Snuffing out tobacco Juul settlement boosts NC tobacco-prevention efforts in 2022-23, but what will happen going forward?

The following are the tax and non-tax revenue projections within the 2022-23 state budget.

The budget demonstrates the importance to the state of tobacco excise taxes, as well as the diversion of Master Settlement Agreement funding into the state's General Fund.

Tax revenue:

• Personal income: Just under $16 billion.

• Sales and use: $9.8 billion.

• Corporate income: $1.34 billion.

• Insurance: $961.8 million.

• Franchise: $861.3 million.

• Alcoholic beverages: $461.7 million

• Tobacco products: $256.9 million.

• Other tax revenues: $152.7 million.

• Expand cigar excise tax: $25 million.

Non-tax revenue:

• Judicial fees: $224.2 million.

• Other non-tax revenues: $220 million.

• Master Settlement Agreement: $134.1 million.

• Disproportionate share (from hospitals' Medicaid contributions): $122.5 million.

• Insurance: $103.4 million.

• Investment income: $36.1 million.

North Carolina moved to the middle of the pack during 2022 when it comes to dedicated state spending on tobacco prevention programs, courtesy of the precedent-setting $40 million settlement with electronic cigarette manufacturer Juul Labs Inc.

It represented an example of a glass half-full, glass half-empty perspective addressing public health in the state.

The state rose from 44th to 27th in terms of annual funding toward those programs, such as quit lines and public health marketing initiatives.

That's according to the 22nd annual Broken Promises to Our Children report from several anti-tobacco advocacy groups led by the Campaign for Tobacco-Free Kids.

The $13.4 million is the largest dedicated amount since $17.3 million in the 2011-12 state budget.

However, the vast majority comes from a nonrecurring source: the $13 million first payout out of the Juul settlement.

Of the remaining amount, $300,000 comes from the N.C. Division of Mental Health, Developmental Disabilities and Substance Abuse Services to the state's Alcohol Law Enforcement for the performance of statewide compliance checks to enforce the state's youth tobacco access law.

Both financial expenditures were approved in the 2022-23 budget as well.

Meanwhile, North Carolina is projected to collect $281.9 million in tobacco excise-tax revenue during 2022-23, as well as to divert to the state's General Fund almost all of the state's $134.1 million in annual Master Settlement Agreement funds from tobacco manufacturers.

To put the tax revenue and tobacco prevention spending gap into perspective, the federal Centers for Disease Control and Prevention has recommended that North Carolina spend $99.3 million on tobacco prevention programs during the 2022-23 budget year.

That means even with the Juul settlement monies, North Carolina is providing just 13.5% of the CDC recommended amount.

According to the Broken Promises report, North Carolina is not alone with such a gap.

A total of 31 states are providing less than 25% of what the CDC recommends. Seventeen states provide less than 10% of the recommended amount and 11 states provide less than 5%.

Prior to the Juul settlement funding, the Republican-controlled state legislature provided a range of $1.1 million to $2.9 million for state fiscal years 2013-14 to 2020-21.

In the 2012-13 state budget, there were no funds provided as North Carolina was continuing to recover from the 2008-11 Great Recession.

"To continue driving down tobacco use, address health disparities and stop tobacco companies from addicting another generation of kids, states must step up their funding of tobacco prevention and cessation programs," Matthew Myers, president of the Campaign for Tobacco-Free Kids, said in a statement.

Juul settlement commitment

The 2021-22 and 2022-23 state budgets dedicated the $13 million in Juul settlement monies to five specific categories within what became the Youth Electronic Nicotine Dependent Abatement Fund.

Those funds provided to the N.C. Division of Public Health.

The largest amount, at $4.4 million, goes to tobacco cessation media campaigns and programs to aid youths and young adults who have become addicted to nicotine products.

Another $3.3 million goes to evidence-based media and education campaigns to prevent the initiation of tobacco use.

About $2.2 million is allocated to staff, projects and systems to educate partners and stakeholders about evidence-based policy, systems and environmental changes, and to ensure compliance with the Juul settlement.

The state Attorney General's Office received $2 million to help offset its legal expenses in the Juul complaint.

About $1.1 million goes to data monitoring to track tobacco and nicotine use and exposure among youths, young adults and populations at risk, and for independent evaluation of the programs.

MSA funding role

Tobacco manufacturers, including R.J. Reynolds Tobacco Co. and Philip Morris USA, agreed in 1998 to settle lawsuits that 46 state attorneys general, including North Carolina's, brought over smoking-related health-care costs.

The intent for the funding was reimbursing states for their tobacco-related health care costs. North Carolina initially chose to spend the funds on youth tobacco-prevention programs and the Golden Leaf program to assist tobacco-dependent communities shift to other cash crops.

The manufacturers agreed to pay those states at least a combined $246 billion over 20 years. MSA payments to some states are in perpetuity.

The MSA fees fluctuate annually because they are based on each participating manufacturer's traditional cigarette sales volume.

According to the Kaiser Family Foundation, participating manufacturers have paid at least $160.07 billion from 1998 to 2021, including at least $3.05 billion to North Carolina.

However, Florida, Minnesota and Texas negotiated separate settlements.

Most of the states, including North Carolina, have since siphoned much, if not all, of the MSA payments toward their general funds.

For the 2022-23 N.C. state budget, $134.1 million in MSA funding is projected to go to the General Fund.

Economists say most states have become dependent on MSA money and tobacco excise taxes to fill general-fund gaps.

In 2011, the Republican-controlled General Assembly abolished the N.C. Health and Wellness Fund - funded by MSA monies - after 10 years of existence as part of an attempt at resolving the state's budget gap at that time.

The average annual spending on the state programs had been $17 million at that time.

Nationwide, in fiscal year 2022-23, the 50 states will collect a combined $26.7 billion from the MSA and tobacco excise taxes, according to the Broken Promises report

However, they will spend just 2.7%, or a combined $733.1 million, on tobacco prevention and cessation programs.

Although it is a $14.5 million increase from last year, it's still only 22.2% of the total funding recommended by the CDC.

Little legislative interest

Anti-tobacco advocacy groups also urge legislators to pursue the following tactics: ending the sale of all flavored tobacco products; significant tobacco tax increases; comprehensive smoke-free laws; hard-hitting mass media campaigns; and barrier-free insurance coverage for tobacco cessation treatment.

"Our progress shows that we know how to win the fight against tobacco," Myers said. "But policymakers need to be as aggressive in implementing proven tobacco prevention measures as the tobacco industry continues to be in promoting its deadly and addictive products."

However, there's been little interest from state legislative leaders on most of those recommendations.

The current excise tax on vapor products is 5 cents per fluid milliliter of consumable product - a much lower rate supported by tobacco manufacturers when the law was passed during the 2014 legislative session and took effect in February 2015.

By comparison, the excise tax on a pack of traditional cigarettes is 45 cents, one of the lowest rates in the country.

Efforts to raise the vaping excise tax created an intriguing dynamic: raising the vaping tax to discourage young people from using the products, while also potentially being a disincentive for adult smokers trying to switch to what some health experts considered as a reduced-risk option to combustible cigarettes.

Just as pivotal, the net proceeds from the tax would have helped create the Tobacco Use Prevention Fund to evaluate, track usage and make recommendations concerning "emerging tobacco products ... especially among youth and people of childbearing age."

Recent efforts

"Tobacco use is a pay-now or pay-later situation," said Rep. Donny Lambeth, R-Forsyth, who served as president of N.C. Baptist Hospital and Davie and Lexington medical centers. Lambeth has been a primary or co-primary sponsor of several tobacco-prevention bills.

In House Bill 725, which was not addressed during the 2019 session, it cited that North Carolina receives $139.4 million annually from the MSA.

During the 2021 and 2022 sessions, there were just two tobacco-prevention bills introduced: bipartisan House Bill 567, which had Rep. Donny Lambeth as a co-primary sponsor, and Democratic-sponsored Senate Bill 503.

The House and Senate versions of the bill focused on ending youth nicotine dependency through creating the Tobacco Use Prevention Fund within the N.C. Division of Public Health, Chronic Disease and Injury section.

The language targeted "new and emerging tobacco products, including electronic cigarettes, especially among youth and people of childbearing age."

The bills would have provided $17.5 million from the MSA monies to the Golden Leaf program toward economic development initiatives, and $17 million to the Tobacco Use Prevention Fund.

The Tobacco Use Prevention Fund monies would have focused on: collaborative educational efforts between county health departments and school districts; evidence-based media campaigns on the health risks of using tobacco; prevention initiatives aimed at military personnel in the state; grants to community colleges to promote tobacco-free campus; tracking tobacco use among youths and "populations most at risk from tobacco use;" and conduct independent evaluations of these programs.

Neither bill was heard in committee during the two sessions.

We have many strong public health advocates in the legislature, including providers," said Rep. Pricey Harrison, D-Guilford. "My guess is that there is interest in restoring that much-needed funding."

Sen. Joyce Krawiec, R-Forsyth, said "there will be a number of bills related to improving health."

"I'm certain there will be some smoking-related issues and an attempt to prevent our youth from smoking," Krawiec said.

Challenges

Tobacco prevention programs "compete with many other priorities for scarce state government dollars," said Mitch Kokai, senior policy analyst with conservative think tank John Locke Foundation.

"The state health establishment is likely to seek additional funding for those programs in the next budget," Kokai said. "Lawmakers are likely to weigh those requests carefully as they set their priorities for the next two years."

Lambeth has acknowledged the challenge of tobacco-cessation initiatives in tobacco country.

"North Carolina has a rich history with both our tobacco farmers and strong corporate partners who have been the backbone of our economy." he said. "Tobacco remains an important part of that history."

"It is important that we continue to inform our citizens of the risk and that we particularly make sure our youth are aware of those risks," Lambeth said. "With this $17 million-a-year investment, we can prevent young people from ever picking up tobacco.

"Or, if we fail to invest now, we can pay $3.81 billion in smoking-related health care costs and $4.24 billion in productivity losses each year."

Last week, Lambeth said "we will plan bills that help improve the health of all citizens, and smoking prevention is a targeted area." The 2023 legislative session begins in earnest on Wednesday.

336-727-7376@rcraverWSJ