Source: House Research Organization
In 1996, Texas filed a federal lawsuit accusing the tobacco industry of violating conspiracy, racketeering, consumer protection, and other provisions of state and federal law. The state sought to recover billions of tax dollars it had spent to treat tobacco-related illnesses. In settling the lawsuit, the industry agreed to pay the state $15 billion over 25 years and to pay about $2.3 billion through 2003 to Texas counties and hospital districts based on their provision of indigent health care.
Actual payments by the industry are subject to adjustment formulas related to tobacco sales, inflation, and industry profitability. Under Texas’ settlement terms, payments from the industry rise or fall in proportion to U.S. consumption of cigarettes each year as compared to consumption in 1997.
The 76th and 77th Legislatures (1999 and 2001) used $1.5 billion of tobacco settlement funds to create permanent endowments for health and human services and higher education and created sources of ongoing program funding out of interest earnings. Lawmakers also reserved the first settlement money available to the state each fiscal year to support the Children's Health Insurance Program (CHIP), a state-federal program that helps Texas families obtain and utilize affordable coverage for their uninsured children.
Initial endowments are as follows:
Tobacco education and enforcement: $200 million
Children and public health: $100 million
Emergency medical services and trauma care: $100 million
Rural health facility capital improvements: $50 million
Community hospital facility improvements: $25 million
Rural communities health care investment: $2.5 million
Higher education-related endowments
Health-related endowments for institutions of higher education: $595 million
Permanent health fund for higher education: $350 million
Nursing and allied health fund: $45 million
Minority health research and education: $25 million
Fiscal 2002-03 Appropriations from Tobacco Settlement Receipts
The legislature appropriates funding from tobacco settlement receipts for each biennium. Included in this appropriation is interest generated by the permanent endowments. The PDF file below summarizes appropriation from tobacco settlement receipts for fiscal 2002-2003. Items with an asterisk are appropriations from permanent endowments.
Fiscal 2002-03 Appropriations from Tobacco Settlement Receipts (pdf, 60 kb, viewing instructions)
Distribution of Tobacco Settlement Proceeds to Local Political Subdivisions
The 76th Texas Legislature created the Tobacco Settlement Permanent Trust Account as a cooperative project between the Texas Department of Health (now DSHS) and the State Comptroller of Public Accounts in order to provide local health departments and hospital districts a portion of the payments from the state's tobacco settlement. These funds can be used by recipients to offset dollars they have dedicated to indigent health care.
Payments from the permanent fund are based on the amount of unreimbursed health care expenditures the local health agency reports to DSHS. It is the responsibility of DSHS to certify to the State Comptroller’s office the percentage of the annual distribution to be paid to each qualified recipient. The Comptroller’s office is responsible for managing trust funds and issuing payments.
DSHS publishes a list of political subdivisions receiving settlement funding each year along with more information about funding distribution. Click here to view more about distribution of tobacco settlement proceeds to local political subdivisions.