(Editor's note: This
is an edited version of a commentary that originally appeared in The
Detroit News on Dec. 4, 2009.)
Imagine a middle-aged man who becomes partially disabled and
unable to work full time. He has no pension, and when Social Security kicks in it
won't make ends meet. Fortunately, he receives a disability settlement that
will pay a guaranteed amount over several years and possibly lesser amounts
Should he fritter this away by living large while the money
lasts, or sock it away for the leaner times he knows are coming? If he does the
former, should his long-suffering wife passively go along for the ride or
This more or less describes the Michigan Legislature's
relationship with the tobacco lawsuit settlement revenue the state began
collecting after 1998 as compensation for past "damages" incurred through
Medicaid and other state medical welfare payments to individuals with
smoking-related illnesses. Michigan's share is some $280 million annually for
26 years, and perhaps lesser amounts thereafter.
Have our prudent and farsighted politicians recognized the
temporary nature of this windfall and placed most of it in a reserve fund? No.
In fact, every penny so far has been spent and they've actually borrowed
against future settlement revenue to spend hundreds of millions on wrongheaded
"economic development" programs, tourism industry subsidies and to avoid
When the settlement was announced in late 1998, it was like
chum dumped into shark-infested waters: Hungry special interests began circling
the state Capitol.
Setting the money away in a "rainy day" fund was never in
the political cards — the political rewards for feeding the sharks were just
too attractive to lawmakers. Gov. John Engler recognized this and forestalled
the frenzy by proposing to use most of the revenue to pay for college
scholarships for students who did well on the state's MEAP test. Most of the
balance went to Medicaid health care programs.
But the sharks began nibbling around the edges. In 2005, the
Legislature created the "21st Century Jobs Fund" business subsidy program, a
hodge-podge of spending with little oversight. To pay for it they borrowed $400
million against future tobacco settlement proceeds.
To avoid spending cuts in the 2007 budget, the Legislature
approved another $415 million in borrowing against future tobacco money. In
2008 they pulled out this same credit card, using it to buy $60 million in tourism ads (the "Pure Michigan"
and related campaigns).
The result of all
this borrowing is that for the next couple decades, some $80 million of the
annual tobacco money will be unavailable to current and future taxpayers.
Instead, debt service payments will draw off funds that otherwise could provide
state services or even tax relief.
hit home in this year's budget, when the college scholarship deal devised by
Engler and later "sweetened" by Gov. Jennifer Granholm got the axe. That's too
bad for middle class families — and perhaps even more unfortunate for the
gold-plated state university budgets that ultimately reaped this money — but
the program had become an unaffordable luxury for an increasingly bankrupt
the tobacco lawsuit money that funded the scholarships will simply be used to
prop up unreformed state government spending for another year. This is hardly
surprising: If politicians couldn't resist spending the windfall back in the
fat years of the late 1990s, they have even less incentive to do so now.
Still, it would be
nice if they at least used the money for something other than avoiding reforms
for one more year. For example, the $80 million that won't go to "Promise
Grant" scholarships this year would have made a nice down payment toward
transitioning school employees from defined benefit pensions into 401(k)-type
should stop suffering in silence. While someone else is spending the tobacco
settlement windfall like there's no tomorrow, we must choose between going
quietly along for the ride or lowering the boom.
Jack McHugh is senior legislative analyst at the Mackinac
Center for Public Policy, a research and educational institute headquartered in
Midland, Mich. Permission to reprint in whole or in part is hereby granted,
provided that the author and the Center are properly cited.