Budget & Tax

TSET spending priorities questioned

October 10, 2017

Jay Chilton

By Jay Chilton, CIJ

An Oklahoma trust established to administer funds from the 1998 tobacco Master Settlement Agreement (MSA) is ripe for reform, according to lawmakers and other critics of the trust. They say that some of the money could be better spent to help alleviate the state’s budget challenges.

The Oklahoma Tobacco Settlement Endowment Trust (TSET) is a constitutionally established state agency, created by voters in 2000 for the purpose of addressing and preventing the adverse effects of tobacco use.

The trust has a balance of more than $1 billion and an annual operating budget of about $45 million. While TSET does address tobacco use and related health issues, some policy experts and legislators are unhappy with large portions of the trust’s program and spending choices.

On July 2, 2016, The Oklahoman published a letter from state Rep. Mark McBride, R-Moore, in which McBride outlined his misgivings with TSET’s operations.

“We (McBride and other legislators who agree with his assessment) contend that the board that oversees TSET's spending has too often used its monies for questionably defined positive health outcomes other than smoking cessation,” he wrote. An example listed was TSET’s sponsorship of “Downton Abbey” on the Oklahoma Education Television Authority. Some characters on the show are portrayed as smokers.

Lawmakers and others also raised red flags about a plan by the trust to create a new executive position with a salary $250,000.

The MSA resulted from litigation that originated in the mid-1990s. More than 40 states, including Oklahoma, became involved with litigation alleging that tobacco use had created a health spending crisis for the state plaintiffs. The settlement of the litigation gives states annual payments from tobacco companies in perpetuity.

Use of the money has varied widely among the states. Oklahoma was the first state to put its MSA payments into a constitutional trust and has received favorable attention for limiting uses of the funds. The constitutional provisions creating TSET identify tobacco related concerns as the agency’s primary purpose, but also include general provisions about the well-being of Oklahomans.

Three quarters of each annual payment goes directly to the trust. Each year, only the earnings from the trust’s principal are actually spent. MSA payments to Oklahoma peaked at more than $80 million in fiscal year 2013.

Oklahoma got involved with what would lead to the MSA at the urging of then state Attorney General Drew Edmondson, a Democrat who is now running for governor. At the time, Edmondson called the MSA “the most important advance in public health since the discovery of a polio vaccine.” The Oklahoman’s editorial board challenged the claim, writing that there was a “logical shortcoming” in comparing health problems related to personal choices to diseases like polio that spread by contagion.

Also controversial was the payment of tens of millions of dollars in legal fees to law firms friendly to Edmondson’s Democratic party, even though the case never went to court and most of the actual work was done by paralegals and assistants rather than attorneys.

Another recent TSET campaign cited in McBride’s letter “takes aim at ‘sugary drinks’ using imagery similar to former New York City Mayor Michael Bloomberg's campaign to increase the taxes on soft drinks, sports drinks and energy drinks.”

CIJ investigated the referenced “sugary drink” campaign and reported its findings on Feb. 20, 2017. The article outlines the trust’s annual spending of nearly $800,000 to encourage Oklahomans to “Rethink Your Drink” and “Eat Better” and “Move More.”

Expensive electronic and traditional billboards along highways and emblazoned upon the sides of public transportation buses can still be seen with regularity. The ad copy invites readers to visit TSET’s website in search of “Infused water recipes.”

A second CIJ investigation into TSET’s spending uncovered a program called “Free The Night” in which the trust uses funds intended to prevent the harmful effects of tobacco use to advertise for racy nightclubs and bars. Some of the clubs serve patrons as young as 15, adding to the concern over TSET’s practices and prompting policy experts to renew the call for reform.

Jonathan Small, president of the Oklahoma Council of Public Affairs, called on lawmakers to allow Oklahomans to vote on reforming TSET so that funds could be used to assist in the funding decisions now being made by the legislature. (Note: CIJ is a project of OCPA.) Small said that nursing homes and rural hospitals could be bolstered with TSET funds. Also, the Physician Manpower Training Commission could be funded without interrupting TSET’s core function programs related to tobacco cessation, and without using money from the current endowment.

The TSET reforms proposed by Small in February are part of a package of fiscal restructuring ideas that he said would save the state $413 million.

Several sources at the Capitol have told CIJ, on the condition of anonymity, that U.S. Rep. Tom Cole, R-Moore, has asked several state legislators not to consider TSET reforms. Cole, as chairman of an appropriations subcommittee and a member of the Rules Committee, is one of the most powerful members of Congress. TSET’s executive director, John Woods, is a former district director for Cole. While working with the congressman, Woods oversaw the operations of three district offices and Cole’s Oklahoma-based staff.

CIJ requested on-the-record comments from Cole and from multiple legislators about Cole’s involvement in the issue, but has received no responses.