tobacco-use rates. Whether or not 

the Foundation gains new financing, its experience gives us a powerful argument 

for future major national investment in tobacco control. 

This otherwise dismal history offers lessons to us all. Perhaps the most painful, 

in the words of the ancient Taoist poet Lao-Tzu, is ‘‘that we know, but never learn.’’ 

Windows of opportunity can slam shut; the passion for the perfect can sabotage the 

attainable near perfect. 

But there are affirming lessons, too: A civic movement deeply grounded in a passionate vision for a future free of preventable misery and death can recover from 

internal dissension and setbacks, renew its pursuit of the common good, and continue to march toward that vision. 

SUBMISSION FOR THE RECORD

This article can be found in Journal of Health Economics 22 (2003) 843–859 and 

online at www.sciencedirect.com 

THE IMPACT OF TOBACCO CONTROL PROGRAM EXPENDITURES ON AGGREGATE

CIGARETTE SALES: 1981–2000 

Matthew C. Farrellya, Terry F. Pechacekb, Frank J. Chaloupkac

a RTI. 3040 Cornwallis Road, Research Triangle Park, NC 27709, USA 

bOffice on Smoking and Health, Centers for Disease Control and Prevention, Research Triangle Park. NC, USA cDepartment of Economics, University of Illinois at Chicago, Chicago, IL, USA 

PREPARED STATEMENT OF SHEILA M. ROSS, WASHINGTON REPRESENTATIVE, 

ALLIANCE FOR LUNG CANCER ADVOCACY, SUPPORT AND EDUCATION (ALCASE) 

Mr. Chairman: 

The Alliance for Lung Cancer Advocacy, Support and Education appreciates this 

opportunity to make a statement for the record on the hearing you are holding 

today on how the 46 states that were parties to the 1998 Master Settlement Agreement (MSA) with the Nation’s five largest tobacco companies are allocating their 

settlement revenues since the signing of the MSA. 

We thank you, Mr. Chairman, and commend you for holding this hearing. 

ALCASE was founded in 1995 to help lung cancer patients and their families, to 

educate the public and to advocate for a change in public health policy on lung cancer. It is the only national organization dedicated to those goals. I present this testimony on behalf of ALCASE, as a survivor of two bouts of lung cancer and as a 

former Hill staffer for nearly 20 years. 

The MSA was negotiated with, to best of our knowledge, no input from those most 

affected by tobacco: lung cancer patients and their caregivers and families. Indeed, 

we cannot ascertain that even a single dollar of the $213 billion settlement has gone 

to lung cancer research. 

The primary reason is this: The mortality rate of lung cancer is so high that not 

enough people remain alive long enough to establish a grass roots organization with 

sufficient political clout to demand more attention and funding. 

Lung cancer kills more people each year than breast, prostate and colon cancers 

combined. Yet it receives a miniscule amount of Federal research funding and that 

inequity is reflected in the statistics. Since the passage of the Cancer Act of 1971 

the five year survival rate for breast cancer has risen to 88 percent and for prostate 

cancer to 97 percent. Thirty years ago the 5 year survival rate for lung cancer was 

63 

12 percent. Today it is 15 percent. The cancers with the highest survival rates and 

the largest advocacy groups consistently receive the most funding, up to ten times 

as much per death as lung cancer. 

In a recent study, even the National Cancer Institute conceded that lung cancer 

is being funded far below its public health impact. (Progress Review Report on Lung 

Cancer, August 2001.) 

At the state level, lung cancer research lost out again when the MSA funds were 

allocated, again for lack of political support. Ironically the pay outs to the states are 

predicated on prospective tobacco sales. Followed to its logical conclusion, unless 

states want to reduce their anticipated, and in many cases already appropriated revenues, it is in their interest that cigarette sales be at least maintained. 

In this surreal world of the MSA settlement, the states did set aside or earmark 

hundreds of millions of dollars for tobacco cessation programs. So much money was 

spent so fast that many of these programs have been of dubious success. The sheer 

number of these programs has also unfortunately served to stigmatize lung cancer 

as a life style choice rather a disease, which stimatization, in turn, has become a 

convenient fig leaf to hide the addiction of the state legislatures to tobacco money. 

The fact is, Mr. Chairman, that over 60 percent of new lung cancers are being 

found in former smokers, people who quit smoking, many of them years ago, or in 

people who have never smoked. U.S. women have the highest lung cancer mortality 

in the world. Since 1988 more women in the United States have been dying each 

year from lung cancer than breast cancer and the number is increasing so rapidly 

that by 2006 lung cancer deaths among women will be double that of breast cancer. 

People are not being told these statistics. 

The sad truth is that by the time symptoms, such as a cough, occur, it is already 

too late. The only hope is to find it early and treat it early. Finally we can do that 

Advances in spiral CT and computer assisted diagnostic technology can detect small 

nodules in the lungs even before they become cancerous. 

We must research these nodules and early disease management now. We must 

leap at this opportunity to finally make a dent in lung cancer mortality. 438 people 

are dying from lung cancer every day in the United States. We cannot allow this 

to continue. These facts cannot be covered up any longer. 

We recognize, Mr. Chairman, that the Federal Government cannot dictate to the 

states how they should allocate their revenues. However, with the Federal suit 

against big tobacco still in utero in the Department of Justice, and with this opportunity for a breakthrough on lung cancer finally at hand, the Federal government 

can suggest and encourage the states to put some of the MSA money into lung cancer research and treatment. 

And hopefully, Mr. Chairman, in the FY 05 budget, the Federal government will 

do its part by directing money and a mandate to its agencies to turn these promising breakthroughs in to better outcomes with dispatch and urgency. 

Please speak for us, Mr. Chairman. We need your voice. 

64 

AMERICAN LEGACY FOUNDATION

November 14, 2003 

Hon. JOHN MCCAIN, 

Chairman, 

U.S. Senate Committee on Commerce, Science, and Transportation, 

Washington, DC. 

Dear Senator McCain: 

It was an honor to have the opportunity to testify before the Senate Commerce 

Committee on November 12 and to share the American Legacy Foundation ’s insights on States’ use of Tobacco Master Settlement Agreement Funds. I wish to 

thank you again for your leadership in holding this hearing. After the hearing, several Senators requested detailed information about Legacy’s funding situation and 

the threat it poses to the continuation of our truth® youth counter marketing campaign. We are pleased to provide you with the information below. 

As I stated during my testimony, Legacy has become the de facto safety net at 

the national level for youth tobacco prevention programs. In most states, truth® television ads are the only tobacco prevention messages that young people see. 

Legacy is facing an alarming funding cliff as a result of a sunset clause in the 

MSA. Legacy received what it believes will be its last major payment of approximately $300 million from participating cigarette manufacturers pursuant to the 

MSA in April of this year. While Legacy has prepared for this ‘‘rainy day,’’ the sharp 

decline in funding means that we will be forced to sharply reduce, if not eliminate, 

many of our programs. Although Legacy will do all it can to preserve truth®, the 

fact is that an effective national counter marketing campaign cannot be staged with 

less than $40–60 million for media placement. 

It is worth noting that the youth market is among the most expensive segments 

to buy. It is also a significant consideration that this $40–60 million figure does not 

include the cost of cultural immersion and study required for creative development, 

which is the heart of truth®. Nor does it include our aggressive and innovative 

grass roots and web based outreach efforts. Today, these efforts are combined with 

state based youth empowerment grants and all of this work is the subject of the 

unprecedented evaluation of the campaign’s impact on youth smoking. These nonmedia efforts, again at a minimum, would cost an additional $30–40 million. 

To put this into context, Legacy is already on a glide path to a greatly reduced 

overall operating budget, which is reflected on the attached funding cliff. By 2008, 

we expect our overall operating budget to be $30–$35 million in today’s dollars. Consequently, even if Legacy were to shut down every other program, truth® as we 

know it would ultimately be silenced. 

Youth smoking rates are at their lowest level in 28 years. Evidence suggests that 

truth® is responsible for a very substantial proportion of that decline. Included with 

this letter is an MMWR report from the Centers for Disease Control that was released today. It provides some of the most recent data on youth smoking rates, as 

well as an analysis of truth®’s contribution to those declines. 

What is most alarming is that the loss of truth® is coming at a time when States, 

for whatever reason, have backed away from their commitments to fund comprehensive tobacco control pro rams, including youth prevention. We know that 90 percent 

of smokers . start before their 19th birthday. It is estimated that the steady decline 

in youth smoking since 1997 has prevented over 2 million teenagers from becoming 

adult smokers and thus saved a minimum of 700,000 lives. Thus, if we can continue 

to inoculate young people with a dose of truth®, millions of lives will be saved in 

the long term. 

Senator McCain, I commend you again for holding the hearing and thank you for 

allowing me to testify. Should you or your staff require any additional information 

about the American Legacy Foundation or our truth® counter marketing campaign, 

please do not hesitate to contact me at (202) 454–5547. 

Sincerely, 

CHERYL G. HEALTON, DR.P.H. 

President and CEO. 

enclosures 

65 

MMWR Weekly—November 14, 2003 

TOBACCO USE AMONG MIDDLE AND HIGH SCHOOL STUDENTS—UNITED STATES, 2002 

Each day in the United States, approximately 4,400 youths aged 12–17 years try 

their first cigarette (1). An estimated one third of these young smokers are expected 

to die from a smoking-related disease(£). The National Youth Tobacco Survey 

(NYTS), conducted by the American Legacy Foundation, provides estimates of usage 

among U.S. middle and high school students for various tobacco products (i.e., cigarettes, cigars, smokeless tobacco, pipes, bidis [leaf wrapped, flavored cigarettes from 

India], and kreteks [clove cigarettes]). This report summarizes tobacco use prevalence estimates from the 2002 NYTS and describes changes in prevalence since 

2000. Both tobacco use and cigarette smoking among students in high school (i.e., 

grades 9–12) decreased by approximately 18 percent during 2000–2002; however, a 

decrease among students in middle school (i.e., grades 6–8) was not statistically significant. The lack of progress among middle school students suggests that health officials should improve implementation of proven antismoking strategies and develop 

new strategies to promote continued declines in youth smoking. 

Sampling frames for the 2002 NYTS were stratified by U.S. Census Bureau region; black, Hispanic, and Asian students were oversampled. A partial panel design 

was used (i.e., comprising a newly drawn sample and a sampling of schools that participated in the 2000 NYTS). The sampling frame for the drawn sample consisted 

of all public and private schools in the United States. A total of94 primary sampling 

units (PSUs) (i.e., large counties or groups of counties) were selected in the first 

stage of the sampling, and 215 schools were selected from these PSUs in the second 

stage of the sampling; 83 additional schools were selected randomly for the panel 

sample. Of these 298 eligible schools, 246 (83 percent) participated in the 2002 

NYTS. Approximately 125 students were then drawn from each school by selecting 

classes randomly, depending on the average class size of each school, from a required subject area (e.g., English or social studies). Participation was voluntary and 

anonymous, and school parental permission procedures were followed; students recorded their responses on a computer-scannable sheet. 

Among youths attending the 246 participating schools, 26,119 (90 percent) (i.e., 

12,581 middle school students and 13,538 high school students) completed the survey, resulting in an overall response of75 percent. Data were weighted to be nationally representative. STATA 7 was used to compute 95 percent confidence intervals 

for prevalence estimates, which were used to identify differences among populations. 

Current use of a specific tobacco product was defined as having used that product 

on at least one occasion during the 30 days preceding the survey. Current use of 

any tobacco product was defined as having used any of the listed products on at 

least one occasion during the 30 days preceding the survey. 

In 2002, a total of 13.3 percent of middle school students reported current use of 

any tobacco product (Table 1). Cigarettes (10.1 percent) were the most commonly 

used product, with no statistically significant differences in usage by sex. Cigars (6.0 

percent) were the second most commonly used tobacco product, followed by smokeless tobacco (3.7 percent), pipes (3.5 percent), bidis (2.4 percent), and kreteks (2.0 

percent). Males were more likely than females to use all tobacco products except for 

cigarettes. No significant differences were found for any type of tobacco use by race/ 

ethnicity. 

Among high school students, 28.4 percent reported current use of any tobacco 

product (Table 2). Cigarettes (22.9 percent) were the most commonly used product, 

with no difference by sex; however, white students were more likely to use cigarettes than black, Hispanic, or Asian students. Cigars (11.6 percent) were the second 

most common tobacco product, followed by smokeless tobacco (6.1 percent), pipes 

(3.2 percent), kreteks (2.7 percent), and bidis (2.6 percent). Males were more likely 

than females to use all tobacco products except for cigarettes. Asian students were 

less likely to use cigars) and white students were more likely to use smokeless tobacco than students in other racial/ethnic groups. 

During 2000–2002, current use of any tobacco product among high school students 

decreased from 34.5 percent to 28.4 percent; cigarette use decreased from 28.0 percent to 22.9 percent, cigar use from 14.8 percent to 11.6 percent, bidi use from 4.1 

percent to 2.6 percent, and kretek use from 4.2 percent to 2.7 percent (Iable 2). 

However, no significant change was found among middle school students in the 

prevalence of tobacco use (Table 1). 

Reported by: JA Allen, MA, D Vallone, PhD, ML Haviland, DrPH, C Healton, 

DrPH, American Legacy Foundation, District of Columbia. KC Davis, MS, MC 

Farrelly, PhD, Research Triangle Institute, Research Triangle Park, North Carolina. 

CG Husten, MD, T Pechacek, PhD, Office on Smoking and Health, National Center 

for Chronic Disease Prevention and Health Promotion, CDC. 

66 

Editorial Note 

The declines in cigarette smoking and overall tobacco use among high school students reflect downward national trends since 1997 (3,4). The declining use of cigars) 

bidis) and kreteks and the unchanged use of smokeless tobacco and pipes among 

high school students suggests that students are not substituting other tobacco products for cigarettes and that efforts to reduce cigarette smoking might be reducing 

use of all tobacco products. However, the lack of any statistically significant decline 

in tobacco usage among middle school students is cause for concern. 

The findings in this report are subject to at least two limitations. First) these data 

apply only to youth who attended middle school or high school and are not representative of all youths in these age groups. Nationally, approximately 5 percent 

of youths aged 16–17 years were no longer in school (4). Second, the data were from 

self-reports of survey participants. Although underreporting of tobacco use by youths 

has been minimal in previous surveys (5), recent declines in the acceptability of 

smoking might have led to increased underreporting. 

Why middle school and high school students appear to be responding differently 

to the current antismoking environment is not clear. Factors expected to discourage 

youth from smoking include increases in cigarette prices (i.e., approximately 88 percent from December 1997 to December 2002) (6); implementation of smoke-free laws 

and policies; restrictions on tobacco advertising; and local, state) and national 

antitobacco campaigns (e.g., the truth® campaign) (7). However, spending on tobacco 

industry marketing doubled during 1997–2001 (8), and tobacco industry-sponsored 

media campaigns have been determined to reduce the impact of public health campaigns (7). 

The data in this report suggest that further refinements in evidence-based strategies will be needed to decrease tobacco use among middle school students. Efforts 

might focus on (1) devising more targeted and effective media campaigns, (2) reducing depictions of tobacco use in entertainment media (9), (3) instituting campaigns 

to discourage family and friends from providing cigarettes to youths, (4) promoting 

smoke-free homes, (5) instituting comprehensive school based programs and policies 

in conjunction with supportive community activities, and (6) decreasing the number 

of adult smokers (e.g., parents) to present more nonsmoking role models. 

Because tobacco use is the leading cause of preventable death in the United 

States, efforts to reduce tobacco use must remain a public health priority. Preventing tobacco use among youth is essential to reduce future smoking-related illness and associated costs. However, in 2003, states cut spending for tobacco use prevention and control programs by $86.2 million (11.2 percent) (10). For the decline 

in tobacco use among youth in the United States to continue, such funding must 

be restored and perhaps expanded. 

References 

1. Substance Abuse and Mental Health Services Administration. Summary of findings from 

the 2001 National Household Survey on Drug Abuse: Volume II. Technical appendices and selected data tables. Rockville, Maryland: U.S. Department of Health and Human Services, 2002; 

NHSDA Series H–18; DHHS publication no. (SMA)02–3759. 

2. CPC. Projected smoking-related deaths among youth. MMWR 1996 45:971–4. 

3. Johnston LD, O’Malley PM, Bachman JG. Monitoring the future: national survey results 

on drug use, 1975–2002. Volume 1: secondary school students. Bethesda, Maryland: National Institutes of Health, National Institute on Drug Abuse, 2003; DHHS publication no. (NIH) 03– 

5375. 

4. Grunbaum JA, Kann L, Kinchen S, et al., Youth risk behavior surveillance—United States, 

2001. In: Surveillance Summaries (June 28). MMWR 20Q2; 5l(No. SS–4). 

5. Office on Smoking and Health. Preventing tobacco use among young people: a report of the 

Surgeon General. Atlanta, Georgia: U.S. Department of Health and Human Services, CDC, National Center for Chronic Disease Prevention and Health Promotion, 1994. 

6. U.S. Department of Labor, Bureau of Labor Statistics. Consumer price index—all urban 

consumers (current series). Washington, DC: U.S. Department of Labor, 2003. Available at 

http://data.bls.gov/labjavaloutside.jsp?survey=cu. 

7. Farrelly MC, Healton CG, Davis KC, Messeri P, Hersey JC, Haviland ML. Getting to the 

truth: evaluating national tobacco countermarketing campaigns. Am J Public Health 

2002;92:901–7. 

8. Federal Trade Commission. Cigarette report for 2001. Federal Trade Commission, 2003. 

Available at http://www.ftG.gov/opa/2003/06/2001cigrpt,hl;m. 

9. Sargent JD, Dalton MA, Beach ML, et al., Viewing tobacco use in movies: does it shape 

attitudes that mediate adolescent smoking? Am J Prev Med 2002;22:137–45. 

10. Campaign for Tobacco-Free Kids, American Lung Association, American Cancer Society, American Heart Association, SmokeLess States National Tobacco Policy 

Initiative. Show us the money: a report on the states’ allocation of the tobacco settlement dollars. Washington, DC: National Center for Tobacco-Free Kids, 2003. Available at http://www.tQbaccofreekids.org/reportsLsettlements/2003/fullnmlort.pdf. 

67 

Table 1.—Percentage of &tudents in middle school {i.e., grades 6–8) who were current users* of any tobacco product. by product type, sex, and race/ethnicity—National Youth Tobacco 

Survey, United States, 2002 and 2000 

Characteristic 

Any tobacco† Cigarettes Cigars 

Smokeless 

tobacco Pipes Bidis Kreteks 

% (95% CI§) % (95% CI) % (95% CI) % (95% CI) % (95% CI) % (95% CI) % (95% CI) 

Middle school, 2002 

Sex 

Male 14.8 (±1.6) 10.2 (±1.3) 7.9 (±1.1) 5.6 (±1.3) 5.1 (±0.8) 3.1 (±0.6) 2.7 (±0.6) 

Female 11.8 (±1.4) 10.0 (±1.4) 4.1 (±0.7) 1.8 (±0.4) 1.9 (±0.4) 1.7 (±0.4) 1.1 (±0.3) 

Race/Ethnicity 

White 13.3 (±1.9) 10.4 (±1.6) 5.5 (±1.0) 4.0 (±1.1) 2.8 (±0.6) 1.8 (±0.4) 1.5 (±0.4) 

Black 13.6 (±2.4) 9.4 (±2.4) 7.3 (±1.7) 2.9 (±1.1) 3.9 (±1.4) 3.1 (±1.0) 2.3 (±0.9) 

Hispanic 12.5 (±1.9) 9.1 (±1.6) 6.3 (±1.1) 2.9 (±0.7) 4.4 (±0.9) 2.9 (±0.7) 2.6 (±0.7) 

Asian 8.6 (±3.2) 7.4 (±3.2) 4.8 (±2.8) 3.6 (±2.7) 4.4 (±2.7) 2.9 (±2.1) 3.6 (±2.8) 

Total 13.3 (±1.4) 10.1 (±1.2) 6.0 (±0.7) 3.7 (±0.8) 3.5 (±0.5) 2.4 (±0.3) 2.0 (±0.3) 

Middle school, 2000 

Sex 

Male 17.6 (±2.2) 11.7 (±1.7) 9.7 (±1.5) 5.7 (±1.8) 4.3 (±0.7) 3.4 (±0.6) 2.7 (±0.5) 

Female 12.7 (±1.5) 10.2 (±1.3) 4.6 (±0.8) 1.5 (±0.3) 1.8 (±0.4) 1.4 (±0.3) 1.5 (±0.3) 

Race/Ethnicity 

White 14.3 (±1.9) 10.8 (±1.6) 6.1 (±1.1) 3.9 (±1.3) 2.7 (±0.5) 1.9 (±0.4) 1.9 (±0.4) 

Black 17.5 (±3.0) 11.2 (±2.0) 9.8 (±2.5) 2.4 (±0.7) 2.2 (±0.7) 2.9 (±0.8) 1.7 (±0.5) 

Hispanic 16.0 (±2.0) 11.4 (±1.7) 8.8 (±1.4) 2.9 (±0.7) 5.3 (±1.1) 3.6 (±0.9) 2.6 (±0.8) 

Asian 7.5 (±2.6) 5.3 (±2.3) 4.1 (±1.9) 1.7 (±1.2) 2.8 (±1.5) 2.9 (±1.7) 2.3 (±1.4) 

Total 15.1 (±1.5) 11.0 (±1.2) 7.1 (±1.0) 3.6 (±0.9) 3.0 (±0.4) 2.4 (±0.4) 2.1 (±0.4) 

* Used tobacco on at least one occasion during the 30 days preceding the survey. † Cigarettes. cigars. smokeless tobacco, pipes. bidis (leaf-wrapped, flavored cigarettes from India), or kreteks (clove cigarettes). § Confidence interval. 

68 

Table 2.—Percentage of students in high school (i.e., grades 9–12) who were current users* of any tobacco product, by product type, sex, and race/ethnicity—National Youth Tobacco 

Survey, United States, 2002 and 2000 

Characteristic 

Any tobacco† Cigarettes Cigars 

Smokeless 

tobacco Pipes Bidis Kreteks 

% (95% CI§) % (95% CI) % (95% CI) % (95% CI) % (95% CI) % (95% CI) % (95% CI) 

High school, 2002 

Sex 

Male 32.9 (±2.3) 24.6 (±2.1) 16.9 (±1.4) 10.8 (±2.0) 5.0 (±0.9) 3.7 (±0.8) 3.5 (±0.7) 

Female 23.9 (±1.8) 21.2 (±1.8) 6.2 (±0.9) 1.4 (±0.4) 1.4 (±0.4) 1.5 (±0.4) 1.8 (±0.5) 

Race/Ethnicity 

White 31.1 (±2.1) 25.5 (±1.8) 11.8 (±1.0) 7.4 (±1.4) 2.8 (±0.6) 2.2 (±0.5) 2.7 (±0.6) 

Black 21.8 (±2.9) 14.3 (±2.8) 12.0 (±1.9) 2.3 (±0.8) 3.8 (±1.2) 3.4 (±1.1) 1.9 (±0.8) 

Hispanic 24.5 (±2.7) 20.5 (±2.5) 10.8 (±1.5) 3.8 (±1.3) 4.6 (±1.1) 3.5 (±0.9) 3.0 (±0.8) 

Asian 15.0 (±3.9) 12.8 (±3.5) 5.4 (±2.3) 2.3 (±1.5) 2.7 (±1.5) 2.9 (±1.7) 2.7 (±0.5) 

Total 28.4 (±1.7) 22.9 (±1.6) 11.6 (±0.9) 6.1 (±1.1) 3.2 (±0.6) 2.6 (±0.5) 2.7 (±0.5) 

High school, 2000 

Sex 

Male 39.1 (±2.2) 28.8 (±1.9) 22.0 (±1.5) 11.8 (±1.7) 5.2 (±0.7) 5.4 (±0.6) 5.3 (±0.7) 

Female 29.8 (±1.9) 27.3 (±2.0) 7.3 (±0.9) 1.4 (±0.4) 1.4 (±0.3) 2.8 (±0.4) 3.0 (±0.5) 

Race/Ethnicity 

White 38.0 (±2.3) 31.8 (±2.1) 15.1 (±1.2) 8.2 (±1.2) 3.3 (±0.5) 3.6 (±0.5) 4.5 (±0.6) 

Black 26.5 (±3.6) 16.8 (±3.0) 15.3 (±2.9) 2.6 (±0.9) 2.2 (±0.8) 4.9 (±1.0) 2.2 (±0.7) 

Hispanic 28.4 (±2.5) 22.6 (±2.4) 13.6 (±1.6) 4.0 (±1.2) 4.2 (±0.9) 5.7 (±1.1) 4.0 (±0.8) 

Asian 22.9 (±3.7) 20.6 (±3.5) 7.4 (±2.1) 1.9 (±0.9) 2.5 (±1.1) 3.0 (±1.3) 3.2 (±1.4) 

Total 34.5 (±1.9) 28.0 (±1.7) 14.8 (±1.1) 6.6 (±0.9) 3.3 (±0.4) 4.1 (±0.4) 4.2 (±0.5) 

* Used tobacco on at least one occasion during the 30 days preceding the survey. † Cigarettes. cigars. smokeless tobacco, pipes. bidis (leaf-wrapped, flavored cigarettes from India), or kreteks (clove cigarettes). § Confidence interval. 

69 


1112ARIZ.eps
70 

ALTRIA GROUP INC. 

Washington, DC, November 24, 2003 

Hon. JOHN MCCAIN, 

Chairman, 

Committee on Commerce, Science, and Transportation, 

Washington, DC. 

Dear Mr. Chairman: 

Attached hereto is written testimony from Philip Morris USA that we respectfully 

request be included in the record of proceedings before the Committee on Commerce, 

Science, and Transportation conducted on November 12, 2003 to consider State use 

of tobacco settlement funds. 

During the course of that hearing, two issues in particular were discussed that 

believe warrant further information be provided to the Committee. Thus, the attached statement discusses the position of PM USA on the use of cigarettes in movies, as well as the company’s current marketing and promotion practices and expenditures. Should the Committee desire additional information on these matters, 

beyond that contained in our statement, please do not hesitate to have your staff 

contact this office. 

Thank you for your consideration of this request. 

Sincerely, 

JOHN F. SCRUGGS, 

Vice President, 

Government Affairs. 

cc. Senator Ernest F. Hollings 

Ranking Minority Member, 

Committee on Commerce, Science, and Transportation 

ATTACHMENT

WRITTEN COMMENTS OF PHILIP MORRIS USA 

Philip Morris USA is pleased to submit these comments regarding the Committee’s November 12, 2003 hearing on the use of tobacco settlement funds. That hearing was held to discuss, among other things, the issue of whether states are devoting enough tobacco settlement funds to youth smoking prevention efforts. 

We want to express our appreciation to the Committee and to Chairman McCain 

for holding a hearing on this subject. As we have stated over the years, Philip Morris USA encourages the states to spend a significant portion of the tobacco settlement funds on youth smoking prevention efforts. We share the disappointment expressed by many at the November 12 hearing that more states have not taken advantage of the opportunity to use these funds to support programs that can help 

reduce youth smoking. Indeed, there is no question that support for youth smoking 

prevention efforts is a worthy and appropriate use for the tobacco settlement funds. 

For our part, as the manufacturer of a product intended for adults that causes serious disease in smokers such as lung cancer, emphysema, and heart disease, and 

which is addictive, we believe we have a responsibility to help prevent youth smoking. In fact, with a dedicated Youth Smoking Prevention staff and an annual budget 

of over $100 million, we support positive youth development programs, research, 

and communications aimed at helping parents talk to their kids about not smoking. 

We believe there is a great opportunity for the States to increase their support for 

these kinds of activities. For Philip Morris USA, youth smoking prevention is a 

long-term commitment, and we stand ready to work with members of the Committee, as well as other interested stakeholders, in making progress on this important policy issue. 

Philip Morris USA would like to take this opportunity to address two other issues 

that were raised during the hearing. 

Product Placement and Smoking Scenes in Movies and Television Shows 

We share the concern raised by a number of the hearing participants about the 

incidence of smoking in motion pictures and television shows. In connection with our 

marketing activities generally, Philip Morris USA conducts extensive training and 

continuously monitors compliance with our obligations under the Cigarette Advertising and Promotion Code (the ‘‘Ad Code’’)-a voluntary agreement originally entered 

into by the major domestic manufacturers in 1964 and most recently updated in 

1990-as well as our internal guidelines and the terms of the Master Settlement 

71 

1The Master Settlement Agreement creates a few narrow exceptions to this rule, for media 

that are not intended to be distributed to the public or are intended to be viewed in Adult-Only 

Facilities or instructional media for adult smokers regarding non-conventional cigarettes. 2Letter from Howard Willard to heads of major U.S. motion picture studios, dated October 17, 

2003. Copies attached. 

Agreement (the ‘‘MSA’’), which collectively address issues with respect to the content and placement of our cigarette advertising. 

With regard to product placement in particular, our policy for more than a decade 

has been to deny all third party requests for permission to use, display or make reference to our cigarette brand names, products, packages, or advertisements in 

media such as motion pictures or television shows produced for viewing by the general public, irrespective of whether the target audience is adults or minors. Since 

that policy was implemented, Philip Morris USA has not made, or caused to be 

made, any payment, or given other consideration to any person or entity to use, display or make reference to or use as a prop our cigarette brand names, products, 

packages or advertisements in any form of media covered by the policy, including 

movies or television shows produced for viewing by the general public. 

This policy is consistent with the terms of the MSA, which, as Attorney General 

Moore correctly noted in his remarks, prohibits participating manufacturers from 

paying for product placements in movies, television shows, or other performances or 

video games.1 Philip Morris USA has been in full compliance with the MSA and the 

Ad Code, including all provisions relating to product placement prohibitions. Moreover, no Attorney General has taken any enforcement action against us with respect 

to these provisions. If any State believes that there is any evidence suggesting that 

there is any question about our compliance, we stand ready to address those concerns. In fact, we recently received an inquiry from the California Attorney General 

on the topic of smoking in movies. In response, we provided information on our policy and practices 1related to this topic and included copies of letters—referenced 

below—that we sent to the heads of movie studios encouraging them to take action 

on this issue. 

The fact that we do not pay for product placement, and the fact that we deny all 

requests to use our brands and brand imagery in movies and television shows, does 

not mean, of course, that our products never appear in movies or television shows. 

The fact of the matter is that some producers and directors of motion pictures and 

television shows do use or depict Philip Morris USA brands in their works without 

seeking or obtaining our permission. This is a frustrating situation for us, since our 

position is clear we do not want our brands or brand imagery to be depicted in movies and television shows. Among other things, such usages of our brands and brand 

imagery perpetuate the misunderstanding in the minds of some that we pay for or 

otherwise encourage these depictions, when, in fact, we are legally barred from 

doing so, and have followed a strict policy for more than a decade that prohibits 

such activity. However, irrespective of our views or our business practices, current 

law clearly allows the ‘‘fair use’’ of our brands or brand imagery-even without our 

permission which hinders our ability to take proactive steps to prevent usages of 

our brands or brand imagery in movies and television shows. 

Nevertheless, we have joined others in encouraging the motion picture industry 

to reduce or eliminate smoking scenes from movies targeted towards kids, and, in 

addition, to cease using cigarette brands or brand imagery in all movies. As Howard 

Willard III, Senior Vice President of Philip Morris USA’s Youth Smoking Prevention 

Department, stated in an October 17, 2003 letter to a group of motion picture producers:2

I am writing to express Philip Morris USA’s support of the proposal by 25 State 

Attorneys General encouraging the motion picture industry to reduce or eliminate smoking scenes in movies that are directed towards kids. In addition, consistent with Philip Morris USA’s policy of denying permission for the use of our 

products or trademarks in films, we also want to strongly encourage the motion 

picture industry to voluntarily refrain from portraying or referring to cigarette 

brands or brand imagery in any movies. 

Youth smoking prevention is a serious commitment for Philip Morris USA. Our 

Youth Smoking Prevention (YSP) Department has a dedicated staff of 20 people 

and a budget in excess of $100 million. We focus our efforts in the following 

four areas: (i) communications and education for parents to help and encourage 

them to talk to their kids about not smoking; (ii) grants to support youth smoking prevention and positive youth development programs; (iii) support for youth 

access prevention programs and (iv) research to help us understand the latest 

developments in youth smoking prevention. 

72 

3 American Legacy Foundation. ‘‘Big Tobacco on the Big Screen’’ (Press Release). May 31, 

2003. 4Dalton, Madeline A., Sargent, James D., et al., ‘‘Effect of viewing smoking in movies on adolescent smoking initiation: a cohort study’’ The Lancet 362 (2003): 281–285; published online 

http://image.thelancet.com/extras/03art1353web.pdf (June 10, 2003). 

In May 2003, an American Legacy Foundation study found that smoking was 

depicted in 64 percent of PG–13 and 37 percent of PG movies included in their 

analyses.3 Research suggests that youth exposure to smoking in movies has an 

impact on their attitudes and behaviors related to smoking. For example, researchers found that children who had the highest exposure to smoking in movies were almost three times more likely to start smoking than were children 

who had the lowest exposure to smoking in movies.4 I have attached a brief 

summary of this and other relevant research on this issue. 

At Philip Morris USA we are committed to helping prevent youth smoking. We 

welcome the opportunity to work with others who share our goal. We have significant resources available in our YSP programs and YSP research groups that 

could provide you with support as you tackle this issue. Please contact me if 

we can be of assistance. 

In short, we believe it is appropriate for the motion picture and television industry to reduce or eliminate depictions of cigarettes and smoking from movies and 

shows aimed at kids, and to refrain from using cigarette brands and brand imagery 

in any movies. 

Changes in Cigarette Advertising, Marketing and Promotional 

Expenditures 

During the hearing, a number of comments were made regarding changes in industry expenditures on cigarette advertising, marketing and promotional efforts 

since the MSA was signed. Contrary to what some at the hearing implied, Philip 

Morris USA has dramatically reduced its expenditures on newspaper, magazine, 

and point of sale advertising in every year since the MSA was signed in 1998. Traditional brand image advertising represented less than 8 percent of the Company’s 

total expenditures in 2001, the most recent year for which the FTC has published 

aggregate industry expenditures, continuing a four-year decline from 21 percent of 

spending in 1998. And these downward trends have continued through to the 

present. 

The $11.5 billion figure reported by the FTC that was cited at the hearing is an 

aggregate industry figure for an FTC designated expense category that includes not 

only expenditures on brand advertising (which for us has been dramatically reduced) but also expenditures on price promotions. Philip Morris USA has expanded 

the breadth and depth of its price promotions following its commitment to the MSA 

in order to compete effectively in the marketplace, particularly in light of the deep 

discount prices charged by competitors that did not sign the MSA and recent drastic 

increases in state excise taxes. A significant percentage of our marketing and promotional expenditures are for price promotions. Yet, despite our use of price promotions to remain competitive, the price of our products is still among the highest 

in the industry. Recently, some tobacco control advocates have implied that the substantial level of expenditures on price promotions constitutes an increase in brand 

advertising. That is simply not the case. We not only disagree with that characterization; we believe it reflects a misunderstanding of current industry dynamics, 

which require manufacturers to compete on price to remain competitive in a rapidly 

changing industry. 

For its part, Philip Morris USA is meeting that challenge responsibly. For example, Philip Morris USA’s marketing and promotional expenditures include promotional allowances we pay to retailers who agree to take significant steps to help 

reduce youth access to tobacco products and to otherwise responsibly merchandise 

the cigarette category. Philip Morris USA offers retailers the highest level of promotional incentives for a non self-service environment, no displays or signage on the 

counter and implementing the We Card program, which trains retail employees to 

comply with minimum age laws. 

As the testimony at the hearing made clear, the extra costs imposed by the MSA 

on participating manufacturers—which have been exacerbated by dramatic increases in State excise taxes in the past several years—have spurred considerable 

growth over the last few years of the ‘‘deep discount’’ segment of the domestic cigarette market. Manufacturers that don’t compete effectively on price will continue to 

lose share to those manufacturers that have not agreed to comply with the terms 

of the MSA. This trend clearly undermines the goals of those who want to reduce 

73 

the visibility of cigarette advertising, because those manufacturers are not bound by 

the MSA’s marketing restrictions. 

Not only have we reduced the amount that we spend on traditional cigarette 

brand advertising, we have also significantly changed the nature of our marketing 

and advertising practices to further reduce the profile of our advertising. Part of this 

change is compelled by the MSA, which prohibits participating manufacturers such 

as Philip Morris USA from marketing its brands through billboards, mass transit, 

and most other forms of outdoor advertising, and which imposes other important restrictions on the way we communicate with adult smokers. But the changes we have 

experienced go above and beyond what the MSA, or other applicable laws require, 

and include restrictions that we have voluntarily adopted to better align our practices with society’s expectations. For example, three years ago Philip Morris USA 

withdrew all of our advertising from the back covers of all magazines. We have also 

set voluntary standards that prohibit us from advertising in any magazine with significant youth readership in particular, in any publication in which readers younger 

than 18 years of age constitute 15 percent or more of the total readership of the 

magazine or that is read by more than two million persons younger than 18 years 

of age. These readership standards are the same as those contained in the tobacco 

rules proposed by the Food and Drug Administration. However, having severely restricted the amount of print advertising we run, our current print advertising practices go well beyond these standards. 

Conclusion 

We thank the Committee for the opportunity to submit these written remarks, 

and we would be happy to provide further detail or clarification regarding our practices and positions. 

PHILIP MORRIS U.S.A. 

New York, NY, October 17, 2003 

Hon. DENNIS ECKHART, 

Senior Assistant Attorney General, 

Office of the Attorney General, 

State of California, 

Sacramento, CA. 

Dear General Eckhart: 

I have attached copies of the letters I recently sent to the major movie studios 

expressing Philip Morris USA’s support of the proposal by 25 State Attorneys General encouraging the motion picture industry to reduce or eliminate smoking scenes 

in movies that are directed towards kids, as well as our request that the motion 

picture industry voluntarily refrain from portraying or referring to cigarette brands 

or brand imagery in any movies. I have been committed to communicating with the 

movie studios on this issue since our correspondence in August. However, prior to 

sending the letters we conducted a review of the relevant research to both better 

inform our communication and to share with the movie industry executives. 

I am hopeful that our efforts will help contribute to continued declines in youth 

smoking rates. 

Sincerely yours, 

HOWARD A. WILLARD III, 

Senior Vice President, 

Youth Smoking Prevention. 

Attachments 

74 

ATTACHMENTS

PHILIP MORRIS U.S.A. 

New York, NY, October 17, 2003 

JONATHAN DOLGEN, 

Chairman, 

Paramount Pictures, 

Los Angeles, CA. 

Dear Mr. Dolgen: 

I am writing to express Philip Morris USA’s support of the proposal by 25 State 

Attorneys General encouraging the motion picture industry to reduce or eliminate 

smoking scenes in movies that are directed towards kids. In addition, consistent 

with Philip Morris USA’s policy of denying permission for the use of our products 

or trademarks in films, we also want to strongly encourage the motion picture industry to voluntarily refrain from portraying or referring to cigarette brands or 

brand imagery in any movies. 

Youth smoking prevention is a serious commitment for Philip Morris USA Our 

Youth Smoking Prevention (YSP) Department has a dedicated staff of 20 people and 

a budget in excess of $100 million. We focus our efforts in the following four areas: 

(i) communications and education for parents to help and encourage them to talk 

to their kids about not smoking; (ii) grants to support youth smoking prevention and 

positive youth development programs; (iii) support for youth access prevention programs and (iv) research to help us understand the latest developments in youth 

smoking prevention. 

In May 2003, an American Legacy Foundation study found that smoking was depicted in 64 percent of PG-13 and 37 percent of PG movies included in their analyses.1 Research suggests that youth exposure to smoking in movies has an impact 

on their attitudes and behaviors related to smoking. For example, researchers found 

that children who had the highest exposure to smoking in movies were almost three 

times more likely to start smoking than were children who had the lowest exposure 

to smoking in movies.2 I have attached a brief summary of this and other relevant 

research on this issue. 

At Philip Morris USA we are committed to helping prevent youth smoking. We 

welcome the opportunity to work with others who share our goal. We have significant resources available in our YSP programs and YSP research groups that could 

provide you with support as you tackle this issue. Please contact me if we can be 

of assistance. 

Sincerely yours, 

HOWARD A. WILLARD III 

cc: Jack Valenti, President, Motion Picture Association of America 

Senior Assistant California Attorney General Dennis Eckhart, w/encl. 

Denise Keane, Senior Vice President and General Counsel, Philip Morris USA. 

References 

1. American Legacy Foundation. ‘‘Big Tobacco on the Big Screen’’ (Press Release). May 31, 

2003. 

2. Dalton, Madeline A., Sargent, James D., et al., ‘‘Effect of viewing smoking in movies on 

adolescent smoking initiation: a cohort study’’ The Lancet 362 (2003): 281–285; published online 

<http://image.thelancet.com/extras/03artl353web.pdf> (June 10, 2003). 

75 

PHILIP MORRIS U.S.A. 

New York, NY, October 17, 2003 

MICHAEL D. EISNER, 

Chief Executive Officer, 

The Walt Disney Company, 

Burbank, CA. 

Dear Mr. Eisner: 

I am writing to express Philip Morris USA’s support of the proposal by 25 State 

Attorneys General encouraging the motion picture industry to reduce or eliminate 

smoking scenes in movies that are directed towards kids. In addition, consistent 

with Philip Morris USA’s policy of denying permission for the use of our products 

or trademarks in films, we also want to strongly encourage the motion picture industry to voluntarily refrain from portraying or referring to cigarette brands or 

brand imagery in any movies. 

Youth smoking prevention is a serious commitment for Philip Morris USA Our 

Youth Smoking Prevention (YSP) Department has a dedicated staff of 20 people and 

a budget in excess of $100 million. We focus our efforts in the following four areas: 

(i) communications and education for parents to help and encourage them to talk 

to their kids about not smoking; (ii) grants to support youth smoking prevention and 

positive youth development programs; (iii) support for youth access prevention programs and (iv) research to help us understand the latest developments in youth 

smoking prevention. 

In May 2003, an American Legacy Foundation study found that smoking was depicted in 64 percent of PG-13 and 37 percent of PG movies included in their analyses.1 Research suggests that youth exposure to smoking in movies has an impact 

on their attitudes and behaviors related to smoking. For example, researchers found 

that children who had the highest exposure to smoking in movies were almost three 

times more likely to start smoking than were children who had the lowest exposure 

to smoking in movies.2 I have attached a brief summary of this and other relevant 

research on this issue. 

At Philip Morris USA we are committed to helping prevent youth smoking. We 

welcome the opportunity to work with others who share our goal. We have significant resources available in our YSP programs and YSP research groups that could 

provide you with support as you tackle this issue. Please contact me if we can be 

of assistance. 

Sincerely yours, 

HOWARD A. WILLARD III 

cc: Jack Valenti, President, Motion Picture Association of America 

Senior Assistant California Attorney General Dennis Eckhart, w/encl. 

Denise Keane, Senior Vice President and General Counsel, Philip Morris USA. 

References 

1. American Legacy Foundation. ‘‘Big Tobacco on the Big Screen’’ (Press Release). May 31, 

2003. 

2. Dalton, Madeline A., Sargent, James D., et al., ‘‘Effect of viewing smoking in movies on 

adolescent smoking initiation: a cohort study’’ The Lancet 362 (2003): 281–285; published online <http://image.thelancet.com/extras/03artl353web.pdf> (June 10, 2003). 

76 

PHILIP MORRIS U.S.A. 

New York, NY, October 17, 2003 

HARVEY WEINSTEIN, 

Co-Chairmen, 

Miramax Films, 

Los Angeles, CA. 

Dear Mr. Weinstein: 

I am writing to express Philip Morris USA’s support of the proposal by 25 State 

Attorneys General encouraging the motion picture industry to reduce or eliminate 

smoking scenes in movies that are directed towards kids. In addition, consistent 

with Philip Morris USA’s policy of denying permission for the use of our products 

or trademarks in films, we also want to strongly encourage the motion picture industry to voluntarily refrain from portraying or referring to cigarette brands or 

brand imagery in any movies. 

Youth smoking prevention is a serious commitment for Philip Morris USA Our 

Youth Smoking Prevention (YSP) Department has a dedicated staff of 20 people and 

a budget in excess of $100 million. We focus our efforts in the following four areas: 

(i) communications and education for parents to help and encourage them to talk 

to their kids about not smoking; (ii) grants to support youth smoking prevention and 

positive youth development programs; (iii) support for youth access prevention programs and (iv) research to help us understand the latest developments in youth 

smoking prevention. 

In May 2003, an American Legacy Foundation study found that smoking was depicted in 64 percent of PG-13 and 37 percent of PG movies included in their analyses.1 Research suggests that youth exposure to smoking in movies has an impact 

on their attitudes and behaviors related to smoking. For example, researchers found 

that children who had the highest exposure to smoking in movies were almost three 

times more likely to start smoking than were children who had the lowest exposure 

to smoking in movies.2 I have attached a brief summary of this and other relevant 

research on this issue. 

At Philip Morris USA we are committed to helping prevent youth smoking. We 

welcome the opportunity to work with others who share our goal. We have significant resources available in our YSP programs and YSP research groups that could 

provide you with support as you tackle this issue. Please contact me if we can be 

of assistance. 

Sincerely yours, 

HOWARD A. WILLARD III 

cc: Jack Valenti, President, Motion Picture Association of America 

Senior Assistant California Attorney General Dennis Eckhart, w/encl. 

Denise Keane, Senior Vice President and General Counsel, Philip Morris USA. 

References 

1. American Legacy Foundation. ‘‘Big Tobacco on the Big Screen’’ (Press Release). May 31, 

2003. 

2. Dalton, Madeline A., Sargent, James D., et al., ‘‘Effect of viewing smoking in movies on 

adolescent smoking initiation: a cohort study’’ The Lancet 362 (2003): 281–285; published online <http://image.thelancet.com/extras/03artl353web.pdf> (June 10, 2003). 

77 

PHILIP MORRIS U.S.A. 

New York, NY, October 17, 2003 

ROBERT WEINSTEIN, 

Co-Chairmen, 

Miramax Films, 

Los Angeles, CA. 

Dear Mr. Weinstein: 

I am writing to express Philip Morris USA’s support of the proposal by 25 State 

Attorneys General encouraging the motion picture industry to reduce or eliminate 

smoking scenes in movies that are directed towards kids. In addition, consistent 

with Philip Morris USA’s policy of denying permission for the use of our products 

or trademarks in films, we also want to strongly encourage the motion picture industry to voluntarily refrain from portraying or referring to cigarette brands or 

brand imagery in any movies. 

Youth smoking prevention is a serious commitment for Philip Morris USA Our 

Youth Smoking Prevention (YSP) Department has a dedicated staff of 20 people and 

a budget in excess of $100 million. We focus our efforts in the following four areas: 

(i) communications and education for parents to help and encourage them to talk 

to their kids about not smoking; (ii) grants to support youth smoking prevention and 

positive youth development programs; (iii) support for youth access prevention programs and (iv) research to help us understand the latest developments in youth 

smoking prevention. 

In May 2003, an American Legacy Foundation study found that smoking was depicted in 64 percent of PG-13 and 37 percent of PG movies included in their analyses.1 Research suggests that youth exposure to smoking in movies has an impact 

on their attitudes and behaviors related to smoking. For example, researchers found 

that children who had the highest exposure to smoking in movies were almost three 

times more likely to start smoking than were children who had the lowest exposure 

to smoking in movies.2 I have attached a brief summary of this and other relevant 

research on this issue. 

At Philip Morris USA we are committed to helping prevent youth smoking. We 

welcome the opportunity to work with others who share our goal. We have significant resources available in our YSP programs and YSP research groups that could 

provide you with support as you tackle this issue. Please contact me if we can be 

of assistance. 

Sincerely yours, 

HOWARD A. WILLARD III 

cc: Jack Valenti, President, Motion Picture Association of America 

Senior Assistant California Attorney General Dennis Eckhart, w/encl. 

Denise Keane, Senior Vice President and General Counsel, Philip Morris USA. 

References 

1. American Legacy Foundation. ‘‘Big Tobacco on the Big Screen’’ (Press Release). May 31, 

2003. 

2. Dalton, Madeline A., Sargent, James D., et al., ‘‘Effect of viewing smoking in movies on 

adolescent smoking initiation: a cohort study’’ The Lancet 362 (2003): 281–285; published online <http://image.thelancet.com/extras/03artl353web.pdf> (June 10, 2003). 

78 

PHILIP MORRIS U.S.A. 

New York, NY, October 17, 2003 

STEVEN SPIELBERG, 

Chairman and Chief Executive Officer, 

Dreamworks, 

Glendale, CA. 

Dear Mr. Spielberg: 

I am writing to express Philip Morris USA’s support of the proposal by 25 State 

Attorneys General encouraging the motion picture industry to reduce or eliminate 

smoking scenes in movies that are directed towards kids. In addition, consistent 

with Philip Morris USA’s policy of denying permission for the use of our products 

or trademarks in films, we also want to strongly encourage the motion picture industry to voluntarily refrain from portraying or referring to cigarette brands or 

brand imagery in any movies. 

Youth smoking prevention is a serious commitment for Philip Morris USA Our 

Youth Smoking Prevention (YSP) Department has a dedicated staff of 20 people and 

a budget in excess of $100 million. We focus our efforts in the following four areas: 

(i) communications and education for parents to help and encourage them to talk 

to their kids about not smoking; (ii) grants to support youth smoking prevention and 

positive youth development programs; (iii) support for youth access prevention programs and (iv) research to help us understand the latest developments in youth 

smoking prevention. 

In May 2003, an American Legacy Foundation study found that smoking was depicted in 64 percent of PG-13 and 37 percent of PG movies included in their analyses.1 Research suggests that youth exposure to smoking in movies has an impact 

on their attitudes and behaviors related to smoking. For example, researchers found 

that children who had the highest exposure to smoking in movies were almost three 

times more likely to start smoking than were children who had the lowest exposure 

to smoking in movies.2 I have attached a brief summary of this and other relevant 

research on this issue. 

At Philip Morris USA we are committed to helping prevent youth smoking. We 

welcome the opportunity to work with others who share our goal. We have significant resources available in our YSP programs and YSP research groups that could 

provide you with support as you tackle this issue. Please contact me if we can be 

of assistance. 

Sincerely yours, 

HOWARD A. WILLARD III 

cc: Jack Valenti, President, Motion Picture Association of America 

Senior Assistant California Attorney General Dennis Eckhart, w/encl. 

Denise Keane, Senior Vice President and General Counsel, Philip Morris USA. 

References 

1. American Legacy Foundation. ‘‘Big Tobacco on the Big Screen’’ (Press Release). May 31, 

2003. 

2. Dalton, Madeline A., Sargent, James D., et al., ‘‘Effect of viewing smoking in movies on 

adolescent smoking initiation: a cohort study’’ The Lancet 362 (2003): 281–285; published online <http://image.thelancet.com/extras/03artl353web.pdf> (June 10, 2003). 

79 

PHILIP MORRIS U.S.A. 

New York, NY, October 17, 2003 

JOHN CALLEY, 

Chairman and Chief Executive Officer, 

Sony Pictures Entertainment, 

Culver City, CA. 

Dear Mr. Calley: 

I am writing to express Philip Morris USA’s support of the proposal by 25 State 

Attorneys General encouraging the motion picture industry to reduce or eliminate 

smoking scenes in movies that are directed towards kids. In addition, consistent 

with Philip Morris USA’s policy of denying permission for the use of our products 

or trademarks in films, we also want to strongly encourage the motion picture industry to voluntarily refrain from portraying or referring to cigarette brands or 

brand imagery in any movies. 

Youth smoking prevention is a serious commitment for Philip Morris USA Our 

Youth Smoking Prevention (YSP) Department has a dedicated staff of 20 people and 

a budget in excess of $100 million. We focus our efforts in the following four areas: 

(i) communications and education for parents to help and encourage them to talk 

to their kids about not smoking; (ii) grants to support youth smoking prevention and 

positive youth development programs; (iii) support for youth access prevention programs and (iv) research to help us understand the latest developments in youth 

smoking prevention. 

In May 2003, an American Legacy Foundation study found that smoking was depicted in 64 percent of PG-13 and 37 percent of PG movies included in their analyses.1 Research suggests that youth exposure to smoking in movies has an impact 

on their attitudes and behaviors related to smoking. For example, researchers found 

that children who had the highest exposure to smoking in movies were almost three 

times more likely to start smoking than were children who had the lowest exposure 

to smoking in movies.2 I have attached a brief summary of this and other relevant 

research on this issue. 

At Philip Morris USA we are committed to helping prevent youth smoking. We 

welcome the opportunity to work with others who share our goal. We have significant resources available in our YSP programs and YSP research groups that could 

provide you with support as you tackle this issue. Please contact me if we can be 

of assistance. 

Sincerely yours, 

HOWARD A. WILLARD III 

cc: Jack Valenti, President, Motion Picture Association of America 

Senior Assistant California Attorney General Dennis Eckhart, w/encl. 

Denise Keane, Senior Vice President and General Counsel, Philip Morris USA. 

References 

1. American Legacy Foundation. ‘‘Big Tobacco on the Big Screen’’ (Press Release). May 31, 

2003. 

2. Dalton, Madeline A., Sargent, James D., et al., ‘‘Effect of viewing smoking in movies on 

adolescent smoking initiation: a cohort study’’ The Lancet 362 (2003): 281–285; published online <http://image.thelancet.com/extras/03artl353web.pdf> (June 10, 2003). 

80 

PHILIP MORRIS U.S.A. 

New York, NY, October 17, 2003 

ALEX YEMENIDIJAN, 

Chairman and Chief Executive Officer, 

MGM Pictures, 

Santa Monica, CA. 

Dear Mr. Yemenidijan: 

I am writing to express Philip Morris USA’s support of the proposal by 25 State 

Attorneys General encouraging the motion picture industry to reduce or eliminate 

smoking scenes in movies that are directed towards kids. In addition, consistent 

with Philip Morris USA’s policy of denying permission for the use of our products 

or trademarks in films, we also want to strongly encourage the motion picture industry to voluntarily refrain from portraying or referring to cigarette brands or 

brand imagery in any movies. 

Youth smoking prevention is a serious commitment for Philip Morris USA Our 

Youth Smoking Prevention (YSP) Department has a dedicated staff of 20 people and 

a budget in excess of $100 million. We focus our efforts in the following four areas: 

(i) communications and education for parents to help and encourage them to talk 

to their kids about not smoking; (ii) grants to support youth smoking prevention and 

positive youth development programs; (iii) support for youth access prevention programs and (iv) research to help us understand the latest developments in youth 

smoking prevention. 

In May 2003, an American Legacy Foundation study found that smoking was depicted in 64 percent of PG-13 and 37 percent of PG movies included in their analyses.1 Research suggests that youth exposure to smoking in movies has an impact 

on their attitudes and behaviors related to smoking. For example, researchers found 

that children who had the highest exposure to smoking in movies were almost three 

times more likely to start smoking than were children who had the lowest exposure 

to smoking in movies.2 I have attached a brief summary of this and other relevant 

research on this issue. 

At Philip Morris USA we are committed to helping prevent youth smoking. We 

welcome the opportunity to work with others who share our goal. We have significant resources available in our YSP programs and YSP research groups that could 

provide you with support as you tackle this issue. Please contact me if we can be 

of assistance. 

Sincerely yours, 

HOWARD A. WILLARD III 

cc: Jack Valenti, President, Motion Picture Association of America 

Senior Assistant California Attorney General Dennis Eckhart, w/encl. 

Denise Keane, Senior Vice President and General Counsel, Philip Morris USA. 

References 

1. American Legacy Foundation. ‘‘Big Tobacco on the Big Screen’’ (Press Release). May 31, 

2003. 

2. Dalton, Madeline A., Sargent, James D., et al., ‘‘Effect of viewing smoking in movies on 

adolescent smoking initiation: a cohort study’’ The Lancet 362 (2003): 281–285; published online <http://image.thelancet.com/extras/03artl353web.pdf> (June 10, 2003). 

81 

PHILIP MORRIS U.S.A. 

New York, NY, October 17, 2003 

STACEY SNIDER, 

Chief Executive Officer, 

Universal Pictures, 

Universal City, CA. 

Dear Ms. Snider: 

I am writing to express Philip Morris USA’s support of the proposal by 25 State 

Attorneys General encouraging the motion picture industry to reduce or eliminate 

smoking scenes in movies that are directed towards kids. In addition, consistent 

with Philip Morris USA’s policy of denying permission for the use of our products 

or trademarks in films, we also want to strongly encourage the motion picture industry to voluntarily refrain from portraying or referring to cigarette brands or 

brand imagery in any movies. 

Youth smoking prevention is a serious commitment for Philip Morris USA Our 

Youth Smoking Prevention (YSP) Department has a dedicated staff of 20 people and 

a budget in excess of $100 million. We focus our efforts in the following four areas: 

(i) communications and education for parents to help and encourage them to talk 

to their kids about not smoking; (ii) grants to support youth smoking prevention and 

positive youth development programs; (iii) support for youth access prevention programs and (iv) research to help us understand the latest developments in youth 

smoking prevention. 

In May 2003, an American Legacy Foundation study found that smoking was depicted in 64 percent of PG-13 and 37 percent of PG movies included in their analyses.1 Research suggests that youth exposure to smoking in movies has an impact 

on their attitudes and behaviors related to smoking. For example, researchers found 

that children who had the highest exposure to smoking in movies were almost three 

times more likely to start smoking than were children who had the lowest exposure 

to smoking in movies.2 I have attached a brief summary of this and other relevant 

research on this issue. 

At Philip Morris USA we are committed to helping prevent youth smoking. We 

welcome the opportunity to work with others who share our goal. We have significant resources available in our YSP programs and YSP research groups that could 

provide you with support as you tackle this issue. Please contact me if we can be 

of assistance. 

Sincerely yours, 

HOWARD A. WILLARD III 

cc: Jack Valenti, President, Motion Picture Association of America 

Senior Assistant California Attorney General Dennis Eckhart, w/encl. 

Denise Keane, Senior Vice President and General Counsel, Philip Morris USA. 

References 

1. American Legacy Foundation. ‘‘Big Tobacco on the Big Screen’’ (Press Release). May 31, 

2003. 

2. Dalton, Madeline A., Sargent, James D., et al., ‘‘Effect of viewing smoking in movies on 

adolescent smoking initiation: a cohort study’’ The Lancet 362 (2003): 281–285; published online <http://image.thelancet.com/extras/03artl353web.pdf> (June 10, 2003). 

82 

PHILIP MORRIS U.S.A. 

New York, NY, October 17, 2003 

BARRY MEYER, 

Chief Executive Officer, 

Warner Brothers Studios, 

Burbank, CA. 

Dear Mr. Meyer: 

I am writing to express Philip Morris USA’s support of the proposal by 25 State 

Attorneys General encouraging the motion picture industry to reduce or eliminate 

smoking scenes in movies that are directed towards kids. In addition, consistent 

with Philip Morris USA’s policy of denying permission for the use of our products 

or trademarks in films, we also want to strongly encourage the motion picture industry to voluntarily refrain from portraying or referring to cigarette brands or 

brand imagery in any movies. 

Youth smoking prevention is a serious commitment for Philip Morris USA Our 

Youth Smoking Prevention (YSP) Department has a dedicated staff of 20 people and 

a budget in excess of $100 million. We focus our efforts in the following four areas: 

(i) communications and education for parents to help and encourage them to talk 

to their kids about not smoking; (ii) grants to support youth smoking prevention and 

positive youth development programs; (iii) support for youth access prevention programs and (iv) research to help us understand the latest developments in youth 

smoking prevention. 

In May 2003, an American Legacy Foundation study found that smoking was depicted in 64 percent of PG-13 and 37 percent of PG movies included in their analyses.1 Research suggests that youth exposure to smoking in movies has an impact 

on their attitudes and behaviors related to smoking. For example, researchers found 

that children who had the highest exposure to smoking in movies were almost three 

times more likely to start smoking than were children who had the lowest exposure 

to smoking in movies.2 I have attached a brief summary of this and other relevant 

research on this issue. 

At Philip Morris USA we are committed to helping prevent youth smoking. We 

welcome the opportunity to work with others who share our goal. We have significant resources available in our YSP programs and YSP research groups that could 

provide you with support as you tackle this issue. Please contact me if we can be 

of assistance. 

Sincerely yours, 

HOWARD A. WILLARD III 

cc: Jack Valenti, President, Motion Picture Association of America 

Senior Assistant California Attorney General Dennis Eckhart, w/encl. 

Denise Keane, Senior Vice President and General Counsel, Philip Morris USA. 

References 

1. American Legacy Foundation. ‘‘Big Tobacco on the Big Screen’’ (Press Release). May 31, 

2003. 

2. Dalton, Madeline A., Sargent, James D., et al., ‘‘Effect of viewing smoking in movies on 

adolescent smoking initiation: a cohort study’’ The Lancet 362 (2003): 281–285; published online <http://image.thelancet.com/extras/03artl353web.pdf> (June 10, 2003). 

83 

PHILIP MORRIS U.S.A. 

New York, NY, October 17, 2003 

JIM GIANOPULOS, 

Co-Chairmen, 

Fox Filmed Entertainment, 

Los Angeles, CA. 

Dear Mr. Gianopulos: 

I am writing to express Philip Morris USA’s support of the proposal by 25 State 

Attorneys General encouraging the motion picture industry to reduce or eliminate 

smoking scenes in movies that are directed towards kids. In addition, consistent 

with Philip Morris USA’s policy of denying permission for the use of our products 

or trademarks in films, we also want to strongly encourage the motion picture industry to voluntarily refrain from portraying or referring to cigarette brands or 

brand imagery in any movies. 

Youth smoking prevention is a serious commitment for Philip Morris USA Our 

Youth Smoking Prevention (YSP) Department has a dedicated staff of 20 people and 

a budget in excess of $100 million. We focus our efforts in the following four areas: 

(i) communications and education for parents to help and encourage them to talk 

to their kids about not smoking; (ii) grants to support youth smoking prevention and 

positive youth development programs; (iii) support for youth access prevention programs and (iv) research to help us understand the latest developments in youth 

smoking prevention. 

In May 2003, an American Legacy Foundation study found that smoking was depicted in 64 percent of PG-13 and 37 percent of PG movies included in their analyses.1 Research suggests that youth exposure to smoking in movies has an impact 

on their attitudes and behaviors related to smoking. For example, researchers found 

that children who had the highest exposure to smoking in movies were almost three 

times more likely to start smoking than were children who had the lowest exposure 

to smoking in movies.2 I have attached a brief summary of this and other relevant 

research on this issue. 

At Philip Morris USA we are committed to helping prevent youth smoking. We 

welcome the opportunity to work with others who share our goal. We have significant resources available in our YSP programs and YSP research groups that could 

provide you with support as you tackle this issue. Please contact me if we can be 

of assistance. 

Sincerely yours, 

HOWARD A. WILLARD III 

cc: Jack Valenti, President, Motion Picture Association of America 

Senior Assistant California Attorney General Dennis Eckhart, w/encl. 

Denise Keane, Senior Vice President and General Counsel, Philip Morris USA. 

References 

1. American Legacy Foundation. ‘‘Big Tobacco on the Big Screen’’ (Press Release). May 31, 

2003. 

2. Dalton, Madeline A., Sargent, James D., et al., ‘‘Effect of viewing smoking in movies on 

adolescent smoking initiation: a cohort study’’ The Lancet 362 (2003): 281–285; published online <http://image.thelancet.com/extras/03artl353web.pdf> (June 10, 2003). 

84 

PHILIP MORRIS U.S.A. 

New York, NY, October 17, 2003 

TOM ROTHMAN, 

Co-Chairmen, 

Fox Filmed Entertainment, 

Los Angeles, CA. 

Dear Mr. Rothman: 

I am writing to express Philip Morris USA’s support of the proposal by 25 State 

Attorneys General encouraging the motion picture industry to reduce or eliminate 

smoking scenes in movies that are directed towards kids. In addition, consistent 

with Philip Morris USA’s policy of denying permission for the use of our products 

or trademarks in films, we also want to strongly encourage the motion picture industry to voluntarily refrain from portraying or referring to cigarette brands or 

brand imagery in any movies. 

Youth smoking prevention is a serious commitment for Philip Morris USA Our 

Youth Smoking Prevention (YSP) Department has a dedicated staff of 20 people and 

a budget in excess of $100 million. We focus our efforts in the following four areas: 

(i) communications and education for parents to help and encourage them to talk 

to their kids about not smoking; (ii) grants to support youth smoking prevention and 

positive youth development programs; (iii) support for youth access prevention programs and (iv) research to help us understand the latest developments in youth 

smoking prevention. 

In May 2003, an American Legacy Foundation study found that smoking was depicted in 64 percent of PG-13 and 37 percent of PG movies included in their analyses.1 Research suggests that youth exposure to smoking in movies has an impact 

on their attitudes and behaviors related to smoking. For example, researchers found 

that children who had the highest exposure to smoking in movies were almost three 

times more likely to start smoking than were children who had the lowest exposure 

to smoking in movies.2 I have attached a brief summary of this and other relevant 

research on this issue. 

At Philip Morris USA we are committed to helping prevent youth smoking. We 

welcome the opportunity to work with others who share our goal. We have significant resources available in our YSP programs and YSP research groups that could 

provide you with support as you tackle this issue. Please contact me if we can be 

of assistance. 

Sincerely yours, 

HOWARD A. WILLARD III 

cc: Jack Valenti, President, Motion Picture Association of America 

Senior Assistant California Attorney General Dennis Eckhart, w/encl. 

Denise Keane, Senior Vice President and General Counsel, Philip Morris USA. 

References 

1. American Legacy Foundation. ‘‘Big Tobacco on the Big Screen’’ (Press Release). May 31, 

2003. 

2. Dalton, Madeline A., Sargent, James D., et al., ‘‘Effect of viewing smoking in movies on 

adolescent smoking initiation: a cohort study’’ The Lancet 362 (2003): 281–285; published online <http://image.thelancet.com/extras/03artl353web.pdf> (June 10, 2003). 

85 

SUMMARY OF RESEARCH AND PERSPECTIVES ON THE PORTRAYAL OF TOBACCO IN THE

MOVIES IN AN EFFORT TO HELP PREVENT YOUTH SMOKING

Prepared by Philip Morris USA’s Youth Smoking Prevention Department as an enclosure to its letter to U.S. 

movie industry executives—October 17, 2003 

Prevalence of Smoking/Tobacco Use in Movies 

American Legacy Foundation Analysis (2003) covered 216 movies and their trailers 1

—67 percent of the movies and 14 percent of the trailers depicted smoking 

—The survey found that smoking was depicted in the following: 

• 85 percent of R-rated movies 

• 64 percent of PG-13 movies 

• 37 percent of PG-rated movies 

—Television-aired trailers were more likely to include smoking imagery if the 

movie being promoted showed a specific brand 

• If a brand appeared in the movie, there was a 45 percent incidence of the trailer 

including tobacco imagery 

• If the movie included smoking with no brand appearance, there was only a 15 

percent incidence of the trailer including smoking 

STARS Project (American Lung Association) Study (2003) reviewed 145 movies playing between May 31, 2002 and May 26, 2003 2

—106 of the 145 movies (73 percent) that made the box office weekly Top 10 featured tobacco use 

—The study found that tobacco use was depicted as follows: 

• 76 percent of R-rated movies 

• 82 percent of PG-13 movies 

• 39 percent of PG-rated movies 

—Reviewers classified segments according to perceived tobacco messages: 

• 30 percent did not portray tobacco use or depicted the negative consequences 

of its use 

• 39 percent either used numerous pro-tobacco or glamorous portrayals 

• 20 percent used specific brand depictions and/or showed a minor or pregnant 

women use tobacco 

Massachusetts Public Interest Research Group (MASSPIRG) (2002) reviewed PG-13 

films and compared the amount of tobacco use in 1996–97 (pre-MSA) and 1999–2000 

(post-MSA). The top 10 grossing films and top 5 video rentals in America during the 

specified years were reviewed.3

—Tobacco use remains prevalent in PG-13, youth oriented movies 

• 82 percent of post-MSA movies 

• 80 percent of pre-MSA movies 

—From the perspective of total film time, tobacco use is up 50 percent in postMSA films 

• 1.35 minutes of tobacco use post-MSA 

• .89 minutes of tobacco use pre-MSA 

—Most films portray smokers and smoking in a positive or neutral light 

• 83 percent of post-MSA movies with tobacco use conveyed the perception that 

smoking is acceptable and even ‘‘cool’’ (no comparison to pre-MSA made) 

—Fewer films feature negative statements about tobacco use 

• Before the MSA, 31 percent of movies showed tobacco use as a negative; postMSA that number fell to 17 percent 

Impact of the Depiction of Smoking/Tobacco Use in Movies 

Although there are a limited number of studies in this area, academic research 

has increased recently and preliminary findings indicate that exposure to cigarette 

smoking in movies has an impact on youth attitudes and behaviors related to smokVerDate Nov 24 2008 06:23 Aug 10, 2016 Jkt 075679 PO 00000 Frm 00089 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\21176.TXT JACKIE
86 

ing. A number of peer-reviewed studies have suggested that children may be influenced to smoke by watching movies that portray smoking: 

• Dalton, et at. (2003)—‘‘After controlling for baseline characteristics, adolescents 

in the highest quartile of exposure to movie smoking were 2.71 times more likely to initiate smoking compared to those in the lowest quartile. The effect of exposure to movie smoking was stronger in adolescents with non-smoking parents 

than in those whose parents smoked . . . Our results provide strong evidence 

that viewing smoking in movies promotes smoking initiation among adolescents.’’ 4

• Sargent, et al., (2002)—‘‘Our research documents a strong relationship between 

viewing tobacco use in movies and more positive attitudes toward smoking 

among adolescent never-smokers . . . This is consistent with the idea that 

viewing tobacco depictions in movies softens adolescents’ resistance to peer offers, enhances their perceptions of the positive benefits of smoking, and makes 

them more likely to consider trying smoking in the future.’’ 5

• Pechmann and Shih (1999)—‘‘. . . smoking (versus nonsmoking) scenes positively . . . enhanced their [youth] perceptions of smokers’ social stature, and increased their intent to smoke. However, youths’ opinions were malleable, and 

showing them an antismoking advertisement before the film effectively repositioned the smoking from forbidden to tainted, thereby nullifying the aforementioned effects.’’ 6

• Distefan, et at. (1999)—‘‘We conclude that there is a relationship between adolescents’ choice of favorite movie actors and actresses and their smoking status. 

Favorite movie stars may provide normative behavior models that are emulated 

or used to justify subsequent smoking . . . the recent increase in the portrayal 

of smoking in the movies is alarming, particularly as it has been associated 

with a large increase in smoking among adolescents.’’ 7

Perspectives on the Subject of the Depiction of Smoking/Tobacco Use in 

Movies 

‘‘Movies are rated on the basis of language, violence, sexual content, and drugs . . . 

The MPAA does not consider smoking -the most widely used additive drug that kills 

the most people—in assigning ratings.’’ 

Stanton Glantz, Professor of Medicine at the University of California, San 

Francisco and founder of the Smoke Free Movie project, Excerpt from an 

Editorial entitled Rate Movies with Smoking ‘‘R’’ 8

‘‘Substantial research indicates that exposure to cigarettes and smoking in movies 

has a measurable impact on youth . . . The appearance of tobacco in PG and PG– 

13 movies has steadily increased . . .! invite the film industry’s cooperation in reducing the amount of tobacco and smoking in movies by eliminating the appearance 

of tobacco except where absolutely integral to a scene. I think it is reasonable to 

expect that cigarette brand names not appear at all . . .’’ 

Bill Lockyer, Attorney General, State of California, Letter to Jack Valenti, 

President of Motion Picture Association of America 9

‘‘. . . not everyone supports the claim that movies are an important influence on 

children’s smoking behaviors. Moreover, the evidence supporting this claim is limited to a few observational studies; and all such research faces the difficult challenge of disentangling the effect of movies from adolescent personalities and parenting characteristics.’’ 

Steven Woloshin, MD, MS and Lisa Schwartz, MD, MS; Excerpt from an 

Editorial entitled Smoke-Free Movies: Sense or Censorship? 10

Recommendations from the Public Health Community 

The World Health Organization,11 American Medical Association, American Legacy 

Foundation, and others—including the Los Angeles Department of Public Health 

and U.S. Public Interest Research Group—have endorsed the following four policies: 

—Certify No Pay-Offs 

The producers should post a certificate in the credits at the end of the 

movie declaring that nobody on the production received anything of value 

(cash money, free cigarettes or other gifts, free publicity, interest-free loans 

or anything else) from anyone in exchange for using or displaying tobacco. 

87 

—Require Strong Anti-Smoking Ads 

Studios and theaters should require a genuinely strong anti-smoking ad 

(not one produced by a tobacco company) to run before any film with any 

tobacco presence, regardless of its MPAA rating. 

—Stop Identifying Tobacco Brands 

There should be no tobacco brand identification nor the presence of tobacco 

brand imagery (such as billboards) in the background of any movie scene. 

—Rate New Smoking Movies ‘‘R’’ 

Any film that shows or depicts tobacco should be rated ‘‘R.’’ The only exceptions should be when the presentation of tobacco clearly and unambiguously 

reflects the dangers and consequences of tobacco use or is necessary to represent smoking of a real historical figure. 

—The American Legacy Foundation12 also recommends adding: 

Eliminate the practice of portraying smoking in aired movie trailers. 

References Cited 

1. American Legacy Foundation. ‘‘Big Tobacco on the Big Screen’’ (Press Release). May 31, 2003. 

2. American Lung Association of Sacramento-Emigrant Trails. PR Newswire, 

‘‘Give Most PG-13 Movies an ‘S’ for Smoking’’ May 30, 2003. 

3. Ng, Crystal and Bradley Dakake of Massachusetts Public Interest Research 

Group. Tobacco at the Movies. 2002. 

4. Dalton, Madeline A., Sargent, James D., et al., ‘‘Effect of viewing smoking in 

movies on adolescent smoking initiation: a cohort study’’ The Lancet 362 

(2003): 281–285; published online <http://imaqe.thelancet.com/extras/ 

03art1353web.pdf> (June 10, 2003). 

5. Sargent, James D., Dalton, Madeline A., et. al. ‘‘Viewing tobacco use in movies: Does it shape attitudes that mediate adolescent smoking?’’ American 

Journal of Preventative Medicine 22 (2002):137–145. 

6. Pechmann, Cornelia and Chuan-Fong Shih. ‘‘Smoking in movies and 

antismoking advertisements before movies: Effects on youth.’’ Journal of Marketing 63 (July 1999): 1–13. 

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