Tobacco Settlement: States' Allocations of Fiscal Years 2002 and 
2003 Master Settlement Agreement Payments (28-FEB-03,		 
GAO-03-407).							 
                                                                 
The Master Settlement Agreement (MSA) requires four of the	 
nation's largest tobacco companies to make annual payments to	 
states in perpetuity as reimbursement for past health care costs 
related to tobacco use. The Farm Security and Rural Investment	 
Act of 2002 requires GAO to report annually on the amount of MSA 
payments states receive and how they allocate these payments for 
the years 2002 through 2006. This report provides information on 
(1) the amount of MSA payments that the 46 states party to the	 
MSA received for fiscal year 2002 and the amount these states	 
expect to receive during fiscal year 2003; (2) states'		 
allocations of MSA funds to various program categories for fiscal
years 2002 and 2003 and changes in these allocations from prior  
years; and (3) changes in states' decision-making frameworks for 
MSA funds since fiscal year 2001. To conduct this study, GAO sent
a survey to budget officials in the 46 states party to the MSA.  
GAO did not independently verify the accuracy of the information 
provided by the state budget offices.				 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-407 					        
    ACCNO:   A06233						        
  TITLE:     Tobacco Settlement: States' Allocations of Fiscal Years  
2002 and 2003 Master Settlement Agreement Payments		 
     DATE:   02/28/2003 
  SUBJECT:   Claims settlement					 
	     Tobacco industry					 
	     Health care costs					 
	     Funds management					 
	     Budget administration				 
	     Balances of budget authority			 
	     Master Settlement Agreement			 

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GAO-03-407

                                       A

Letter

February 28, 2003 Congressional Requesters The Master Settlement Agreement
(MSA), signed in November 1998 by the attorneys general of 46 states, 1
requires four of the nation*s largest tobacco companies to make annual
payments to states in perpetuity as reimbursement for health care costs
related to tobacco use, such as Medicaid expenditures. This agreement, the
largest civil settlement in U. S. history, commits the tobacco companies
to pay approximately $206 billion over the first 25 years and imposes no
requirements on how states spend their payments. 2 Four states are not
party to the MSA* Florida, Minnesota, Mississippi, and Texas. These states
reached earlier, individual settlements with the tobacco companies under
which they will

receive payments totaling $40 billion over 25 years. The Farm Security and
Rural Investment Act of 2002 (2002 Farm Bill) requires GAO to report
annually on the amount of tobacco settlement payments states receive and
how they use these payments for the years 2002 through 2006. This report
is the second in a series of reports responding to the 2002 Farm Bill
requirement. On December 3, 2002, we issued a report entitled Tobacco
Settlement: States* Allocations of Phase II Funds (GAO- 03- 262R) that
provided information on the National Tobacco Grower Settlement Trust
(commonly referred to as the Phase II agreement). GAO previously reported
in June 2001 on states* receipt and use of MSA payments for fiscal years
2000 and 2001. 3

This report discusses the (1) amount of payments received by the 46 states
party to the MSA during fiscal year 2002 and the amount of payments these
states expect to receive during fiscal year 2003, (2) states* allocation
of MSA funds to various program categories for fiscal years 2002 and 2003
and

1 The District of Columbia and the 5 U. S. territories are also included
in the agreement; however, this study only reports on the 46 states that
are party to the agreement. 2 The $206 billion includes $204.5 billion in
estimated total payments to the 46 states, the District of Columbia, and
the 5 U. S. territories and an additional $1.8 billion for other
initiatives agreed to in the MSA, including a national foundation
dedicated to significantly

reducing the use of tobacco products by youth and administrative costs of
the National Association of Attorneys General.

3 U. S. General Accounting Office, Tobacco Settlement: States* Use of
Master Settlement Agreement Payments, GAO- 01- 851 (Washington, D. C.:
June 29, 2001).

changes in these allocations from prior years, and (3) changes in states*
decision- making frameworks for MSA funds since fiscal year 2001.

To address our objectives, we surveyed the budget offices in each of the
46 states and requested budget- related information for fiscal years 2002
and 2003. 4 Our study focuses on the states* share of MSA payments and

does not include information on MSA payments made to counties and cities
in New York and California; it also does not include information on MSA
payments made to the District of Columbia and the five U. S. territories.
We summarized the states* categorization of their MSA payment allocations
for

fiscal years 2002 and 2003 using the eight program categories presented in
our 2001 report. Because of changes in the fiscal status of states during
the last two years, we added a ninth category to account for amounts that
states allocated to balance state budgets and close gaps or reduce
deficits resulting from lower than anticipated revenues or increased
mandatory or essential expenditures (budget shortfalls). We did not verify
the accuracy

of the information provided to us by the state budget offices; however, as
needed, we contacted some states to clarify the information they provided.
We conducted our work from July 2002 through December 2002 in accordance
with generally accepted government auditing standards. See appendix I for
more information on our scope and methodology and detailed definitions of
the nine program categories used in this report.

Results in Brief During fiscal year 2002, the 46 states party to the
Master Settlement Agreement reported receiving a total of about $6.2
billion from the tobacco

companies. For fiscal year 2003, these states expect to receive an
additional $6.2 billion. These amounts supplement the $13.2 billion that
the states had already received in payments through April 2001. In
addition, 12 of the 46 states reported that in either fiscal year 2002 or
2003 they had issued bonds backed by all or a portion of their future MSA
payments (a

process commonly known as securitization). Securitization allowed these
states to receive upfront payments totaling an additional $10.6 billion
for the two- year period in lieu of all or a portion of their future MSA
payments.

4 Throughout this report, fiscal year refers to the state*s fiscal year.
In most states, the fiscal year begins on July 1 and ends on June 30; the
exceptions are Alabama and Michigan, where the fiscal year begins on
October 1, and New York where the fiscal year begins on April 1.

The MSA allows states to use their payments for any purpose, and for
fiscal years 2002 and 2003, the 46 states allocated MSA funds for a
variety of programs and budget priorities. These allocations were somewhat
different than those for fiscal years 2000 and 2001. For fiscal years 2002
and 2003, states reported that about half of their MSA payments have been
allocated to health- related programs. This is an increase from the 41
percent allocated in fiscal years 2000 and 2001. Other categories that
received MSA funds included budget shortfalls, education and social

services, and general purposes and reserves. For fiscal years 2002 and
2003, states reported allocating 5 percent of MSA funds for tobacco
control programs, such as youth education and cessation programs. Although
this is a decrease from the 7 percent they allocated to tobacco control
programs in fiscal years 2000 and 2001, some states rely on other sources
of funds for these programs. Figure 1 shows states* allocations of MSA
payments for fiscal years 2000- 2001, 2002, and 2003 for 9 program
categories. (See app. I for a definition of each program category.)

Figure 1: States* Allocations of MSA Payments, in Percents (Fiscal Years
2000- 2001, 2002 and 2003)

Note: Percentages may not total 100 due to rounding. a GAO*s June 2001
report combined states* allocations of MSA payments for fiscal years 2000
and

2001.

The 12 states that securitized future MSA payments primarily allocated
these funds to cover budget shortfalls. For fiscal year 2002, 31 percent
of these states* securitized proceeds were allocated to budget shortfalls,
and for fiscal year 2003, 66 percent were allocated for this purpose.
Other areas

to which these states allocated securitized proceeds included
infrastructure, education and social services, and health.

Figure 2: States* Allocations of Securitized MSA Proceeds, in Percents
(Fiscal Years 2002 and 2003)

Notes: We did not obtain data on states* allocations of securitized MSA
proceeds for fiscal years 2000 and 2001.

Percentages may not total 100 due to rounding. a The total allocation to
tobacco control for fiscal year 2002 was 0.04 percent.

About half of the 46 states indicated that they had made changes to the
framework they use to make decisions related to MSA funds since fiscal
year 2001. The change most frequently reported by the states was the
passage of legislation affecting the use of MSA funds. States also
reported other changes, including the establishment of new goals or
changes in their

requirements for the use of MSA funds, modifications to their methods of
budgeting MSA funds, and variations in the use of dedicated funds, such as
endowments or trusts.

Background Beginning in the mid 1990s, states and some localities sued
tobacco companies, alleging that the industry had violated antitrust and
consumer protection laws, withheld information about the adverse health
effects of tobacco, manipulated nicotine levels to keep smokers addicted,
and conspired to hold back less risky and less addictive tobacco products
from the market. The states sought to obtain equitable relief and damages,

including consumer protection and/ or antitrust laws, in order to further
the states* policies regarding public health, including policies adopted
to achieve a significant reduction in smoking by youth. During 1997 and
1998, four states* Florida, Minnesota, Mississippi, and Texas* settled
their

lawsuits with the tobacco industry by negotiating independent agreements.
In November 1998, four of the nation*s largest tobacco companies* Philip
Morris Incorporated, R. J. Reynolds Tobacco Company, Brown & Williamson
Tobacco Corporation, and Lorillard Tobacco Company (referred to as the
*original participating manufacturers*) 5 *negotiated an agreement with
the attorneys general of the remaining 46 states, the District of
Columbia, and the 5 U. S. territories, thereby settling a number of
lawsuits brought by these parties against them. The terms of this
agreement, known as the MSA, apply only to those tobacco companies and

states that are party to the agreement. Under the MSA, the tobacco
companies are required to provide monetary relief to the states in the
form of annual payments and reimbursement for attorney fees. For
additional information on the agreement, refer to our June 2001 report on
the MSA. 6

Each state receives a share of the annual MSA payments made by tobacco
companies based on a fixed percentage as agreed to in the MSA. Table 1
shows each state*s share of annual MSA payments.

5 Several other tobacco companies have joined the MSA since the time of
the agreement. 6 GAO- 01- 851.

Tabl e 1: Percent Allocation of MSA Payments for 46 States State Percent

Alabama 1.6161308 Alaska 0.3414187 Arizona 1.4738845 Arkansas 0.8280661
California 12.7639554 Colorado 1.3708614 Connecticut 1.8565373 Delaware
0.3954695 Georgia 2.4544575 Hawaii 0.6018650 Idaho 0.3632632 Illinois
4.6542472 Indiana 2.0398033 Iowa 0.8696670 Kansas 0.8336712 Kentucky
1.7611586 Louisiana 2.2553531 Maine 0.7693505 Maryland 2.2604570
Massachusetts 4.0389790 Michigan 4.3519476 Missouri 2.2746011 Montana
0.4247591 Nebraska 0.5949833 Nevada 0.6099351 New Hampshire 0.6659340 New
Jersey 3.8669963 New Mexico 0.5963897 New York 12.7620310 North Carolina
2.3322850 North Dakota 0.3660138 Ohio 5.0375098 Oklahoma 1.0361370 Oregon
1.1476582 Pennsylvania 5.7468588

(Continued From Previous Page)

State Percent

Rhode Island 0.7189054 South Carolina 1.1763519 South Dakota 0.3489458
Tennessee 2.4408945 Utah 0.4448869 Vermont 0.4111851 Virginia 2.0447451
Washington 2.0532582 West Virginia 0.8864604 Wisconsin 2.0720390 Wyoming
0.2483449 Source: Master Settlement Agreement.

The MSA does not impose any restrictions on how states use the payments
they receive from the tobacco companies. As we reported in 2001, many
states gave high priority to the use of MSA payments for health- related
funding. During recent years, states have seen a decrease in their general

revenues because of weaknesses in state tax collections and the stalled
national economy while spending pressures have continued to mount.
According to a recent report by the National Governors Association (NGA)

and the National Association of State Budget Officers (NASBO), to help
manage their fiscal year 2002 budget shortfalls, some states have turned
to a variety of short- term solutions, including drawing from sources such
as the MSA payments.

States Expect to The 46 states party to the MSA received a total of about
$6.2 billion during

Receive More Than fiscal year 2002, and expect to receive an additional
$6.2 billion for fiscal

year 2003. These amounts are in addition to the $13.2 billion that states
$12 Billion in

received through April 2001. 7 The amount of payments that each state MSA
Payments for

received in fiscal year 2002 ranged from about $19 million for Wyoming to
over $400 million for California. 8 Table 2 shows the amount of MSA Fiscal
Years 2002

payments each state reported receiving in fiscal year 2002 and the amount
and 2003

each state expects to receive in fiscal year 2003.

Tabl e 2: Fiscal Year 2002 MSA Payments Received and Fiscal Year 2003
Payments Expected by the 46 States Actual fiscal year 2002 Expected fiscal
year 2003 State MSA payments MSA payments

Alabama $121,567,706 $116,904, 241 Alaska 24, 800,000 24,500, 000 Arizona
111,955,069 105,656, 500 Arkansas 62, 180,504 63,149, 680 California
474,992, 000 a 474,400, 000 a Colorado 100,304,008 103,757, 361
Connecticut 140,000,000 133,000, 000 Delaware 29, 800,000 29,400, 000
Georgia 184,650,080 175,080, 760 Hawaii 43, 751,843 50,508, 337 Idaho 26,
397,202 26,953, 192 Illinois 312,276,311 295,190, 266 Indiana 149,200,000
150,800, 000 Iowa 63, 537,410 63,080, 096 Kansas 60, 998,554 56,000, 000
Kentucky 132,777,390 125,600, 000 Louisiana 165,021,020 163,196, 404

7 The $13.2 billion received through April 2001 does not include the
payment New York received in April 2001. Because New York*s fiscal year
2002 began on April 1, 2001, the state*s April 2001 payment is included in
the amount states received during fiscal year 2002. In addition, as of
April 2001, Missouri had not yet received any MSA payments because the
state did not receive approval of the MSA from its state court until late
April 2001.

8 This amount does not include MSA payments made to the counties and
cities in California.

(Continued From Previous Page)

Actual fiscal year 2002 Expected fiscal year 2003

State MSA payments MSA payments

Maine 56, 317,761 55,669, 879 Maryland 164,247,000 164,791, 000
Massachusetts 304,500,000 288,100, 000 Michigan 328,200,000 328,600, 000
Missouri 172,700,000 164,000, 000 Montana 31, 079,018 31,605, 000 Nebraska
42, 543,266 44,250, 000 Nevada 44, 628,083 44,134, 648 New Hampshire 48,
725,000 47,400, 000 New Jersey 283,872,000 275,198, 000 New Mexico 43,
600,000 42,900, 000 New York 399,000, 000 a 500,000, 000 a North Carolina
175,835,882 177,862, 000 North Dakota 26, 780,712 26,536, 441 Ohio
368,587,515 372,700, 000 Oklahoma 75, 872,921 74,778, 992 Oregon 86,
524,314 84,950, 966 Pennsylvania 433,529,654 424,255, 000 Rhode Island 52,
601,291 53,410, 000 South Carolina 86, 078,586 85,128, 014 South Dakota
25, 358,785 25,803, 143 Tennessee 180,705,600 170,000, 000 Utah 32,
551,745 31,897, 822 Vermont 30, 920,000 29,330, 000 Virginia 149,613,891
151,354, 360 Washington 150,000,000 149,000, 000 West Virginia 64, 861,064
74,392, 000 Wisconsin 156,215,304 157,602, 800 Wyoming 18, 735,007 12,789,
960

Tot al $6,238,393,496 $6, 245,616, 862

Source: State budget offices. a The amounts of MSA payments received and
expected by New York and California do not include

MSA payments made to the counties and cities within those states.

In addition to MSA payments received, 12 of the 46 states also received
$10.6 billion for fiscal years 2002 and 2003 by issuing bonds backed by
all or a portion of their future MSA payments in return for an upfront
payment (a process commonly known as *securitization*). 9 Ten states
reported

securitizing all or a portion of their MSA payments for the first time in
fiscal years 2002 or 2003, and Alabama and Alaska securitized additional
MSA payments. 10 Figure 3 shows the MSA states that have received
securitized proceeds. Table 3 shows the amounts of securitized proceeds

that the 12 states received for fiscal years 2002 and 2003. During the
course of our study, we learned that other states, such as Illinois,
Missouri, and Virginia are currently considering the use of securitization
in the future.

9 *Securitization* is the process of selling future tobacco settlement
revenue streams to a special purpose entity established for the purpose of
issuing bonds backed by these funds and paying the debt service on the
bonds.

10 In June 2001, we reported that three states* Alabama, Alaska and South
Carolina* had securitized all or a portion of their MSA payments. See
appendix II for information on individual states* use of securitization.

Figure 3: MSA States that Have Received Securitized Proceeds and Those
that Have Not (Fiscal Years 2000- 2003)

Note: Alabama and Alaska initially securitized a portion of their MSA
payments in fiscal years 2000 and 2001, and securitized additional
payments in fiscal year 2002. South Carolina securitized all of its MSA
payments in fiscal year 2001. Ten other states securitized all or a
portion of their MSA payments for the first time in fiscal years 2002 or
2003.

Tabl e 3: Securitized Proceeds Received by 12 States for Fiscal Years 2002
and 2003 Fiscal year 2002 Fiscal year 2003 State securitized proceeds
securitized proceeds

Alabama $103,760,000 $0 Alaska 110,000,000 0 Arkansas 58, 268,549 0
California 0 4, 500,000, 000 Iowa 579,596,212 0 Louisiana 1,069,510,894 0
New Jersey 0 1, 488,141, 494 Oregon 0 150,000, 000 Rhode Island
544,238,410 0 South Dakota 0 243,596, 553 Washington 0 450,000, 000
Wisconsin 1,275,002,400 0

Tot al $3,740,376,465 $6, 831,738, 047

Source: State budget offices.

States* Allocations of For fiscal years 2002 and 2003, the program
categories to which states MSA Payments

allocated MSA and securitized MSA funds varied and had changed somewhat
from the allocations made in fiscal years 2000 and 2001. We Changed Since
2001 found that MSA payments that were not securitized were primarily
allocated by the 46 states to health- related programs. In contrast, the
12 states that securitized some or all of their MSA payments generally
allocated these funds to cover budget shortfalls and finance
infrastructure development.

In fiscal years 2002 and 2003, states reported that they had allocated $7.
2 billion and $6.5 billion, respectively, of their MSA payments. In
addition, states allocated $4.5 billion and $7.0 billion of securitized
MSA proceeds for fiscal years 2002 and 2003, respectively. These amounts
exceed the actual MSA payments and securitized proceeds that states
received for these two years primarily because the amounts include carry-
over funds from prior years and the interest earned on these funds.

Our analysis of states* use of MSA payments (those funds that have not
been securitized) shows that the largest amount of funds was allocated to

health- related programs. For fiscal year 2002, 48 percent of MSA payments
was allocated to health care programs, such as Medicaid, Children*s Health
Insurance Program, state immunization programs, and cancer research and
prevention, and for fiscal year 2003, states allocated 51 percent of the
payments they expect to receive to these programs. This allocation is up
from 41 percent for fiscal years 2000 and 2001. Other major areas to which
funds were allocated included budget shortfalls (14 percent for fiscal
year

2002 and 15 percent for fiscal year 2003); education and social services,
such as substance abuse treatment and intervention plans, child care
management, and pre- school and scholarship programs (10 percent for

both years); and general purposes and reserves (10 percent for fiscal year
2002 and 9 percent for fiscal year 2003). In addition, states allocated
about 5 percent of their payments to tobacco control programs for both
years* such as tobacco prevention, cessation, and education programs,
reducing tobacco sales to minors, and tobacco prevention and cessation
grants. This allocation is down from the 7 percent allocated by the states
for fiscal years

2000 and 2001. However, as we reported in 2001, states do not solely rely
on MSA payments to fund tobacco control programs. Some states fund tobacco
control programs from other sources, such as cigarette excise taxes.
Tables 4 and 5 show the percentage of each state*s individual

allocation of MSA payments to various program categories for fiscal years
2002 and 2003, respectively. (See app. I for definitions of the program
categories and a description of our methodology.)

Tabl e 4: Allocations of MSA Payments by Category, Fiscal Year 2002
Assistance to tobacco growers and

Education General Budget Tobacco

economic and social Tax reductions Infrastructure purposes/ State
shortfall control

development Health services reserves Unallocated

Alabama 0.0 0.6 0.0 47.2 35. 5 0.0 0.0 16. 7 0.0 Alaska 0.0 51. 1 0.0 8.5
0.0 0.0 0.0 0.0 40.4 Arizona 0.0 0.0 0.0 100.0 0.0 0.0 0.0 0.0 0.0
Arkansas 0.0 31. 0 0.0 69.0 0.0 0.0 0.0 0.0 0.0 California 0.0 0.0 0.0
84.9 0.0 0.0 0.0 15. 1 0.0 Colorado 70.7 4.7 0.0 15.8 8.8 0.0 0.0 0.1 0.0
Connecticut 0.0 12. 3 0.0 2.8 0.0 0.0 0.0 84. 9 0.0 Delaware 0.0 16. 4 0.0
68.7 1.1 0.0 13.1 0.6 0.0 Georgia 0.0 14. 3 19.8 61.8 4.1 0.0 0.0 0.0 0.0
Hawaii 0.0 24. 8 0.0 34.7 0.0 0.0 0.0 40. 5 0.0 Idaho 66.3 3.5 0.0 2.9 3.2
0.0 0.0 0.0 24.2 Illinois 0.0 15. 3 0.0 51.3 0.8 11. 2 7.0 1.8 12.6
Indiana 0.0 13. 0 2.0 23.7 6.5 0.0 5.5 0.0 49.4 Iowa 0.0 0.0 0.0 100.0 0.0
0.0 0.0 0.0 0.0 Kansas 0.0 0.8 0.0 3.3 61. 5 0.0 0.0 16. 4 18.0 Kentucky
22.4 4.2 40.9 20.8 10. 2 0.0 1.5 0.0 0.0 Louisiana 0.0 0.0 0.0 54.5 45. 5
0.0 0.0 0.0 0.0 Maine 17.5 20. 8 0.0 33.7 28. 0 0.0 0.0 0.1 0.0 Maryland
0.0 5.5 2.0 11.5 19. 4 0.0 0.0 9.7 51.8 Massachusetts 0.0 2.0 0.0 80.3 3.5
0.0 0.0 0.0 14.3 Michigan 32.3 0.4 0.0 27.5 30. 1 0.0 0.0 0.0 9.7 Missouri
36.2 0.2 0.0 60.4 2.5 0.0 0.0 0.7 0.0 Montana 0.0 1.6 0.0 40.0 0.0 0.0 0.0
58. 4 0.0 Nebraska 0.0 16. 5 0.0 44.2 0.0 0.0 0.0 0.0 39.3 Nevada 0.0 12.
0 0.0 35.1 52. 4 0.0 0.0 0.5 0.0 New Hampshire 0.0 6.4 0.0 0.0 85. 1 0.0
0.0 8.5 0.0 New Jersey 0.0 8.2 0.0 72.5 0.0 0.0 19.3 0.0 0.0 New Mexico
0.0 13. 4 0.0 16.6 0.0 0.0 0.0 50. 0 20.0 New York 0.0 10. 0 0.0 90.0 0.0
0.0 0.0 0.0 0.0 North Carolina 36.4 0.0 56.8 6.8 0.0 0.0 0.0 0.0 0.0 North
Dakota 0.0 8.7 0.0 1.2 44. 7 0.0 45.4 0.0 0.0 Ohio 77.3 0.2 5.0 7.7 5.1
0.0 4.5 0.3 0.0

(Continued From Previous Page)

Assistance to tobacco growers and

Education General Budget

Tobacco economic and social

Tax reduc Infrastruc purposes/ State shortfall control

development Health services tions ture

reserves Unallocated

Oklahoma 0.0 25. 4 0.0 59.8 13. 1 0.0 0.0 1.7 0.0 Oregon 0.0 0.0 0.0 0.0
57. 4 0.0 0.0 42. 6 0.0 Pennsylvania 0.0 0.0 0.0 100.0 0.0 0.0 0.0 0.0 0.0
Rhode Island 0.0 0.0 0.0 0.0 0.0 0.0 0.0 100.0 0.0 South Carolina a 0.0
0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 South Dakota 0.0 0.0 0.0 0.0 100. 0 0.0
0.0 0.0 0.0 Tennessee 100.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Utah 0.0 12. 0
0.0 34.0 5.9 0.0 0.0 48. 1 0.0 Vermont 0.0 21. 4 0.0 53.6 4.6 0.0 0.0 20.
4 0.0 Virginia 0.0 10. 0 50.0 0.0 0.0 0.0 0.0 40. 0 0.0 Washington 0.0 10.
5 0.0 86.6 0.0 0.0 0.0 0.0 3.0 West Virginia 0.0 8.3 0.0 91.7 0.0 0.0 0.0
0.0 0.0 Wisconsin 0.0 3.9 0.0 0.0 0.0 0.0 0.0 96. 1 0.0 Wyoming 0.0 4.6
0.0 95.4 0.0 0.0 0.0 0.0 0.0

Total state allocations 14.4 5.2 4.1 48.0 9.6 0.5 2.0 9.8 6.5 Total number
of states 9 35 7 38 24 1 7 23 11

Source: State budget offices (data), GAO (analysis). Note: Percentages may
not total 100 due to rounding. a South Carolina used all of its MSA
payments for fiscal year 2002 to service the debt on the bonds

issued when the state securitized its MSA payments in fiscal year 2001.

Tabl e 5: Allocations of MSA Payments by Category, Fiscal Year 2003
Assistance to

tobacco growers and

Education Tax General Budget Tobacco economic and social reductions
Infrastructure purposes/ State shortfall control

development Health services

reserves Unallocated

Alabama 0.0 0.6 0.0 47. 2 35.5 0.0 0.0 16. 7 0.0 Alaska 0.0 73. 8 0.0 8.2
0.0 0.0 0.0 18. 0 0.0 Arizona 0.0 0.0 0.0 100. 0 0.0 0.0 0.0 0.0 0.0
Arkansas 0.0 31. 0 0.0 69. 0 0.0 0.0 0.0 0.0 0.0 California 0.0 0.0 0.0
100. 0 0.0 0.0 0.0 0.0 0.0 Colorado 0.0 20. 6 0.0 33. 8 16.5 0.0 0.0 23. 9
5.3 Connecticut 0.0 0.0 0.0 0.0 0.0 0.0 0.0 100.0 0.0 Delaware 0.0 16. 4
0.0 81. 5 1.4 0.0 0.0 0.6 0.0 Georgia 0.0 8.8 37.8 49. 3 4.1 0.0 0.0 0.0
0.0 Hawaii 0.0 12. 4 0.0 34. 8 0.0 0.0 27. 8 25. 0 0.0 Idaho 32. 8 4.2 0.0
6.2 1.4 0.0 0.0 0.0 55.5 Illinois 0.0 4.9 0.0 64. 9 1.2 27. 4 1.1 0.5 0.0
Indiana 0.0 11. 3 2.3 35. 1 15.1 0.0 6.8 0.0 29.4 Iowa 0.0 0.0 0.0 100. 0
0.0 0.0 0.0 0.0 0.0 Kansas 0.0 0.9 0.0 3.5 76.7 0.0 0.0 9.5 9.4 Kentucky
0.0 4.6 45.1 37. 5 7.9 0.0 4.9 0.0 0.0 Louisiana 0.0 0.4 0.0 51. 4 48.3
0.0 0.0 0.0 0.0 Maine 40. 3 17. 7 0.0 23. 4 18.6 0.0 0.0 0.1 0.0 Maryland
0.8 10. 7 2.1 51. 5 11.2 0.0 0.0 14. 7 9.0 Massachusetts 45. 9 0.9 0.0 38.
0 4.3 0.0 0.0 0.0 10.9 Michigan 26. 2 0.5 0.0 31. 4 38.2 0.0 0.0 0.1 3.6
Missouri 53. 7 0.3 0.0 44. 5 0.0 0.0 0.0 1.5 0.0 Montana 0.0 1.6 0.0 40. 0
0.0 0.0 0.0 58. 4 0.0 Nebraska 0.0 15. 8 0.0 48. 5 0.0 0.0 0.0 0.0 35.7
Nevada 0.0 10. 7 0.0 30. 1 58.6 0.0 0.0 0.6 0.0 New Hampshire 0.0 6.3 0.0
0.0 84.4 0.0 0.0 9.3 0.0 New Jersey 0.0 0.0 0.0 98. 2 0.0 0.0 1.8 0.0 0.0
New Mexico 0.0 12. 5 0.0 41. 3 0.0 0.0 0.0 46. 2 0.0 New York 0.0 8.0 0.0
92. 0 0.0 0.0 0.0 0.0 0.0 North Carolina 43. 9 0.0 56.2 0.0 0.0 0.0 0.0
0.0 0.0 North Dakota 0.0 8.8 0.0 1.2 44.5 0.0 45. 6 0.0 0.0 Ohio 75. 9 0.2
4.5 2.3 5.1 0.0 11. 9 0.2 0.0

(Continued From Previous Page)

Assistance to tobacco growers and

Education Tax General Budget Tobacco

economic and social reductions Infrastructure purposes/ State shortfall
control

development Health services

reserves Unallocated

Oklahoma 0.0 27. 2 0.0 44. 8 26.8 0.0 0.0 1.3 0.0 Oregon 0.0 0.0 0.0 2.6
97.5 0.0 0.0 0.0 0.0 Pennsylvania 0.0 0.0 0.0 100. 0 0.0 0.0 0.0 0.0 0.0
Rhode Island 0.0 0.0 0.0 0.0 0.0 0.0 0.0 100.0 0.0 South Carolina a 0.0
0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 South Dakota 0.0 0.0 0.0 0.0 0.0 0.0 0.0
100.0 0.0 Tennessee 100.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Utah 50. 3 11. 5
0.0 32. 5 5.7 0.0 0.0 0.0 0.0 Ver mont 0.0 30. 1 0.0 55. 9 2.6 0.0 0.0 11.
4 0.0 Virginia 0.0 10. 0 50.0 0.0 0.0 0.0 0.0 40. 0 0.0 Washington 0.0 10.
5 0.0 67. 2 0.0 0.0 0.0 0.0 22.3 West Virginia 0.0 7.8 0.0 92. 2 0.0 0.0
0.0 0.0 0.0 Wisconsin 0.0 9.7 0.0 0.0 0.0 0.0 0.0 90. 3 0.0 Wyoming 0.0
19. 0 0.0 19. 0 62.0 0.0 0.0 0.0 0.0

Total state allocations 14. 5 5.1 5.0 50. 7 9.8 1.4 1.5 8.6 3.5 Tot al
number of states 10 34 7 37 23 1 7 23 9

Source: State budget offices (data), GAO (analysis). Note: Percentages may
not total 100 due to rounding. a South Carolina used all of its MSA
payments for fiscal year 2003 to service the debt on the bonds

issued when the state securitized its MSA payments in fiscal year 2001.

Our analysis of states* use of securitized MSA proceeds shows that the
category to which the largest amount of funds were allocated was budget
shortfalls* 31 percent for fiscal year 2002 and 66 percent for fiscal year
2003. 11 Other major areas for which securitized proceeds were used
included the following: infrastructure, such as school construction and
the retirement of state infrastructure debt (24 percent for fiscal year
2002 and 18 percent for fiscal year 2003); education and social services,
such as state

aid for public schools and trust funds for education purposes (16 percent
11 For fiscal year 2002, Rhode Island and Wisconsin were the only two
states that allocated securitized proceed to cover budget shortfalls. For
fiscal year 2003, California and New Jersey were the only two states that
allocated securitized proceeds to cover budget shortfalls.

for fiscal year 2002 and 6 percent for fiscal year 2003); and health, such
as trust funds for health purposes (21 percent for fiscal year 2002).
Tables 6 and 7 show the percentage of each state*s individual allocation
of securitized proceeds to the nine program categories for fiscal years
2002 and 2003, respectively. (See appendix I for definitions of the
program

categories and a description of our methodology.)

Tabl e 6: Allocations of Securitized MSA Proceeds by Category, Fiscal Year
2002 Assistance to tobacco growers and

Education General Budget Tobacco economic

and social Tax reductions Infrastructure purposes/ State shortfall control

development Health services reserves Unallocated

Alabama 0.0 0.0 0.0 0.0 0.0 0.0 0.0 100.0 0.0 Alaska 0.0 0.0 0.0 0.0 0.0
0.0 100.0 0.0 0.0 Arkansas 0.0 0.0 0.0 0.0 0.0 0.0 100.0 0.0 0.0
California 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Iowa 0.0 0.0 0.0 6.8 0.0
0.0 93.2 0.0 0.0 Louisiana 0.0 0.0 a 0.0 32. 9 67.0 0.0 0.0 0.0 0.0 New
Jersey 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Oregon 0.0 0.0 0.0 0.0 0.0 0.0
0.0 0.0 0.0 Rhode Island 24. 8 0.0 0.0 0.0 0.0 0.0 54.2 0.0 21.0 South
Carolina 0.0 0.2 14.9 73. 0 0.0 0.0 11.9 0.0 0.0 South Dakota 0.0 0.0 0.0
0.0 0.0 0.0 0.0 0.0 0.0 Washington 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Wisconsin 100.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total state allocations 31. 2 0.0 b 2.6 21. 5 15.9 0.0 23.9 2.3 2.5 Tot al
number of states 2 2 1 3 1 0 5 1 1

Source: State budget offices (data), GAO (analysis). Note: Percentages may
not total 100 due to rounding. a Louisiana*s allocation for tobacco
control was 0.03 percent.

b The total state allocation for tobacco control was 0.04 percent.

Tabl e 7: Allocations of Securitized MSA Proceeds by Category, Fiscal Year
2003 Assistance to tobacco growers and

Education General Budget Tobacco

economic and social Tax r eductions Infrastructure purposes/ State
shortfall control

development Health services reserves Unallocated

Alabama 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Alaska 0.0 0.0 0.0 0.0 0.0 0.0
100.0 0.0 0.0 Arkansas 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 California
100.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Iowa 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
0.0 Louisiana 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 New Jersey 9.0 0.0 0.0
0.0 2.3 0.0 46. 5 14. 5 27.8 Oregon 0.0 0.0 0.0 0.0 100.0 0.0 0.0 0.0 0.0
Rhode Island 0.0 0.0 0.0 0.0 0.0 0.0 0.0 100. 0 0.0 South Carolina 0.0 0.0
0.0 0.0 0.0 0.0 0.0 0.0 0.0 South Dakota 0.0 0.0 0.0 0.0 100.0 0.0 0.0 0.0
0.0 Washington 0.0 0.0 0.0 0.0 0.0 0.0 100.0 0.0 0.0 Wisconsin 0.0 0.0 0.0
0.0 0.0 0.0 0.0 0.0 0.0

Total state allocations 66.0 0.0 0.0 0.0 6.1 0.0 17. 8 4.3 5.9 Tot al
number of states 2 0 0 0 3 0 3 2 1

Source: State budget offices (data), GAO (analysis). Note: Percentages may
not total 100 due to rounding.

Some States Changed Since we last reported on this issue, about half of
the 46 states indicated

the Way They Allocate that they had made some changes to the framework
they use to make

decisions related to MSA funds. The most widely reported change among MSA
Payments

the states was the passage of legislation affecting the use of MSA funds.
For example, six states* Alaska, Illinois, Iowa, Missouri, Virginia, and
Washington* passed legislation authorizing the securitization of future
MSA payments. Some states also indicated that they had established new
goals or changed their requirements for the use of MSA funds. For example,
Hawaii and California either changed the percentage of MSA funds that
could be used for specific purposes or restricted MSA expenditures for
designated purposes, such as tobacco control or health care. In addition,
Wyoming created a Substance Abuse Treatment Plan from its MSA payments.
The creation of this plan decreased the state*s allocation of MSA

payments into its trust fund currently earmarked for future health and
tobacco prevention spending and redirected these funds for substance abuse
efforts in the state. Moreover, several states reported that they had made
certain changes in their method of budgeting MSA funds since fiscal year
2001. For example, 14 states reported that they had either increased or

decreased their use of dedicated funds, such as endowments or trusts. Of
these 14 states, 10 reported a decrease in their use of dedicated funds,
with 7 states making transfers from trust funds to their general fund. Two
of the states indicated that these transfers were made to cover budget
shortfalls.

We are sending copies of this letter to interested congressional
committees and others upon request. The letter is also available on the
GAO Web site at http:// www. gao. gov. Please call me at (202) 512- 3841
if you or your staff have any questions concerning this report. Major
contributors to this report are listed in appendix IV.

Anu K. Mittal Acting Director, Natural Resources and Environment

List of Requesters

The Honorable Thad Cochran Chairman, Committee on Agriculture, Nutrition,
and Forestry United States Senate The Honorable Tom Harkin Ranking
Democratic Member, Committee on Agriculture, Nutrition, and Forestry
United States Senate The Honorable Robert Goodlatte Chairman, Committee on
Agriculture House of Representatives The Honorable Charles Stenholm
Ranking Minority Member, Committee on Agriculture House of Representatives
The Honorable Jim Bunning United States Senate

Appendi Appendi xes x I

Objectives, Scope, and Methodology The Farm Security and Rural Investment
Act of 2002 (2002 Farm Bill) requires GAO to report annually on the amount
of MSA payments states receive and how they use these payments for the
years 2002 through 2006. This report is the second in a series of reports
responding to the 2002 Farm Bill requirement. On December 3, 2002, we
issued a report entitled Tobacco Settlement: States* Allocations of Phase
II Funds (GAO- 03- 262R) that provides information on the National Tobacco
Grower Settlement Trust (commonly referred to as the Phase II agreement).
GAO also previously reported on states* receipt and use of MSA payments
for fiscal years 2000 and 2001 in a June 2001 report entitled Tobacco
Settlement: States* Use of Master Settlement Agreement Payments (GAO- 01-
851).

To respond to the Farm Bill requirements, the objectives of this study
were to provide information on the (1) amount of payments received by the
46 states party to the MSA during fiscal year 2002 and the amount of
payments these states expect to receive during fiscal year 2003; (2)
states* allocations of MSA funds to various program categories for fiscal
years 2002 and 2003 and changes in these allocations from prior years; and
(3) changes in states*

decision- making frameworks for MSA funds since fiscal year 2001. To
address these objectives, we surveyed the executive budget offices in each
of the 46 states party to the MSA. In addition, we obtained and reviewed
fiscal year 2002 MSA disbursements data provided by the National
Association of Attorneys General and, 1 for some states, budgetrelated and
legislative documents. We also reviewed previous GAO reports and other
relevant studies, and we spoke with representatives from some of the
organizations conducting these studies. Throughout this report,
information on fiscal years 2000 and 2001 MSA receipts and allocations is
based on our June 2001 report. The 2001 report*s methodology primarily
consisted of GAO*s analysis of state budget- related and legislative
documents and interviews of state budget office officials. We conducted
our work from July 2002 through December 2002 in accordance with generally
accepted government auditing standards.

1 The National Association of Attorneys General monitors the actual
payments made to states as determined by an independent auditor.

Our study focuses on the states* shares of MSA payments and does not
include information on California and New York counties* and cities*
allocations of MSA payments. 2 In addition, we did not collect information
on MSA payments made to the District of Columbia or the five U. S.
territories that are also party to the MSA.

Because we completed our fieldwork in December 2002, before states
received their fiscal year 2003 payments, we were unable to obtain final
information on the actual MSA payments states received during fiscal year
2003. Consequently, we obtained information on states* expected fiscal
year 2003 MSA payments.

Survey Methodology We pretested a survey in five state budget offices. 3
Three of the pretested

and Categorization of states have securitized a portion of their MSA
payments. For each pretest,

we sent the survey to the state budget office and asked a designated
budget States* Allocations

official to complete the survey and provide any information on problems or
complications encountered while completing the survey. After the budget
official had completed the survey, we interviewed the official to ensure
that (1) the questions were clear and unambiguous, (2) the terms we used
were precise, and (3) the survey did not place an undue burden on agency
officials completing it.

Because this was not a sample survey, there are no sampling errors.
However, the practical difficulties of conducting any survey may introduce
errors, commonly referred to as nonsampling errors. For example,
difficulties in how a particular question is interpreted, in the sources
of information that are available to respondents, or in how the data are

entered into a database or were analyzed can introduce unwanted
variability into the survey results. We took steps in the development of
the survey, the data collection, and the data editing and analysis to
minimize these nonsampling errors. For example, as already noted, we
pretested the survey. In addition, we edited the completed surveys for
consistency and contacted state budget offices to clarify responses,
verified a sample of the survey data that were entered into our database,
and verified that the

computer programs were written correctly. 2 As we reported in 2001,
California counties, 4 California cities, New York counties, and New York
City each receive a share of MSA payments. 3 See appendix III for a copy
of the survey that we sent to each of the 46 states.

In October 2002, we e- mailed the survey to the budget offices in each of
the 46 states party to the MSA. We received responses from all 46 states.
From these responses, we obtained information on the states* planned uses
of

MSA payments and securitized MSA proceeds for fiscal years 2002 and 2003.
We refer to these planned uses reported by states as *allocations.* 4
Furthermore, in the survey, we asked the states to categorize their

allocations of MSA payments and securitized MSA proceeds for fiscal years
2002 and 2003 using the 11 program categories developed for our 2001
report. 5 Because of changes in states* fiscal status during the last two
years, we added a 12 th category to account for budget shortfalls. In some
cases allocations reported for this category may overlap with allocations
made to the general purposes category. (See the definitions of the 12
categories below.)

For reporting purposes, we consolidated some of the 12 categories and this
report provides information for 9 consolidated program areas.
Specifically, we combined (1) education and social services, (2) economic
development for tobacco regions and payments to tobacco growers, and (3)
general purposes and reserves/ rainy day funds. Because we are relying on
statereported information, the level of detail for individual states
varies. We did not independently verify the accuracy of the information
provided to us by the state budget offices; however, as needed, we
contacted some states to clarify the information they provided.

4 In some instances, states may later revise reported allocations. 5 While
we asked states to classify their allocations by program category for this
report, we used state budget documents to classify states* allocations by
program category for the 2001 report.

Definitions for Categories of States* Allocations

Budget Shortfalls This category comprises amounts budgeted to balance
state budgets and close gaps or reduce deficits resulting from lower than
anticipated revenues or increased mandatory or essential expenditures.

Economic Development for This category comprises amounts budgeted for
economic development

Tobacco Regions projects in tobacco states such as infrastructure
projects, education and

job training programs, and research on alternative uses of tobacco and
alternative crops. This category includes projects specifically designed
to benefit tobacco growers as well as economic development that may serve
a

larger population within a tobacco state. Education This category
comprises amounts budgeted for education programs such

as day care, preschool, Head Start, early childhood education, elementary
and secondary education, after- school programs, and higher education.
This category does not include money for capital projects such as
construction of school buildings.

General Purposes This category comprises amounts budgeted for attorneys*
fees and other items, such as law enforcement and community development,
that could not be placed in a more precise category. This category also
includes amounts budgeted to the state*s general fund that were not
earmarked for any particular purpose. Amounts used to balance state
budgets and close gaps or reduce deficits should be categorized as budget
shortfalls rather than general purposes.

Health This category comprises amounts budgeted for direct health care
services, health insurance, including Medicaid and the State Children*s
Health

Insurance Program, hospitals, medical technology, public health services,
and health research. This category does not include money for capital
projects such as construction of health facilities.

Infrastructure This category comprises amounts budgeted for capital
projects such as construction and renovation of health care, education and
social services facilities, water and transportation projects, and
municipal and state government buildings. This category includes
retirement of debt owed on capital projects.

Payments to Tobacco This category comprises amounts budgeted for direct
payments to tobacco

Growers growers including subsidies and crop conversion programs.

Reserves/ Rainy Day Funds This category comprises amounts budgeted to
state budget reserves such as rainy day and budget stabilization funds not
earmarked for specific

programs. Amounts budgeted to reserves that are earmarked for specific
areas are categorized under those areas* e. g., reserve amounts earmarked
for economic development purposes should be categorized in the economic
development category.

Social Services This category comprises amounts budgeted for social
services such as programs for the aging, assisted living, Meals on Wheels,
drug courts, child welfare, and foster care. This category also includes
amounts budgeted to special funds established for children*s programs

Tax Reductions This category comprises amounts budgeted for tax reductions
such as property tax rebates and earned income tax credits.

Tobacco Control This category comprises amounts budgeted for tobacco
control programs such as prevention, including youth education,
enforcement, and cessation services.

Unallocated This category comprises amounts not budgeted for any specific
purpose, such as amounts budgeted to dedicated funds that have no
specified

purpose; amounts states chose not to budget in the year MSA payments were
received that will be available for budgeting in a subsequent fiscal year;
interest earned from dedicated funds not yet budgeted; and amounts that
have not been budgeted because the state had not made a decision on the
use of the MSA payments.

State- Specific Master Settlement Agreement

Appendi x II

Payments Information This appendix presents information for each of the 46
states party to the Master Settlement Agreement (MSA) on (1) payments
received and allocated; (2) securitized proceeds received and allocated,
if applicable; and (3) changes in the state*s decision- making framework
for MSA funds since April 2001. In some cases, the amounts allocated may
exceed the actual MSA payments and securitized proceeds that states
received for fiscal years 2002 and 2003 because they include carry- over
funds from prior years and the interest earned on these funds. Some states
that allocated

funding to a program category did not provide examples of programs
receiving funds.

Alabama According to the terms of the MSA, Alabama receives 1. 62 percent
of the annual payments made by the tobacco companies. Alabama expects to
receive a total of $467, 089,947 from the MSA through fiscal year 2003.
This total consists of

 about $228,618,000 received as of April 2001;  $121, 567,706 received
for fiscal year 2002; and  $116, 904,241 expected to be received for
fiscal year 2003. Table 8 shows the program areas to which Alabama
allocated MSA funds for fiscal years 2000 and 2001, 2002, and 2003, and
the types of programs that received these funds.

Table 8: Alabama*s MSA Payment Allocations Types of programs Fiscal years
2000 receiving funds, fiscal Program areas and 2001 Fiscal year 2002
Fiscal year 2003

years 2002 and 2003 Budget shortfall a $0 $0 Economic development for

$16,000,000 0 0 tobacco regions and payment to tobacco growers

Education and social services 104,556,000 39,261, 085 36, 894,983
Alternative schools, school safety, foster care, childcare management,
multiple needs children, at- risk programs, and aging waivers

General purposes and 19,543,000 18,486, 901 17, 372,771 Juvenile probation
officers, reserves/ rainy day funds juvenile detention programs, forensics

Health 84,667,000 52,159, 472 49, 016,031 Children*s Health Insurance
Program, mental health programs, AIDS waivers, and Medicaid services

Infrastructure 0 0 0 Tax reduction 0 0 0 Tobacco control 560,000 660, 247
620,456 Prohibit access to tobacco

by minors Unallocated 0 0 0

Total $225,326,000 $110,567, 705 b $103,904,241 b

Source: Alabama Department of Finance* Executive Budget Office. Note:
Although Alabama allocated all of the funds it received from the MSA to
the program areas indicated above, some of these funds will not be used in
fiscal year 2002 and will be carried over to fiscal year 2003 and beyond.
a We did not obtain information on allocations for budget shortfalls in
fiscal years 2000 and 2001.

b The amount available for allocation to the 9 program areas was reduced
by $11 million in fiscal year 2002 and $13 million in fiscal year 2003
because these amounts were needed to service the debt on the bonds issued
when the state securitized a portion of its MSA payments in fiscal years
2000 and 2002.

Alabama initially securitized a portion of its MSA payments in fiscal year
2000 and received $50 million. Subsequently, Alabama securitized another
portion of its MSA payments in fiscal year 2002 and received an additional
$103,760,000 in securitized proceeds. To service the debt on the bonds
issued to procure these securitized funds, the state pledged $13 million
per year from its annual MSA payment for fiscal years 2003 through 2017
and $16 million per year thereafter. Alabama allocated all of its fiscal
year 2002

securitized proceeds for general purposes. According to the state budget
office, these funds will most likely be used for economic development,
industrial recruiting, and training initiatives, in the state.

Alabama reported no changes in its decision- making framework for MSA
funds since fiscal year 2001.

Alaska According to the terms of the MSA, Alaska receives 0.34 percent of
the annual payments made by the tobacco companies. Alaska expects to
receive a total of $98, 420, 000 from the MSA through fiscal year 2003.
This total consists of

 about $49,120,000 received as of April 2001;  $24,800,000 received for
fiscal year 2002; and  $24,500,000 expected to be received for fiscal
year 2003. Table 9 shows the program areas to which Alaska allocated MSA
funds for fiscal years 2000 and 2001, 2002, and 2003 and the types of
programs that received these funds.

Table 9: Alaska*s MSA Payments Allocations Types of programs Fiscal years
2000 receiving funds, fiscal Program areas and 2001 Fiscal year 2002
Fiscal year 2003

years 2002 and 2003

Budget shortfall a $0 $0 Economic development for

$0 0 0 tobacco regions and payment to tobacco growers

Education and social services 1,337,000 0 0 General purposes and

0 0 1,100,000 Medicaid reserves/ rainy day funds Health 46,304,000 400,000
500,000

Infrastructure 0 0 0 Tax reduction 0 0 0 Tobacco control 3,106,000
2,400,000 4,500,000 Tobacco Cessation/

Education Fund Unallocated 0 1,900,000 b 0

Total $50,748,000 $4,700,000 c $6,100, 000 d

Source: Alaska Office of Management and Budget. a We did not obtain
information on allocations for budget shortfalls in fiscal years 2000 and
2001.

b The state legislature did not appropriate the entire MSA payment for
fiscal year 2002. c The amount available for allocation to the 9 program
areas was reduced by $20.1 million for fiscal year 2002 because this
amount was needed to service the debt on the bonds issued when the state

securitized a portion of its MSA payments in fiscal years 2001 and 2002. d
The amount available for allocation to the 9 program areas was reduced by
$20.2 million for fiscal year

2003 because this amount was needed to service the debt on the bonds
issued when the state securitized a portion of its MSA payments in fiscal
years 2001 and 2002. In addition, the amount allocated for fiscal year
2003 includes $2. 4 million in carry- over funds from prior years.

Alaska initially securitized a portion of its MSA payments in fiscal year
2001 and received $93 million. Subsequently, Alaska securitized another
portion of its MSA payments in fiscal year 2002 and received an additional
$110 million in securitized proceeds. The state pledged 40 percent of its
annual MSA payments for fiscal years 2001 through 2017 and 40 percent of
its annual MSA payments for fiscal years 2002 through 2023 to service the
debt on the bonds issued to procure these securitized funds. During fiscal
year

2002, Alaska allocated the $93 million in securitized proceeds that it
received in fiscal year 2001 for infrastructure purposes. According to the
state*s Office of Management and Budget, these funds will be used for
school construction and major maintenance. For fiscal year 2003, Alaska
allocated the additional $110 million in securitized proceeds that it
received in fiscal year 2002 also for infrastructure purposes. These funds
will be

used primarily to fund the development and maintenance of schools, ports,
and harbors.

Alaska reported changes in its decision- making framework for MSA funds
since fiscal year 2001. Primarily, the state passed legislation in both
2000 and 2001 authorizing the securitization of 40 percent of the state*s
20012017 MSA payments and 40 percent of 2002- 2023 payments. This
legislation also delegated decision- making authority over the use of the
MSA funds to a special corporation* the Northern Tobacco Securitization
Corporation, which oversees the debt service on the state*s securitized
proceeds. Alaska also earmarked 20 percent of its annual MSA payments to
be placed in a

special account within the state*s general fund called the Tobacco
Cessation and Education Fund.

Arizona According to the terms of the MSA, Arizona receives 1. 47 percent
of the annual payments made by the tobacco companies. Arizona expects to
receive a total of $425, 577,569 from the MSA through fiscal year 2003.
This total consists of  about $207,966,000 received as of April 2001; 
$111, 955,069 received for fiscal year 2002; and  $105, 656,500 expected
to be received for fiscal year 2003. Table 10 shows the program areas to
which Arizona allocated MSA funds for fiscal years 2000 and 2001, 2002,
and 2003, and the types of programs that received these funds.

Table 10: Arizona*s MSA Payment Allocations Types of programs Fiscal years
2000 receiving funds, fiscal Program areas and 2001 Fiscal year 2002
Fiscal year 2003

years 2002 and 2003

Budget shortfall a $0 $0 Economic development for

$0 0 0 tobacco regions and payment to tobacco growers

Education and social services 0 0 0 General purposes and

0 0 0 reserves/ rainy day funds Health 159,600,000 111,955, 000
105,656,500 Medical services for an expanded segment of the

population b Infrastructure 40, 000,000 0 0 Tax reduction 0 0 0 Tobacco
control 0 0 0 Unallocated 0 0 0

Total $199,600,000 $111,955, 000 $105,656,500

Source: Arizona Governor*s Budget Office. a We did not obtain information
on allocations for budget shortfalls in fiscal years 2000 and 2001.

b In November 2000, Arizona voters passed an expansion of medical services
eligibility to 100 percent of the federal poverty level. This initiative
requires that all MSA payments be used for medical services.

Arizona reported no changes in its decision- making framework for MSA
funds since fiscal year 2001.

Arkansas According to the terms of the MSA, Arkansas receives 0. 83
percent of the annual payments made by the tobacco companies. Arkansas
expects to receive a total of $246, 876,184 from the MSA through fiscal
year 2003. This total consists of  about $121,546,000 received as of
April 2001;  $62,180,504 received for fiscal year 2002; and  $63,149,680
expected to be received for fiscal year 2003.

Table 11 shows the program areas to which Arkansas allocated MSA funds for
fiscal years 2000 and 2001, 2002, and 2003, and the types of programs that
received these funds.

Table 11: Arkansas* MSA Payment Allocations Types of programs Fiscal years
2000 receiving funds, fiscal Program areas and 2001 Fiscal year 2002
Fiscal year 2003

years 2002 and 2003

Budget shortfall a $0 $0 Economic development for

$0 0 0 tobacco regions and payment to tobacco growers

Education and social services 0 0 0 General purposes and

0 0 0 reserves/ rainy day funds Health 43,736,000 15, 245,627 39,454,548
Bioscience Institute

operations and enhancement to Medicaid

Infrastructure 6,912,000 0 0 Tax reduction 0 0 0 Tobacco control 6,952,000
6, 849,484 17,725,957 State law directs

31 percent of MSA payments to the Department of Health for Prevention and
Cessation program grants

Unallocated 64,700,000 0 0

Total b $122,300,000 $22, 095,111 c $57,180,505 d

Source: Arkansas Office of Budget* Department of Finance and
Administration. a We did not obtain information on allocations for budget
shortfalls in fiscal years 2000 and 2001.

b The amount available for allocation to the 9 program areas was reduced
by $5 million in fiscal years 2002 and 2003 because these amounts were
needed to service the debt on the bonds issued when the state securitized
a portion of its MSA payments in fiscal year 2002. c The state did not
budget the first three years of MSA payments until fiscal year 2001
(totaling about

$122 million). According to state law, the first $100 million was to be
deposited to a Healthy Century Trust Fund, for which no appropriations
currently exist. This deposit was made in fiscal year 2001. The remaining
$22 million was not allocated until fiscal year 2002.

d This amount represents fiscal year 2002 payments that were allocated in
fiscal year 2003.

In fiscal year 2002, Arkansas securitized a portion of its MSA payments
and received $58,268,549 in securitized proceeds. Arkansas will use $5
million from the state*s annual MSA payments for the first 25 years to
service the debt on the bonds issued to procure these securitized funds.
When the

state*s debt on these securitized proceeds is paid off, the state will
continue to deposit $5 million on an annual basis for any future MSA
securitization that may happen. Arkansas allocated all of the securitized
proceeds it received in fiscal year 2002 for infrastructure purposes.
According to the state budget office, these funds will be used for the
construction of a School of Public Health and a Biosciences Institute at
the University of Arkansas for Medical Sciences and Arkansas State
University.

Arkansas reported no changes in its decision- making framework for MSA
funds since fiscal year 2001.

California According to the terms of the MSA, California receives 12. 76
percent of the annual payments made by the tobacco companies. California
expects to receive a total of $1,844, 570,000 from the MSA through fiscal
year 2003.

This total consists of  about $895,178,000 received as of April 2001; 
$474, 992,000 received for fiscal year 2002; and  $474, 400,000 expected
to be received for fiscal year 2003. 1 Table 12 shows the program areas to
which California allocated MSA funds for fiscal years 2000 and 2001, 2002,
and 2003, and the types of programs that received these funds.

1 These MSA payments include only payments made to the state, which amount
to 50 percent of the annual payments made by the tobacco companies to
California. Four cities and the 58 counties in the state receive the other
50 percent of the annual MSA payments to California.

Table 12: California*s MSA Payment Allocations Types of programs Fiscal
years 2000 receiving funds, fiscal Program areas and 2001 Fiscal year 2002
Fiscal year 2003

years 2002 and 2003

Budget shortfall a $0 $0 Economic development for

$0 0 0 tobacco regions and payment to tobacco growers

Education and social services 0 0 0 General purposes and

0 71,627, 000 0 reserves/ rainy day funds Health 904,000,000 403,365, 000
546,027,000 Healthy families, Medi- Cal expansion, breast and

cervical cancer treatment, and child health and disability prevention

Infrastructure 0 0 0 Tax reduction 0 0 0 Tobacco control 0 0 0 Unallocated
0 0 0

Total $904,000,000 $474,992, 000 $546,027,000 b

Source: California Department of Finance. a We did not obtain information
on allocations for budget shortfalls in fiscal years 2000 and 2001.

b The amount allocated for fiscal year 2003 includes about $71.6 million
in carry- over funds from prior fiscal years.

California securitized its MSA payments in fiscal year 2003 and will
receive $4.5 billion in securitized proceeds. The state pledged all of its
MSA payments beginning in 2004 and continuing for 25 years to service the
debt on the bonds issued to procure these securitized funds. According to
the state*s Department of Finance, California allocated all of its fiscal
year 2003 securitized proceeds to cover budget shortfalls.

California reported changes in its decision- making framework for MSA
funds since fiscal year 2001. For example, the state passed legislation
that established a special Tobacco Settlement fund that restricts MSA

expenditures to either health care or tobacco control. This legislation
changed the state*s requirements for the use of MSA funds. However,
according to state budget officials, none of the funding from the MSA was
used for tobacco control in either fiscal year 2002 or 2003. Instead, all
of the MSA funds were used for other health treatment. According to budget
officials, California did not need to use MSA funds for tobacco control

because the state currently spends $88.4 million annually on tobacco
control using Proposition 99 funding* an initiative passed by California
in 1988 that placed a $0.25 surtax on all tobacco products.

Colorado According to the terms of the MSA, Colorado receives 1. 37
percent of the annual payments made by the tobacco companies. Colorado
expects to receive a total of $401, 286,369 from the MSA through fiscal
year 2003. This total consists of

 about $197,225,000 received as of April 2001;  $100, 304,008 received
for fiscal year 2002; and  $103, 757,361 expected to be received for
fiscal year 2003. Table 13 shows the program areas to which Colorado
allocated MSA funds for fiscal years 2000 and 2001, 2002, and 2003, and
the types of programs that received these funds.

Table 13: Colorado*s MSA Payment Allocations Types of programs Fiscal
years 2000 receiving funds, fiscal Program areas and 2001 Fiscal year 2002
Fiscal year 2003

years 2002 and 2003

Budget shortfall a $138,123, 849 $0 Economic development for

$0 0 0 tobacco regions and payment to tobacco growers

Education and social services 26,638,000 17,188, 402 19, 796,823 Read to
Achieve, Veteran*s trust fund General purposes and

0 105, 574 28, 760,251 Reserved for investment reserves/ rainy day funds
advisors, deposits to the

state*s trust fund in FY 2003

Health 43,834,000 30,827, 418 40, 641,642 Primary and preventive care
grants, State*s Children*s Health Insurance Program, breast and cervical
cancer (Medicaid)

Infrastructure 1,402,000 0 0 Tax reduction 0 0 0 Tobacco control
21,030,000 9,173, 614 24, 731,160 Tobacco cessation

grants Unallocated 105,808,000 81,823, 125 73, 704,110 b Carry over to
future

fiscal years

Total $198,712,000 $277,241,982 c $187,633, 986 d

Source: Colorado Office of State Planning and Budget. a We did not obtain
information on allocations for budget shortfalls in fiscal years 2000 and
2001.

b This amount includes about $67.3 million to be carried over to fiscal
year 2004, and about $6.4 million that will be deposited in the state*s
trust fund. c The amount allocated for fiscal year 2002 includes a deposit
from the state*s trust fund and interest earned.

d The amount allocated for fiscal year 2003 includes carry- over funds
from prior years and interest earned.

Colorado reported changes in its decision- making framework for MSA funds
since fiscal year 2001. Primarily, the state passed legislation
transferring about $138 million from a trust fund to the general fund for
fiscal years 2001 and 2002. This transfer was used to help cover budget
shortfalls. The state also used MSA funds to provide pre- natal benefits

through the state*s Children*s Health Insurance Program totaling $7. 7
million in fiscal years 2002 and 2003 and to include Medicaid eligibility

for breast cancer patients who met certain income requirements in fiscal
years 2001 and 2002. Connecticut According to the terms of the MSA,
Connecticut receives 1.86 percent of

the annual payments made by the tobacco companies. Connecticut expects to
receive a total of $533, 406, 000 from the MSA through fiscal year 2003.
This total consists of

 about $260,406,000 received as of April 2001;  $140, 000,000 received
for fiscal year 2002; and  $133, 000,000 expected to be received for
fiscal year 2003. Table 14 shows the program areas to which Connecticut
allocated MSA funds for fiscal years 2000 and 2001, 2002, and 2003, and
the types of programs that received these funds.

Table 14: Connecticut*s MSA Payment Allocations Types of programs Fiscal
years 2000

receiving funds, fiscal Program areas and 2001 Fiscal year 2002 Fiscal
year 2003

years 2002 and 2003

Budget shortfall a $0 $0 Economic development for

$0 0 0 tobacco regions and payment to tobacco growers

Education and social services 58, 700,000 0 0 General purposes and

20, 500,000 120, 000,000 133,100,000 General fund revenue reserves/ rainy
day funds Health 77, 600,000 4, 000,000 0 Biomedical Research Trust Fund

Infrastructure 0 0 0 Tax reduction 100,000,000 0 0 Tobacco control
5,000,000 17, 400,000 0 Tobacco and Health

Trust Fund Unallocated 0 0 0

Total $261,800,000 $141, 400,000 b $133,100, 000 b

Source: Connecticut Office of Policy and Management. a We did not obtain
information on allocations for budget shortfalls in fiscal years 2000 and
2001.

b The amounts allocated for fiscal years 2002 and 2003 include carry- over
funds from prior years and interest earned.

Connecticut reported changes in its decision- making framework for MSA
funds since fiscal year 2001. The state passed legislation in 2001
modifying the use of MSA payments for the biennium ending June 30, 2003.
Through

this legislation, the state transferred funds from the state*s Tobacco and
Health Trust Fund for a variety of purposes, including the Children*s
Health Initiatives* Easy Breathing program, the Children*s Trust Fund for
the Healthy Families program, a school- based health clinic in Norwich,
and tobacco related health, education, and prevention for fiscal years
2002 and 2003. However, for fiscal year 2003 the state decided to
eliminate the transfer of these funds from the Tobacco and Health Trust
Fund and will

credit any balance from this fund to the state*s general fund. Delaware
According to the terms of the MSA, Delaware receives 0. 40 percent of the
annual payments made by the tobacco companies. Delaware expects to

receive a total of $114, 670,000 from the MSA through fiscal year 2003.
This total consists of

 about $55,470,000 received as of April 2001;  $29,800,000 received for
fiscal year 2002; and  $29,400,000 expected to be received for fiscal
year 2003. Table 15 shows the program areas to which Delaware allocated
MSA funds for fiscal years 2000 and 2001, 2002, and 2003, and the types of
programs that received these funds.

Table 15: Delaware*s MSA Payment Allocations Types of programs Fiscal
years 2000

receiving funds, fiscal Program areas and 2001 Fiscal year 2002 Fiscal
year 2003

years 2002 and 2003

Budget shortfall a $0 $0 Economic development for

$0 0 0 tobacco regions and payment to tobacco growers

Education and social services 0 340,000 430,000 General purposes and

14, 935,000 188,300 192,300 reserves/ rainy day funds Health 14, 176,000
20, 500,000 24,300,000 Various health purposes

and deposits to the tobacco- fund Strategic Reserve b

Infrastructure 0 3, 900,000 0 Tax reduction 0 0 0 Tobacco control
2,833,000 4, 900,000 4,900,000 Unallocated 25, 000,000 0 0

Total $56,944,000 $29, 828,300 c $29,822,300 d

Source: Delaware Department of Health and Social Services. a We did not
obtain information on allocations for budget shortfalls in fiscal years
2000 and 2001.

b In fiscal year 2002, Delaware allocated $9.4 million to the tobacco-
fund Strategic Reserve. These funds are held in savings for future health-
related initiatives. The state allocated an additional $9.9 million to the
Strategic Reserve in fiscal year 2003. These funds cannot revert back to
the state for general use. c The difference in the amount received and the
amounts allocated for fiscal year 2002 is due

to rounding. d The difference in the amount received and the amounts
allocated for fiscal year 2003 is due to

rounding and the anticipation of $400,000 in carry- over funds from fiscal
year 2002 programs.

Delaware reported no changes in its decision- making framework for MSA
funds since fiscal year 2001.

Georgia According to the terms of the MSA, Georgia receives 2. 45 percent
of the annual payments made by the tobacco companies. Georgia expects to
receive a total of $712, 851,540 from the MSA through fiscal year 2003.
This total consists of

 about $353,121,000 received as of April 2001;  $184, 650,080 received
for fiscal year 2002; and  $175, 080,760 expected to be received for
fiscal year 2003. Table 16 shows the program areas to which Georgia
allocated MSA funds for fiscal years 2000 and 2001, 2002, and 2003, and
the types of programs that received these funds.

Table 16: Georgia*s MSA Payment Allocations Types of programs Fiscal years
2000 receiving funds, fiscal Program areas and 2001 Fiscal year 2002
Fiscal year 2003

years 2002 and 2003

Budget shortfall a $0 $0 Economic development for

$79,954,000 34, 131,677 65,430,712 OneGeorgia Authority tobacco regions
and payment to tobacco growers

Education and social services 0 7, 149,804 7,149,804 Home community- based
services to the elderly; early intervention for atrisk families

General purposes and 0 0 0 reserves/ rainy day funds Health 109,907,000
106, 647,690 85,255,966 Medicaid, Children*s

Health Insurance Program expansion, school nurses, public health programs,
Medicaid waiver programs, Georgia Cancer Coalition

Infrastructure 0 0 0

(Continued From Previous Page)

Types of programs Fiscal years 2000 receiving funds, fiscal Program areas
and 2001 Fiscal year 2002 Fiscal year 2003

years 2002 and 2003

Tax reduction 0 0 0 Tobacco control 15, 766,000 24, 715,890 15,165,890
Tobacco use prevention

program compliance/ enforcement for underage smoking Unallocated
139,905,000 0 0

Total $345,532,000 $172, 645,061 b $173,002,372 b

Source: Georgia Governor*s Office of Planning and Budget. a We did not
obtain information on allocations for budget shortfalls in fiscal years
2000 and 2001.

b Georgia allocated fiscal year 2001 MSA payments during fiscal year 2002
and allocated fiscal year 2002 payments during fiscal year 2003. Any
remaining MSA payments received in fiscal year 2002 that have not been
allocated for fiscal year 2003 will be appropriated through the fiscal
year 2003 Amended Budget.

Since fiscal year 2001, Georgia reported creating a special board* the
OneGeorgia Authority* to support local and regional economic development
efforts using MSA funds. The authority will use one- third of the state*s
MSA payments to assist in development efforts for the state*s most
economically challenged areas.

Hawaii According to the terms of the MSA, Hawaii receives 0.60 percent of
the annual payments made by the tobacco companies. Hawaii expects to

receive a total of $178, 680,180 from the MSA through fiscal year 2003.
This total consists of

 about $84,420,000 received as of April 2001;  $43,751,843 received for
fiscal year 2002; and  $50,508,337 expected to be received for fiscal
year 2003. Table 17 shows the program areas to which Hawaii allocated MSA
funds for fiscal years 2000 and 2001, 2002, and 2003, and the types of
programs that received these funds.

Table 17: Hawaii*s MSA Payment Allocations Types of programs Fiscal years
2000 receiving funds, fiscal Program areas and 2001 Fiscal year 2002
Fiscal year 2003

years 2002 and 2003

Budget shortfall a $0 $0 Economic development for

$0 0 0 tobacco regions and payment to tobacco growers

Education and social services 0 0 0 General purposes and

21,214,000 17, 710,737 12,638,793 Tobacco enforcement reserves/ rainy day
funds special fund of the

Attorney General*s Office for MSA enforcement, Emergency and Budget
Reserve Fund

Health 18,563,000 15, 190,645 17,555,418 Department of Health for public
health programs, Department of Human Services for Children*s Health
Insurance Program

Infrastructure 0 0 14,044,334 Debt service on bonds issued to the
University of Hawaii b

Tax reduction 0 0 0 Tobacco control 13,259,000 10, 850,461 6,269,792
Tobacco Prevention and

Control Trust Fund Unallocated 33,955,000 0 0

Total $86,991,000 $43, 751,843 $50,508,337

Source: Hawaii Department of Budget and Finance. a We did not obtain
information on allocations for budget shortfalls in fiscal years 2000 and
2001.

b Beginning in fiscal year 2003, 28 percent of Hawaii*s MSA payment will
be allocated to service the debt on the bond issued to fund the
construction of a new Health and Wellness Center, biomedical research
center, and medical school at the University of Hawaii.

During fiscal year 2001, Hawaii passed legislation affecting the state*s
use of MSA funds and established new goals for the funds. Specifically,
the state passed legislation changing the statutory allocations of MSA
funds in the following areas (1) decreasing the MSA payments allocated to
the

Emergency and Budget Reserve Fund by 15.5 percent, (2) decreasing the
allocation to the Tobacco Prevention and Control Trust Fund by 12. 5
percent, and (3) making a new allocation of 28 percent to the

University of Hawaii to pay debt service on bonds issued for the Medical
School. Hawaii also changed its requirements for use of MSA funds, which

will allow the Tobacco Prevention and Control Trust Fund to spend up to 50
percent of its total assets in any fiscal year for tobacco prevention and
control purposes.

Idaho According to the terms of the MSA, Idaho receives 0.36 percent of
the annual payments made by the tobacco companies. Idaho expects to
receive a total of $105,612,394 from the MSA through fiscal year 2003.
This total consists of

 about $52,262,000 received as of April 2001;  $26,397,202 received for
fiscal year 2002; and  $26,953,192 expected to be received for fiscal
year 2003. Table 18 shows the program areas to which Idaho allocated MSA
funds for fiscal years 2000 and 2001, 2002, and 2003, and the types of
programs that received these funds.

Table 18: Idaho*s MSA Payment Allocations Types of programs Fiscal years
2000 receiving funds, fiscal Program areas and 2001 Fiscal year 2002
Fiscal year 2003

years 2002 and 2003

Budget shortfall a $19, 335,604 $10,000,000 Economic development for

$0 0 0 tobacco regions and payment to tobacco growers

Education and social services 0 920,000 420,000 Youth courts to address
juvenile crime, youth asset building, status offender program for highrisk
youth, adolescent pregnancy prevention

General purposes and 0 0 0 reserves/ rainy day funds Health 0 830,000
1,891,400 Program to reduce county

deductible payments for health care for indigents with tobacco- related
diseases, cancer camp for children with cancer, planning funds for small
business health insurance

Infrastructure 0 0 0 Tax reduction 0 0 0 Tobacco control 2,305,000 1,
006,500 1,267,800 Tobacco counter

marketing, smoking prevention and cessation; tobacco free coalitions;
youth tobacco

investigations Unallocated 37,679,000 7, 061,598 16, 953,192 Deposit to
the Millennium

Trust Fund

Total $39,984,000 $29, 153,702 b $30,532, 392 b

Source: Idaho Division of Financial Management. a We did not obtain
information on allocations for budget shortfalls in fiscal years 2000 and
2001.

b The amounts allocated for fiscal years 2002 and 2003 include MSA
payments received in fiscal years 2002 and 2003 and the interest earned on
the Millennium Trust Fund.

Idaho reported changes in its decision- making framework for MSA funds
since fiscal year 2001. Through legislation, the state established the
Joint Millennium Fund Committee to make recommendations to the legislature
regarding the use of MSA allocations to the Millennium Trust Fund. Idaho
also increased the allocation of MSA funds into the state*s general fund,

transferring $19.3 million of fiscal year 2002 MSA payments and $10
million of the projected fiscal year 2003 MSA payments into the general
fund to cover budget shortfalls.

Illinois According to the terms of the MSA, Illinois receives 4.65 percent
of the annual payments made by the tobacco companies. Illinois expects to
receive a total of $1,277, 069,577 from the MSA through fiscal year 2003.
This total consists of

 about $669,603,000 received as of April 2001;  $312, 276,311 received
for fiscal year 2002; and  $295, 190,266 expected to be received for
fiscal year 2003. 2 Table 19 shows the program areas to which Illinois
allocated MSA funds for fiscal years 2000 and 2001, 2002, and 2003, and
the types of programs that received these funds.

2 This amount does not include $88,325,000 in additional tobacco
settlement payments that the state received as a result of the settlement
of a dispute with the outside attorneys who represented the state in MSA
negotiations. According to the state budget office, all of these funds
will be allocated in fiscal year 2003 to the state*s Medicaid program.

Table 19: Illinois* MSA Payment Allocations Types of programs Fiscal years
2000

receiving funds, fiscal Program areas and 2001 Fiscal year 2002 Fiscal
year 2003

years 2002 and 2003

Budget shortfall a $0 $0 Economic development for

$0 0 0 tobacco regions and payment to tobacco growers

Education and social services 1,800,000 2,500, 000 4,000,000 University of
Illinois Veterinary Research Grant, Information

campaign to let seniors know about the Pharmaceutical Assistance Program

General purposes and 147,246,000 5,636, 088 1,500,000 Marketing of
Illinois reserves/ rainy day funds Technology, Illinois

Technology Enterprise Corporation

Health 91, 650,000 160,032, 533 214,226,450 SeniorCare, Pharmaceutical
Assistance Program for

seniors, AIDS, Hepatitis C awareness, sickle cell research, academic
excellence centers, juvenile diabetes

Infrastructure 25, 000,000 21,933, 320 3,500,000 Statewide capital
maintenance projects, Argonne Rare Isotope Accelerator, Fermi National
Accelarator Lab, Peoria Oncology Center, University of Illinois Office of
Technology Transfer

Tax reduction 315,750,000 35,000, 000 90,500,000 Earned income tax credit,
property tax rebate for senior citizens

(Continued From Previous Page)

Types of programs Fiscal years 2000

receiving funds, fiscal Program areas and 2001 Fiscal year 2002 Fiscal
year 2003

years 2002 and 2003

Tobacco control 29, 550,000 47,904, 109 16,200,000 Local health
departments, teen tobacco prevention,

enforcement of tobacco laws, MSA enforcement

Unallocated 0 39,270, 261 0

Total $610,996,000 $312,276, 311 $329,926,450 b

Source: Illinois Bureau of the Budget. a We did not obtain information on
allocations for budget shortfalls in fiscal years 2000 and 2001.

b The amount allocated for fiscal year 2003 includes carry- over from
payments received in prior fiscal years.

Since fiscal year 2001, Illinois passed legislation that could potentially
alter the way the state uses its MSA funds. The legislation authorizes the
securitization of $750 million to be issued in bonds backed by tobacco

settlement payments for fiscal year 2003. The Governor has discretion to
determine whether to issue these bonds, the amount and timing of any bond
sales, and the repayment schedule, which cannot exceed 30 years. If bonds
are issued, the proceeds of any size issue must be used as follows: 50
percent will be placed in the General Revenue Fund to build the general

funds cash balance and to meet the ordinary and contingent expenses of the
state, and 50 percent will be placed in the Budget Stabilization Fund. The
same legislation also authorizes transfers of MSA funds, beginning in
fiscal year 2004, from the Tobacco Settlement Recovery Fund to the General
Revenue Fund to pay the principal and interest on any general obligation
bonds that are issued. No fiscal year 2003 tobacco payments can be used to
repay these bonds, even if the bonds are issued early in fiscal year 2003.
However, at the time of our survey, Illinois had not taken the steps to
securitize funds as allowed by the legislation.

Indiana According to the terms of the MSA, Indiana receives 2.04 percent
of the annual payments made by the tobacco companies. Indiana expects to
receive a total of $593, 465,000 from the MSA through fiscal year 2003.
This total consists of

 about $293,465,000 received as of April 2001,  $149, 200,000 received
for fiscal year 2002, and

 $150, 800,000 expected to be received for fiscal year 2003. Table 20
shows the program areas to which Indiana allocated MSA funds for fiscal
years 2000 and 2001, 2002, and 2003, and the types of programs that
received these funds.

Table 20: Indiana*s MSA Payment Allocations Types of programs Fiscal years
2000 receiving funds, fiscal Program areas and 2001 Fiscal year 2002
Fiscal year 2003

years 2002 and 2003

Budget shortfall a $0 $0 Economic development for

$0 5,000,000 5,000, 000 Tobacco farmers and rural tobacco regions and
payment to

community tobacco growers

Education and social services 0 16,400,000 33, 300, 000 Waiver programs,
residential services

General purposes and 0 0 0 reserves/ rainy day funds Health 86, 400,000
59,900,000 77, 600, 000 Children*s Health

Insurance Program, Prescription Drugs for Seniors, vaccines, health center

Infrastructure 10, 000,000 14,000,000 15, 000, 000 State Operated
Facilities, Health Centers Tax reduction 0 0 Tobacco control 35, 000,000
32,800,000 25, 000, 000 Prevention and cessation programs

Unallocated 159,093,000 124, 800, 000 b 65, 000, 000 Interest earned,
carry- over savings

Total $290,493,000 $252, 900, 000 c $220,900, 000 c

Source: Indiana State Budget Agency. a We did not obtain information on
allocations for budget shortfalls in fiscal years 2000 and 2001.

b Indiana made a transfer of $60 million in fiscal year 2002 MSA payments
to the state*s general fund. However, as of January 2003, the actual
transfer had not been completed. c The amounts allocated for fiscal years
2002 and 2003 include carry- over funds from prior years.

Indiana reported changes in its decision- making framework for MSA funds
since fiscal year 2001. Specifically, the state passed legislation
affecting its use of MSA funds by restricting the transfer of unspent
funds at the end of each fiscal year out of certain tobacco accounts back
to the Indiana Tobacco Master Settlement Agreement Fund, from which
allocations to

individual programs are made. These restricted tobacco accounts include
the Indiana Tobacco Prevention and Cessation Account and the Local Health
Department Trust Account. In addition to passing this legislation, Indiana
also authorized the transfer of $60 million in fiscal year 2002 MSA
payments to the state*s general fund. As of January 2003, however, the
actual transfer had not been completed.

Iowa According to the terms of the MSA, Iowa receives 0. 87 percent of the
annual payments made by the tobacco companies. Iowa expects to receive a
total of $251,735,506 from the MSA through fiscal year 2003. This total
consists of

 about $125,118,000 received as of April 2001;  $63,537,410 received for
fiscal year 2002; and  $63,080,096 expected to be received for fiscal
year 2003. Table 21 shows the program areas to which Iowa allocated MSA
funds for fiscal years 2000 and 2001, 2002, and 2003, and the types of
programs that received these funds.

Table 21: Iowa*s MSA Payment Allocations Types of programs Fiscal years
2000 receiving funds, fiscal Program areas and 2001 Fiscal year 2002
Fiscal year 2003

years 2002 and 2003

Budget shortfall a $0 $0 Economic development for

$0 0 0 tobacco regions and payment to tobacco growers

Education and social services 0 0 0 General purposes and

64, 600,000 0 0 reserves/ rainy day funds Health 45, 645,000 13,904, 202
13,877,621 Deposited into the

Endowment for Iowa*s Health fund Infrastructure 0 0 0 Tax reduction 0 0 0
Tobacco control 9,345,000 0 0

(Continued From Previous Page)

Types of programs Fiscal years 2000 receiving funds, fiscal Program areas
and 2001 Fiscal year 2002 Fiscal year 2003

years 2002 and 2003

Unallocated 3,461,000 0 0

Total $123,051,000 $13,904, 202 b $13,877,621 b

Source: Iowa Department of Management. a We did not obtain information on
allocations for budget shortfalls in fiscal years 2000 and 2001.

b The amount available for allocation to the 9 program areas was reduced
by $49,633,207 in fiscal year 2002 and $49,202,475 in fiscal year 2003
because these amounts were needed to service the debt on the bonds issued
when the state securitized a portion of its MSA payments in fiscal year
2002.

Iowa securitized a portion of its MSA payments in fiscal year 2002 and
received $579,596,212. The state pledged about 78 percent of its fiscal
years 2002 through 2027 MSA payments to service the debt on the bonds
issued to procure the securitized funds. Iowa allocated its securitized
proceeds to

two funds as follows:  $540, 045,010 to a tax- exempt restricted capital
fund for infrastructure

projects, and  $39,551,202 to the Endowment for Iowa*s Health fund, which
is to be used for future appropriations to health- related programs.

In addition to passing legislation during 2001 to securitize part of the
state*s MSA payments, Iowa also made a one- time transfer of $6 million in
fiscal year 2002 from a health programs fund to the state*s general fund.

Kansas According to the terms of the MSA, Kansas receives 0. 83 percent of
the annual payments made by the tobacco companies. Kansas expects to
receive a total of $236, 938,554 from the MSA through fiscal year 2003.
This total consists of  about $119,940,000 received as of April 2001; 
$60,998,554 received for fiscal year 2002; and  $56,000,000 expected to
be received for fiscal year 2003. Table 22 shows the program areas to
which Kansas allocated MSA funds for fiscal years 2000 and 2001, 2002, and
2003, and the types of programs that received these funds.

Table 22: Kansas* MSA Payment Allocations Types of programs Fiscal years
2000 receiving funds, fiscal Program areas and 2001 Fiscal year 2002
Fiscal year 2003

years 2002 and 2003

Budget shortfall a $0 $0 Economic development for

$0 0 0 tobacco regions and payment to tobacco growers

Education and social services 34, 962,000 37, 500,000 44, 436,626 Parent
education, 4- year old at risk, school violence prevention, reading and
vision research, juvenile justice

prevention and sanction grants, family centered systems of care,

therapeutic preschool, child care and child welfare community services,
Medicaid, smart start Kansas

General purposes and 91, 038,000 10, 000,000 5,528,860 State general fund
reserves/ rainy day funds Health 2, 000,000 2,000,000 Infants & Toddlers,

healthy start home visitor, pediatric biomedical research, tele- kid
health care link Infrastructure 0 0 0 Tax reduction 0 0 0 Tobacco control
500,000 500,000 500,000 Smoking prevention &

cessation Unallocated 0 10, 998,554 5,471,140 Funds allocated to the

Key trust fund b

Total $126,500,000 $60, 998,554 $57,936,626 c

Source: Kansas Division of the Budget. a We did not obtain information on
allocations for budget shortfalls in fiscal years 2000 and 2001.

b Unallocated funds include MSA payments allocated to the Key Fund, a
trust fund which is to be used in the future to provide earnings if MSA
payments are reduced or ceased. For fiscal year 2002, $50 million of the
MSA payments were allocated, leaving $10,998,554 in the Key Fund. For
fiscal year 2003, $5, 471,140 was allocated to the Key Fund.

c The amount allocated for fiscal year 2003 includes about $1.9 million
carried over from prior year payments.

Kansas reported an increase in its appropriations of MSA funds into the
state*s general fund since fiscal year 2001. Specifically, the state
transferred

about $11.5 million to the state*s general fund to finance an increase in
education base aid per pupil. Kentucky According to the terms of the MSA,
Kentucky receives 1.76 percent of the

annual payments made by the tobacco companies. Kentucky expects to receive
a total of $505, 405,390 from the MSA through fiscal year 2003. This total
consists of

 about $247,028,000 received as of April 2001;  $132, 777,390 received
for fiscal year 2002; and  $125, 600,000 expected to be received for
fiscal year 2003. Table 23 shows the program areas to which Kentucky
allocated MSA funds for fiscal years 2000 and 2001, 2002, and 2003, and
the types of programs that received these funds.

Table 23: Kentucky*s MSA Payment Allocations Types of programs Fiscal
years 2000 receiving funds, fiscal Program areas and 2001 Fiscal year 2002
Fiscal year 2003

years 2002 and 2003

Budget shortfall a $29, 735,233 $0 Economic development for

$124,000,000 54, 342,697 56,688,000 Governor*s Office for tobacco regions
and payment to

Agricultural Policy, Natural tobacco growers

Resources- Conservation Environmental Stewardship

Education and social services 97,500,000 13, 500,000 9,961,700 Families
and Children Early Childhood Development Program, Higher Education
Assistance Authority- Early Childhood Scholarship Program

General purposes and 0 0 0 reserves/ rainy day funds

(Continued From Previous Page)

Types of programs Fiscal years 2000 receiving funds, fiscal Program areas
and 2001 Fiscal year 2002 Fiscal year 2003

years 2002 and 2003

Health 21,473,000 27, 660,000 47,123,500 Health access nurturing
development services, folic acid distribution, healthy start, universal
children*s immunization, substance abuse services to Medicaid eligible

women with dependent children, universal newborn hearing testing, lung
cancer research program, Kentucky access

Infrastructure 0 2, 000,000 6,112,000 Debt service* Kentucky
Infrastructure Authoritywater resource development

Tax reduction 0 0 0 Tobacco control 5,027,000 5, 540,000 5,714,800 Smoking
cessation Unallocated 0 0 0

Total $248,000,000 $132, 777,930 $125,600,000

Source: Kentucky Governor*s Office for Policy Research. a We did not
obtain information on allocations for budget shortfalls in fiscal years
2000 and 2001.

Kentucky reported no changes in its decision- making framework for MSA
funds since fiscal year 2001.

Louisiana According to the terms of the MSA, Louisiana receives 2.26
percent of the annual payments made by the tobacco companies. Louisiana
expects to receive a total of $652, 693,424 from the MSA through fiscal
year 2003. This total consists of

 about $324,476,000 received as of April 2001;  $165, 021,020 received
for fiscal year 2002; and  $163, 196,404 expected to be received for
fiscal year 2003.

Table 24 shows the program areas to which Louisiana allocated MSA funds
for fiscal years 2000 and 2001, 2002, and 2003, and the types of programs
that received these funds.

Table 24: Louisiana*s MSA Payment Allocations Types of programs Fiscal
years 2000 receiving funds, fiscal Program areas and 2001 Fiscal year 2002
Fiscal year 2003

years 2002 and 2003

Budget shortfall a $0 $0 Economic development for

$0 0 0 tobacco regions and payment to tobacco growers

Education and social services 88,896,000 44, 305,854 45, 844,357 Local and
special schools, Tuition Opportunity Program, Education Excellence trust
fund

General purposes and 10,750,000 0 0 reserves/ rainy day funds Health
212,473,000 53, 051,828 48, 787,815 Children*s Health

Insurance Program, school- based health care centers, Medicaid, Health
Excellence trust fund

Infrastructure 9,930,000 0 0 Tax reduction 0 0 0 Tobacco control 1,680,000
0 342,074 Attorney General enforcement

Unallocated -229, 000 b 0 0

Total $323,500,000 $97, 357,682 c $94,974,246 c

Source: Louisiana Office of Planning and Budget, Division of
Administration. a We did not obtain information on allocations for budget
shortfalls in fiscal years 2000 and 2001.

b A negative unallocated amount represents an adjustment for over-
allocation of MSA payments in prior years. c The amount available for
allocation to the 9 program areas was reduced by $99,012,612 for fiscal
year

2002 and $97,900,000 for fiscal year 2003 because these amounts were
needed to service the debt on the bonds issued when the state securitized
a portion of its MSA payments in fiscal year 2002. In addition, the
amounts available for allocation in fiscal years 2002 and 2003 include
carry- over funds from the Louisiana Fund, the Education Excellence trust
fund, the Health Excellence trust fund, and the Tuition Opportunity
Program fund, as well as interest earned on the Millennium Trust Fund.

Louisiana securitized a portion of its MSA payments in fiscal year 2002
and received $1,069,510, 894. The state pledged 60 percent of its annual
MSA

payments from fiscal years 2001 through 2039 to service the debt on the
bonds issued to procure these securitized funds. In fiscal year 2002, the
state paid about $65.9 million to service the debt on the bonds and
deposited an additional $33 million in a trust fund for future payments.
In fiscal year 2003, the state paid about $77 million to service the debt
on the bonds, with an additional $20.8 million deposited into a trust fund
for future payments. According to the state budget office, Louisiana
allocated most of its securitized proceeds to education and health
programs. The state*s specific allocations for fiscal year 2002 were

 $304, 186,602 to the Education Excellence trust fund;  $304, 186,602 to
the Tuition Opportunity trust fund;  $106,951,089 to local and special
schools;  $304,186,602 to the Health Excellence trust fund;  $48,160,863
for Louisiana*s Children*s Health Insurance Program,

school- based health care centers, and Medicaid;  $1,489, 137 for the
Starting Points pre- school program; and  $350, 000 to the attorney
general*s office for enforcement of tobacco

control programs. In addition to securitizing a portion of its MSA
payments, Louisiana passed a ballot initiative that created the Tobacco
Settlement Financing Corporation. The purpose of this corporation is to
carry out the finance, purchase, ownership, and management of the assets
the state received as a result of its securitization of MSA payments.

Maine According to the terms of the MSA, Maine receives 0.77 percent of
the annual payments made by the tobacco companies. Maine expects to
receive a total of $222, 673,640 from the MSA through fiscal year 2003.
This total consists of

 about $110,686,000 received as of April 2001;  $56,317,761 received for
fiscal year 2002; and

 $55,669,879 expected to be received for fiscal year 2003. Table 25 shows
the program areas to which Maine allocated MSA funds for fiscal years 2000
and 2001, 2002, and 2003, and the types of programs that received these
funds.

Table 25: Maine*s MSA Payment Allocations Types of programs Fiscal years
2000 receiving funds, fiscal Program areas and 2001 Fiscal year 2002
Fiscal year 2003

years 2002 and 2003

Budget shortfall a $10,000, 000 $32,872,838 Economic development for

$0 0 0 tobacco regions and payment to tobacco growers

Education and social services 9,854,000 16,070, 241 15,142,600 Child care
and child development initiatives: infant, toddler and preschool child
care

subsidies, after- school services, year round Head Start, substance abuse
prevention, intervention, testing and treatment

General purposes and 971,000 49, 372 51, 840 Attorney General reserves/
rainy day funds enforcement and administration costs Health 78, 496,000
19,292, 539 19,087,362 Expand Medicaid to parents/ guardians up to

150 percent of the federal poverty levels, increase access to Cub Care and

infants under one, extend Medicaid coverage for pregnant women, and expand
oral health programs

Infrastructure 0 0 0 Tax reduction 0 0 0 Tobacco control 21, 826,000
11,890, 000 14,472,789 Community/ school

grants and statewide coordination to reduce tobacco addiction and

use, tobacco prevention, control and treatment

(Continued From Previous Page)

Types of programs Fiscal years 2000 receiving funds, fiscal Program areas
and 2001 Fiscal year 2002 Fiscal year 2003

years 2002 and 2003

Unallocated 1,321,000 0 0

Total $112,468,000 $57,302, 152 b $81,627,429 c

Source: Maine Department of Administrative and Financial Services, Bureau
of the Budget. a We did not obtain information on allocations for budget
shortfalls in fiscal years 2000 and 2001.

b The amount allocated for fiscal year 2002 includes carry- over funds
from MSA payments received in fiscal year 2001 and interest earned. c The
amount allocated for fiscal year 2003 includes approximately $25 million
in carry- over funds from MSA payments received in prior years and
interest earned.

Since fiscal year 2001, Maine reported passing legislation that changed
its decision- making framework for MSA funds. The legislation allowed the
balance in the Trust Fund for a Healthy Maine to be transferred to the
general fund in June 2001 for unappropriated surplus. This transfer of
about $11.1 million was included with the fiscal year 2001 budget, thereby

increasing the state*s appropriations of MSA funds into the general fund
for fiscal year 2001.

Maryland According to the terms of the MSA, Maryland receives 2.26 percent
of the annual payments made by the tobacco companies. Maryland expects to

receive a total of $654, 248,000 from the MSA through fiscal year 2003.
This total consists of

 about $325,210,000 received as of April 2001;  $164, 247,000 received
for fiscal year 2002; and  $164, 791,000 expected to be received for
fiscal year 2003. Table 26 shows the program areas to which Maryland
allocated MSA funds for fiscal years 2000 and 2001, 2002, and 2003, and
the types of programs that received these funds.

Table 26: Maryland*s MSA Payment Allocations Types of programs Fiscal
years 2000 receiving funds, fiscal Program areas and 2001 Fiscal year 2002
Fiscal year 2003

years 2002 and 2003

Budget shortfall a $0 $2, 450, 000 Economic development for

$11,500,000 6,292,000 6,291, 000 Crop Conversion tobacco regions and
payment to and tobacco buy- out: the tobacco growers

state pays farmers not to grow tobacco for human consumption; 75 percent
for payment to tobacco

growers and 25 percent for economic development

Education and social services 53,800,000 60,098,000 32, 960, 000 Drug
addiction General purposes and

81,758,000 30,100,000 43, 130, 000 State legal expenses reserves/ rainy
day funds and outside counsel

Health 175,400,000 35,577,000 151,544, 000 Medicaid, cancer research and
prevention, Maryland Health Care

Foundation Infrastructure 0 0 0 Tax reduction 0 0 0 Tobacco control
18,100,000 16,914,000 31, 363, 000 Unallocated -11, 200,000 b 160,256,000
26, 404, 000 Includes money paid into escrow account for legal

services as a result of MSA and carry- over funds

Total $329,358,000 309,237,000 c 294,142, 000 d

Source: Maryland Department of Budget and Management. a We did not obtain
information on allocations for budget shortfalls in fiscal years 2000 and
2001.

b A negative unallocated amount represents an adjustment for over-
allocation of MSA payments in prior years. c The amount allocated for
fiscal year 2002 includes carry- over funds from fiscal year 2001,
interest

earned, a refund from the Internal Revenue Service, and a $93,075,478
disbursement from a joint escrow account pursuant to settlement of a legal
dispute between the state and its outside attorneys. d The amount
allocated for fiscal year 2003 includes carry- over funds from fiscal year
2002 (including

the transfer from the state*s escrow account), interest earned, a payment
from the National Arbitration Panel for outside attorney fees, and a
payment pursuant to the settlement agreement with the outside counsel.

Maryland reported changes in its decision- making framework for MSA funds
since fiscal year 2001. Since it began receiving MSA payments, Maryland
has been depositing 25 percent of its payments to a joint escrow

account because of a court order and legal dispute with the state*s
outside counsel. In April 2002, a settlement was reached between the state
and its legal counsel resolving all disputes, and pursuant to that
settlement, funds in the joint escrow account were disbursed to the legal
counsel ($ 30,000,000) and to the state ($ 93, 075,478). Maryland*s 2002
General Assembly passed legislation that provided for the appropriation of
the state*s portion of these escrow funds in fiscal year 2003. This
legislation also required that 25 percent of the state*s MSA payments for
fiscal years 2003 through 2006 would be appropriated to the Maryland
Medical Assistance Program, which is the state*s Medicaid program.

Massachusetts According to the terms of the MSA, Massachusetts receives
4.04 percent of the annual payments made by the tobacco companies.
Massachusetts expects to receive a total of $1, 159, 126,000 from the MSA
through fiscal year 2003. This total consists of

 about $566,526,000 received as of April 2001;  $304, 500,000 received
for fiscal year 2002; and  $288, 100,000 expected to be received for
fiscal year 2003. Table 27 shows the program areas to which Massachusetts
allocated MSA funds for fiscal years 2000 and 2001, 2002, and 2003, and
the types of programs that received these funds.

Table 27: Massachusetts* MSA Payment Allocations Types of programs Fiscal
years 2000

receiving funds, fiscal Program areas and 2001 Fiscal year 2002 Fiscal
year 2003

years 2002 and 2003

Budget shortfall a $0 $162,000,000 Economic development for

$0 0 0 tobacco regions and payment to tobacco growers

Education and social services 0 11, 900,000 15, 000,000 Home care for
elders, adult community placements

General purposes and 0 0 0 reserves/ rainy day funds Health 544,647,000
273, 800,000 b 134,200,000 Health insurance benefits

for individuals with HIV, grants to distressed hospitals, prescription
drug insurance for elders, Hepatitis C research and

screening, school health, Health Care Security Trust Fund

Infrastructure 27, 138,000 0 0 Tax reduction 0 0 0 Tobacco control 31,
260,000 6, 800,000 3,300,000 Smoking cessation

programs Unallocated 0 48, 600,000 38, 400,000

Total $603,045,000 $341, 100,000 c $352,900,000 c

Source: Massachusetts Fiscal Affairs Division. a We did not obtain
information on allocations for budget shortfalls in fiscal years 2000 and
2001.

b In fiscal year 2002, Massachusetts deposited $152.3 million (about half
of the total MSA payment) in the Health Care Security Trust Fund. c The
amounts allocated for fiscal years 2002 and 2003 include carry- over
funds, investment revenue, and federal reimbursement for tobacco
expenditures.

Massachusetts reported changes in its decision- making framework for MSA
funds since fiscal year 2001. The state passed legislation that resulted
in increased appropriations of MSA funds to the state*s general fund for
fiscal years 2001, 2002, and 2003. In fiscal year 2001, the legislation
appropriated 30 percent of the state*s MSA payment to the general fund; in
fiscal year

2002, it increased the amount appropriated to the general fund to 50
percent and, in fiscal year 2003, appropriated all of the state*s MSA
payment to the general fund.

Michigan According to the terms of the MSA, Michigan receives 4.35 percent
of the annual payments made by the tobacco companies. Michigan expects to
receive a total of $1,267, 224,000 from the MSA through fiscal year 2003.

This total consists of  about $610,424,000 received as of April 2001; 
$328, 200,000 received for fiscal year 2002; and  $328, 600,000 expected
to be received for fiscal year 2003. Table 28 shows the program areas to
which Michigan allocated MSA funds for fiscal years 2000 and 2001, 2002,
and 2003, and the types of programs that received these funds.

Table 28: Michigan*s MSA Payment Allocations Types of programs Fiscal
years 2000 receiving funds, fiscal Program areas and 2001 Fiscal year 2002
Fiscal year 2003

years 2002 and 2003

Budget shortfall a $159,000,000 $100, 000, 000 Economic development for

$0 0 0 tobacco regions and payment to tobacco growers

Education and social services 366,700,000 148,500,000 145, 500, 000 Merit
Award scholarships and tuition incentive grants for higher education
students, Michigan Educational Assessment Program

testing for K- 12 students, post secondary scholarships, nursing
scholarships, Michigan Education Savings Plan

General purposes and 0 0 400,000 Attorney General reserves/ rainy day
funds enforcement expenses

(Continued From Previous Page)

Types of programs Fiscal years 2000 receiving funds, fiscal Program areas
and 2001 Fiscal year 2002 Fiscal year 2003

years 2002 and 2003

Health 177,700,000 135,600,000 119, 800, 000 Elder pharmaceutical
assistance, Medicaid personal needs allowance, long term care advisor,
respite care, indigent medical programs, Medicaid support, biomedical

research and development, health promotion programs for seniors
Infrastructure 0 0 0 Tax reduction 0 0 0 Tobacco control 0 2,000,000 2,
000,000 Education and cessation

programs for youth and senior populations Unallocated 90,900,000 47,
600,000 13, 600, 000 Merit Award Trust Fund

and the Tobacco Settlement Trust Fund balances

Total $635,300,000 $492,700, 000 b $381, 300,000 b

Source: Michigan Budget Development and General Government Division, State
Budget Office. a We did not obtain information on allocations for budget
shortfalls in fiscal years 2000 and 2001.

b The amounts allocated for fiscal years 2002 and 2003 include carry- over
funds and interest earned.

Michigan reported changes in its decision- making framework for MSA funds
since fiscal year 2001. First, the state changed its appropriation of MSA
funds into the general fund. While there were no funds transferred to the
general fund in fiscal year 2001, the state transferred $159 million in
fiscal year 2002 and $100 million in fiscal year 2003 to cover budget
shortfalls. Additionally, beginning in fiscal year 2002, Michigan law
required that 75 percent of MSA payments be deposited in a Merit Award
Trust Fund

and 25 percent in a Tobacco Settlement Trust Fund. However, according to
state budget officials, this requirement has no impact on how the
legislature makes appropriation decisions from each of the funds.

Missouri According to the terms of the MSA, Missouri receives 2. 27
percent of the annual payments made by the tobacco companies. Missouri
expects to receive a total of $674, 900,000 from the MSA through fiscal
year 2003. This total consists of  about $338,200,000 received through
the end of fiscal year 2001; 3  $172, 700,000 received for fiscal year
2002; and  $164, 000,000 expected to be received for fiscal year 2003.
Table 29 shows the program areas to which Missouri allocated MSA funds for
fiscal years 2000 and 2001, 2002, and 2003, and the types of programs that
received these funds.

Table 29: Missouri*s MSA Payment Allocations Types of programs Fiscal
years 2000 receiving funds, fiscal Program areas and 2001 Fiscal year 2002
Fiscal year 2003

years 2002 and 2003

Budget shortfall a $139,100, 000 $89,400,000 Economic development for

$0 0 0 tobacco regions and payment to tobacco growers

Education and social services 0 9,700, 000 0 Early childhood education
programs such as Parents as Teachers

General purposes and 0 2,500, 000 2,500,000 Administrative costs reserves/
rainy day funds Health 0 232,200, 000 74, 200,000 Prescription drugs for

seniors, lead screening, Medicaid, graduate medical education, federally
qualified health centers, Telemedicine, lead screening

Infrastructure 0 0 0

3 Missouri did not receive state specific finality until late April 2001,
so its total payments were not included in the total payments received
through April 2001 in our June 2001 report. The payments received for
fiscal year 2001 are as of the end of the fiscal year.

(Continued From Previous Page)

Types of programs Fiscal years 2000 receiving funds, fiscal Program areas
and 2001 Fiscal year 2002 Fiscal year 2003

years 2002 and 2003

Tax reduction 0 0 0 Tobacco control 0 900, 000 500,000 Unallocated 0 0 0

Total $0 $384,400, 000 b $166,600,000 b

Source: Missouri Division of Budget and Planning. a We did not obtain
information on allocations for budget shortfalls in fiscal years 2000 and
2001.

b The amounts allocated for fiscal years 2002 and 2003 include carry- over
funds from payments received in prior fiscal years.

At the time of our study, Missouri was considering securitizing a portion
of its MSA payments for fiscal year 2003. According to the Missouri
Division of Budget and Planning, the state is authorized to securitize up
to 30 percent of its future stream of tobacco payments. However, as of
January 2003, the state had not securitized any of its MSA payments,
although the Governor had recently suggested the securitization of about
$350 million in fiscal year 2003 rather than the $50 million the General
Assembly originally estimated that the state would receive. However, to
procure the $350 million in proceeds, Missouri is considering the issuance
of a hybrid tobacco bond instead of securitizing its MSA payments.
According to the budget director, such a hybrid approach would use a
revenue pledge* such as a general revenue appropriation* as a means of
capturing lower interest costs. This would help reduce the cost of the
bonds and would allow the state to fall back on general revenues if future
MSA payments became insufficient to pay the bonds.

In addition to passing legislation authorizing the securitization of up to
30 percent of its total MSA payments, Missouri established the (1) Tobacco
Settlement Financing Authority to implement the state*s securitization

process and (2) Advisory Committee on Tobacco Securitization to make
recommendations on projects and programs that should be funded with the
state*s securitized proceeds.

Montana According to the terms of the MSA, Montana receives 0. 42 percent
of the annual payments made by the tobacco companies. Montana expects to
receive a total of $123, 794,018 from the MSA through fiscal year 2003.
This total consists of

 about $61,110,000 received as of April 2001;  $31,079,018 received for
fiscal year 2002; and  $31,605,000 expected to be received for fiscal
year 2003. Table 30 shows the program areas to which Montana allocated MSA
funds for fiscal years 2000 and 2001, 2002, and 2003, and the types of
programs that received these funds.

Table 30: Montana*s MSA Payment Allocations Types of programs Fiscal years
2000 receiving funds, fiscal Program areas and 2001 Fiscal year 2002
Fiscal year 2003

years 2002 and 2003

Budget shortfall a $0 $0 Economic development for

$0 0 0 tobacco regions and payment to tobacco growers

Education and social services 1,600,000 0 0 General purposes and

42,333,000 18, 147,411 18,463,000 reserves/ rainy day funds Health
10,000,000 12, 431,607 12,642,000 Deposited in a trust fund where the
proceeds are restricted for new or expanded health costs

and tobacco control b Infrastructure 0 0 0 Tax reduction 0 0 0 Tobacco
control 7,000,000 500,000c 500,000 c Unallocated 0 0 0

Total $60,933,000 $31, 079,018 $31,605,000

Source: Montana Office of Budget and Program Planning. a We did not obtain
information on allocations for budget shortfalls in fiscal years 2000 and
2001.

b Allocations from the trust fund are directed to the Children*s Health
Insurance Program and its related Medicaid costs, youth challenge and
intensive military style confidence building programs for school dropouts,
and tobacco prevention. c With the passage of legislation establishing the
state*s trust fund, the general fund for tobacco

prevention was reduced from $3. 5 million to $500,000 per year. Tobacco
control programs also receive some additional funds from the state*s trust
fund.

Montana reported no changes in its decision- making framework for MSA
funds since fiscal year 2001.

Nebraska According to the terms of the MSA, Nebraska receives 0. 59
percent of the annual payments made by the tobacco companies. Nebraska
expects to receive a total of $172, 393,266 from the MSA through fiscal
year 2003. This total consists of

 about $85,600,000 received as of April 2001;  $42,543,266 received for
fiscal year 2002; and  $44,250,000 expected to be received for fiscal
year 2003. Table 31 shows the program areas to which Nebraska allocated
MSA funds for fiscal years 2000 and 2001, 2002, and 2003, and the types of
programs that received these funds.

Table 31: Nebraska*s MSA Payment Allocations Types of programs Fiscal
years 2000 receiving funds, fiscal Program areas and 2001 Fiscal year 2002
Fiscal year 2003

years 2002 and 2003

Budget shortfall a $0 $0 Economic development for

$0 0 0 tobacco regions and payment to tobacco growers

Education and social services 0 0 0 General purposes and

0 0 0 reserves/ rainy day funds Health 56,820,000 18, 814,000 21, 461,475
Behavioral health, public

health, biomedical research, communitybased developmental disability
services

Infrastructure 0 0 0 Tax reduction 0 0 0

(Continued From Previous Page)

Types of programs Fiscal years 2000 receiving funds, fiscal Program areas
and 2001 Fiscal year 2002 Fiscal year 2003

years 2002 and 2003

Tobacco control 14,000,000 7, 000,000 7,000,000 Tobacco quit line, teen
tobacco education project, media campaign, youth access enforcement,
community- oriented program grants

Unallocated b 0 16, 728,266 15, 788,525

Total $70,820,000 $42, 542,266 $44,250,000

Source: Nebraska Department of Administrative Services, Budget Division. a
We did not obtain information on allocations for budget shortfalls in
fiscal years 2000 and 2001.

b Unallocated funds also include MSA payments deposited to the Tobacco
Settlement Trust Fund, which is the state*s endowment fund. For fiscal
years 2002 and 2003, $15,453,266 of MSA payments will be invested in the
Tobacco Settlement Trust Fund. According to the state budget office, funds
in the Tobacco Settlement Trust Fund are not authorized for expenditure.

Since fiscal year 2001, Nebraska passed legislation affecting the state*s
use of MSA funds. The state*s legislature established an endowment
investment strategy for the purpose of creating an annual transfer of MSA
funds from the Tobacco Settlement Trust Fund to the Nebraska Health Care
Cash Fund; these funds are to be used for health care priorities.

Nevada According to the terms of the MSA, Nevada receives 0.61 percent of
the annual payments made by the tobacco companies. Nevada expects to

receive a total of $176, 513,731 from the MSA through fiscal year 2003.
This total consists of

 about $87,751,000 received as of April 2001;  $44,628,083 received for
fiscal year 2002; and  $44,134,648 expected to be received for fiscal
year 2003. Table 32 shows the program areas to which Nevada allocated MSA
funds for fiscal years 2000 and 2001, 2002, and 2003, and the types of
programs that received these funds.

Table 32: Nevada*s MSA Payment Allocations Types of programs Fiscal years
2000 receiving funds, fiscal Program areas and 2001 Fiscal year 2002
Fiscal year 2003

years 2002 and 2003

Budget shortfall a $0 $0 Economic development for

$0 0 0 tobacco regions and payment to tobacco growers

Education and social services 44,383,000 24,178, 014 26,213,005
Scholarship program for students who attend and graduate from a Nevada
Higher Education Institute, grants that assist senior citizens to live
independent of care

facilities, support senior services, a homemaker program General purposes
and reserves/

0 238, 501 251,825 Support Attorney rainy day funds General*s Office
administration expenses Health 28,243,000 16,179, 926 13,471,469 Grants to
improve health services for persons with

disabilities, pay for prescription drugs and pharmaceuticals supplies for
low- income seniors, an endowment fund that

expends interest earnings only to provide grants for the promotion of
public health Infrastructure 0 0 0 Tax reduction 0 0 0 Tobacco control
8,070,000 5,512, 344 4,795,918 Grants provided to organizations to help
fund

tobacco cessation programs

Unallocated 0 0 0

Total $80,696,000 $46,108, 785 b $44,732,217 b

Source: Nevada Department of Administration, Budget Office. a We did not
obtain information on allocations for budget shortfalls in fiscal years
2000 and 2001.

b The amounts allocated for fiscal years 2002 and 2003 include carry- over
funds and interest earned.

Nevada reported changes in its decision- making framework for MSA funds
since fiscal year 2001. The state passed legislation allowing for the

appropriation of MSA funds to support the Attorney General*s Office
administration and senior service programs. The state also changed the
percentage of MSA funds that can be used to administer the Healthy

Nevada Fund and appropriated a portion of the interest earnings from the
Public Health Trust Fund, which is dependent on MSA funds, to fund nursing
loans.

New Hampshire According to the terms of the MSA, New Hampshire receives
0.67 percent of the annual payments made by the tobacco companies. New
Hampshire expects to receive a total of $191, 932, 000 from the MSA
through fiscal year 2003. This total consists of

 about $95,807,000 received as of April 2001;  $48,725,000 received for
fiscal year 2002; and  $47,400,000 expected to be received for fiscal
year 2003. Table 33 shows the program areas to which New Hampshire
allocated MSA funds for fiscal years 2000 and 2001, 2002, and 2003, and
the types of programs that received these funds.

Table 33: New Hampshire*s MSA Payment Allocations Types of programs Fiscal
years 2000 receiving funds, fiscal Program areas and 2001 Fiscal year 2002
Fiscal year 2003

years 2002 and 2003

Budget shortfall a $0 $0 Economic development for

$0 0 0 tobacco regions and payment to tobacco growers

Education and social services 91,548,000 40, 000,000 40, 000,000 To
support the education trust fund

General purposes and 442,000 4, 000,000 4,400,000 To the overall general
fund reserves/ rainy day funds Health 0 0 0

Infrastructure 0 0 0 Tax reduction 0 0 0 Tobacco control 3,000,000 3,
000,000 3,000,000 Tobacco use prevention Unallocated 0 0 0

Total $94,990,000 $47, 000,000 b $47,400,000

Source: New Hampshire Legislative Budget Assistant*s Office. a We did not
obtain information on allocations for budget shortfalls in fiscal years
2000 and 2001.

b The amount allocated for fiscal year 2002 is $1.725 million less than
the amount received because, according to the state*s Budget Office, the
state had developed a conservative budget for the year.

New Hampshire reported increasing the state*s appropriation of MSA funds
into the general fund since fiscal year 2001. For example, from fiscal
year 2002 to fiscal year 2003, the state increased MSA appropriations to
the general fund by $400,000.

New Jersey According to the terms of the MSA, New Jersey receives 3.87
percent of the annual payments made by the tobacco companies. New Jersey
expects to receive a total of $1,116, 800,000 from the MSA through fiscal
year 2003. This total consists of

 about $557,730,000 received as of April 2001;  $283, 872,000 received
for fiscal year 2002; and  $275, 198,000 expected to be received for
fiscal year 2003.

Table 34 shows the program areas to which New Jersey allocated MSA funds
for fiscal years 2000 and 2001, 2002, and 2003, and the types of programs
that received these funds.

Table 34: New Jersey*s MSA Payment Allocations Types of programs Fiscal
years 2000 receiving funds, fiscal Program areas and 2001 Fiscal year 2002
Fiscal year 2003

years 2002 and 2003

Budget shortfall a $0 $0 Economic development for

$0 0 0 tobacco regions and payment to tobacco growers

Education and social services 53,268,000 0 0 General purposes and

42,000,000 0 0 reserves/ rainy day funds Health 396,367,000 264,751, 000
271,706,000 NJ Family Care,

Supplemental Charity Care, New and Expanded Community Options for Seniors,
senior pharmaceutical assistance, expanded cancer initiatives, Cancer

Institute of New Jersey, Garden State Cancer Center, medical services

Infrastructure 11,900,000 70,453, 000 5,000,000 Cancer Institute of New
Jersey and education facilities construction Tax reduction 0 0 0 Tobacco
control 48,562,000 30,000, 000 0 Youth Anti- Tobacco

Awareness Media Campaign, Smoking Cessation Programs for Addicted Adults
and Youth, Research, surveillance, evaluation and assistance for
antismoking

programs, school- based programs for the prevention of tobacco use and
community- based tobacco control programs

Unallocated 0 0 0

(Continued From Previous Page)

Types of programs Fiscal years 2000 receiving funds, fiscal Program areas
and 2001 Fiscal year 2002 Fiscal year 2003

years 2002 and 2003 Total $552,097,000 $365,204, 000 b $276,706,000 c

Source: New Jersey Office of Management and Budget, Department of the
Treasury. a We did not obtain information on allocations for budget
shortfalls in fiscal years 2000 and 2001.

b The amount allocated for fiscal year 2002 includes carry- over funds
from prior years. c The amount allocated for fiscal year 2003 includes
interest earned.

New Jersey securitized a portion of its MSA payments and received proceeds
of $1, 488,141, 494 in fiscal year 2003. The state pledged 50 percent of
its MSA payments beginning in fiscal year 2004 to service the debt on the
bonds issued to procure these securitized proceeds. New Jersey*s
allocations of its securitized proceeds for fiscal year 2003 were the

following:  $691,264,082 for infrastructure, including grants to public
schools for

capital spending, public health and environment laboratories, and various
transportation system improvements;

 $216, 304,321 for general purposes including information technology; 
$133,999,764 to cover a budget shortfall;  $33,431,833 for social
services; and  $413, 000,000 unallocated for fiscal year 2003. Other than
its securitization of its MSA payments beginning in fiscal year 2004, New
Jersey reported no other changes in its decision- making framework for MSA
funds since fiscal year 2001.

New Mexico According to the terms of the MSA, New Mexico receives 0.60
percent of the annual payments made by the tobacco companies. New Mexico
expects

to receive a total of $172, 302, 000 from the MSA through fiscal year
2003. This total consists of

 about $85,802,000 received as of April 2001;  $43,600,000 received for
fiscal year 2002; and

 $42,900,000 expected to be received for fiscal year 2003. Table 35 shows
the program areas to which New Mexico allocated MSA funds for fiscal years
2000 and 2001, 2002, and 2003, and the types of programs that received
these funds.

Table 35: New Mexico*s MSA Payment Allocations Types of programs Fiscal
years 2000

receiving funds, fiscal Program areas and 2001 Fiscal year 2002 Fiscal
year 2003

years 2002 and 2003

Budget shortfall a $0 $0 Economic development for

$0 0 0 tobacco regions and payment to tobacco growers

Education and social services 0 0 0 General purposes and

60, 929,000 18, 700,000 21,800,000 Permanent fund b reserves/ rainy day
funds Health 19, 525,000 6, 220,000 19,498,000 Lung and tobacco illness

research, diabetes prevention and control, HIV services and medication,
Mobile Prenatal/ Primary Care Clinics, genomics and environmental
research, base Medicaid funding, breast and cervical cancer,
defibrillators, link access information

Infrastructure 0 0 0 Tax reduction 0 0 0

(Continued From Previous Page)

Types of programs Fiscal years 2000

receiving funds, fiscal Program areas and 2001 Fiscal year 2002 Fiscal
year 2003

years 2002 and 2003

Tobacco control 2,225,000 5, 000,000 5,900,000 Tobacco cessation and
prevention programs and youth nonsmoking

Unallocated 2,654,000 7, 480,000 0

Total $85,333,000 $37, 400,000 c $47, 198, 000 d

Source: New Mexico Department of Finance and Administration. a We did not
obtain information on allocations for budget shortfalls in fiscal years
2000 and 2001.

b MSA deposits to the permanent fund are not available for expenditure and
only the interest earned may be appropriated in future years. c The amount
allocated for fiscal year 2002 includes MSA payments received in fiscal
year 2001,

totaling $37.4 million. d The amount allocated for fiscal year 2003
includes MSA payments received in fiscal year 2002 and

includes carry- over funds from prior years.

New Mexico reported increasing the state*s appropriation of MSA funds to
the general fund since fiscal year 2001. For example, the state increased
the general fund appropriations by $7.6 million during fiscal year 2003.
These funds will be used to cover base Medicaid funding.

New York According to the terms of the MSA, New York receives 12. 76
percent of the annual payments made by the tobacco companies. New York
expects to receive a total of $1,550, 845,185 from the MSA through fiscal
year 2003. This total consists of

 about $651,845,135 received as of April 2001;  $399, 000,000 received
for fiscal year 2002; and  $500, 000,000 expected to be received for
fiscal year 2003. 4

4 These MSA payments include only payments made to the state, which amount
to about 51 percent of the annual payments made by the tobacco companies
to New York. New York City and the 57 counties in the state receive the
other 49 percent of the annual MSA payments to New York. In addition, the
$651. 8 million received through April 2001 does not include $261 million
that New York received in April 2001. Because New York*s fiscal year 2002
began on April 1, 2001, this $261 million is included in the $399 million
New York received during fiscal year 2002.

Table 36 shows the program areas to which New York allocated MSA funds for
fiscal years 2000 and 2001, 2002, and 2003, and the types of programs that
received these funds.

Table 36: New York*s MSA Payment Allocations Types of programs Fiscal
years 2000 receiving funds, fiscal Program areas and 2001 Fiscal year 2002
Fiscal year 2003

years 2002 and 2003

Budget shortfall a $0 $0 Economic development for

$0 0 0 tobacco regions and payment to tobacco growers

Education and social services 0 0 0 General purposes and

250,000,000 0 0 reserves/ rainy day funds Health 388,000,000 359,000, 000
460,000,000 Medicaid, indigent care,

elderly pharmaceutical program, Family Health Plus, health insurance for
the uninsured, breast and cervical cancer treatment and similar programs

Infrastructure 0 0 0 Tax reduction 0 0 0 Tobacco control 30,000,000
40,000, 000 40,000,000 Tobacco control and prevention activities

Unallocated 0 0 0

Total $668,000,000 $399,000, 000 $500,000,000

Source: New York Division of the Budget. a We did not obtain information
on allocations for budget shortfalls in fiscal years 2000 and 2001.

Since fiscal year 2001, New York enacted legislation to strengthen the
enforcement of the MSA. This legislation changed the state*s tax law to
ensure that nonparticipating tobacco manufacturers abide by the escrow
provisions of the MSA. The legislation also requires cigarette tax
stamping agents in the state to follow strict guidelines to ensure that

nonparticipating tobacco manufacturers are abiding by the excise
requirements of the MSA.

North Carolina According to the terms of the MSA, North Carolina receives
2.33 percent of the annual payments made by the tobacco companies. North
Carolina

expects to receive a total of $680, 834, 882 from the MSA through fiscal
year 2003. This total consists of

 about $327,137,000 received as of April 2001;  $175, 835,882 received
for fiscal year 2002; and  $177, 862,000 expected to be received for
fiscal year 2003. Table 37 shows the program areas to which North Carolina
allocated MSA funds for fiscal years 2000 and 2001, 2002, and 2003, and
the types of programs that received these funds.

Table 37: North Carolina*s MSA Payment Allocations Types of programs
Fiscal years 2000 receiving funds, fiscal Program areas and 2001 Fiscal
year 2002 Fiscal year 2003

years 2002 and 2003

Budget shortfall a $64,009, 022 $78,000,000 Economic development for

$252,695,000 87,917, 941 99,862,000 Tobacco Trust Fund tobacco regions and
payment to tobacco growers

Education and social services 0 0 0 General purposes and

0 0 0 reserves/ rainy day funds Health 84, 232,000 11,954, 459 0 Health
and wellness

Infrastructure 0 0 0 Tax reduction 0 0 0 Tobacco control 0 0 0 Unallocated
0 0 0

Total $336,927,000 $175,835, 881 $177,862,000

Source: North Carolina Office of State Budget and Management. a We did not
obtain information on allocations for budget shortfalls in fiscal years
2000 and 2001.

North Carolina reported increasing its appropriation of MSA funds to the
general fund since fiscal year 2001. The state increased the
appropriations by $78 million. At this time, the increase has been
approved only for fiscal year 2003 and will be used to offset Medicaid
costs.

North Dakota According to the terms of the MSA, North Dakota receives 0.37
percent of the annual payments made by the tobacco companies. North Dakota

expects to receive a total of $105, 975, 153 from the MSA through fiscal
year 2003. This total consists of

 about $52,658,000 received as of April 2001;  $26,780,712 received for
fiscal year 2002; and  $26,536,441 expected to be received for fiscal
year 2003. Table 38 shows the program areas to which North Dakota
allocated MSA funds for fiscal years 2000 and 2001, 2002, and 2003, and
the types of programs that received these funds.

Table 38: North Dakota*s MSA Payment Allocations Types of programs Fiscal
years 2000 receiving funds, fiscal Program areas and 2001 Fiscal year 2002
Fiscal year 2003

years 2002 and 2003

Budget shortfall a $0 $0 Economic development for

$0 0 0 tobacco regions and payment to tobacco growers

Education and social services 23, 483,000 12, 051,320 11, 941,399 45
percent of MSA payments are set aside for the Common Schools Trust Fund*
allocated but not spent

General purposes and 0 0 0 reserves/ rainy day funds Health 5,218,000
322,378 322,378 Dental loan fund, breast and cervical cancer

program Infrastructure 23, 483,000 12, 249,147 12, 249,147 Water
development

projects Tax reduction 0 0 0

(Continued From Previous Page)

Types of programs Fiscal years 2000 receiving funds, fiscal Program areas
and 2001 Fiscal year 2002 Fiscal year 2003

years 2002 and 2003

Tobacco control 0 2, 350,000 2,350,000 Tobacco Cessation Program

Unallocated 0 0 0

Total $52,184,000 $26, 972,845 b $26,862, 924 b

Source: North Dakota Office of Management and Budget. a We did not obtain
information on allocations for budget shortfalls in fiscal years 2000 and
2001.

b The amounts allocated for fiscal years 2002 and 2003 include interest
earned.

North Dakota reported no changes in its decision- making framework for MSA
funds since fiscal year 2001.

Ohio According to the terms of the MSA, Ohio receives 5. 04 percent of the
annual payments made by the tobacco companies. Ohio expects to receive a
total of $1,466,029,515 from the MSA through fiscal year 2003. This total
consists of

 about $724,742,000 received as of April 2001;  $368, 587,515 received
for fiscal year 2002; and  $372, 700,000 expected to be received for
fiscal year 2003. Table 39 shows the program areas to which Ohio allocated
MSA funds for fiscal years 2000 and 2001, 2002, and 2003, and the types of
programs that received these funds.

Table 39: Ohio*s MSA Payment Allocations Types of programs Fiscal years
2000 receiving funds, fiscal Program areas and 2001 Fiscal year 2002
Fiscal year 2003

years 2002 and 2003

Budget shortfall a $289, 578,188 $282,858,890 Economic development for

$22,189,000 18, 595,425 16, 605,356 Indemnification payments tobacco
regions and payment to tobacco growers

Education and social services 13, 759,000 19, 063,156 18, 819,419
SchoolNet: support for education technology in local school districts,
alcohol and drug addiction

services General purposes and

20, 005,000 1, 109,239 770,695 Taxation* settlement reserves/ rainy day
funds enforcement, Attorney General* oversight

administration Health 15, 016,000 28, 890,525 8,723,367 Department of
Health and Minority Health

Commission, Biomedical Research Technology Transfer Trust Fund
Infrastructure 138,063,000 17, 004,476 44, 286,273 Funding to local school

districts for school facilities, Ohio Peace Officer Training Academy
Improvements

Tax reduction 0 0 0 Tobacco control 234,861,000 546,507 636,000 Under- age
tobacco use

enforcement Unallocated 306,282,000 0 0

Total $750,175,000 $374, 787,516 $372,700,000

Source: Ohio Office of Budget and Management. a We did not obtain
information on allocations for budget shortfalls in fiscal years 2000 and
2001.

Ohio reported changes in its decision- making framework for MSA funds
since fiscal year 2001. The state passed legislation allowing the use of
$289. 6 million in fiscal year 2002 and $282. 9 million in fiscal year
2003 for budget shortfalls. In addition, up to $120 million of the state*s
MSA payments per year is being diverted from the Tobacco Use Prevention
Trust Fund for deficit reduction in the fiscal years 2002 and 2003
biennium. The state also decided to divert MSA payments amounting to $180
million in fiscal year 2002 and $165 million in fiscal year 2003 from the
School Facilities Commission to cover budget deficits. Ohio is issuing
debt to

offset the loss of funding to the School Facilities Commission; however,
the lost revenue will not be recovered until fiscal years 2013 and 2014.

Oklahoma According to the terms of the MSA, Oklahoma receives 1.04 percent
of the annual payments made by the tobacco companies. Oklahoma expects to

receive a total of $299, 719,913 from the MSA through fiscal year 2003.
This total consists of

 about $149,068,000 received as of April 2001;  $75,872,921 received for
fiscal year 2002; and  $74,778,992 expected to be received for fiscal
year 2003. Table 40 shows the program areas to which Oklahoma allocated
MSA funds for fiscal years 2000 and 2001, 2002, and 2003, and the types of
programs that received these funds.

Table 40: Oklahoma*s MSA Payment Allocations Types of programs Fiscal
years 2000 receiving funds, fiscal Program areas and 2001 Fiscal year 2002
Fiscal year 2003

years 2002 and 2003

Budget shortfall a $0 $0 Economic development for

$0 0 0 tobacco regions and payment to tobacco growers

Education and social services 4,000,000 10,427,604 20, 000,000 General
Programs General purposes and

46,598,000 1,373,905 1,002,004 Law Enforcement- Attorney reserves/ rainy
day funds General

Health 96,055,000 47,590,850 33, 462,765 General Programs, Tobacco Trust
Fund for treatment of tobaccorelated disease Infrastructure 0 0 0 Tax
reduction 0 0 0 Tobacco control 2,000,000 20,206,878 20, 314,223 Health
Department*s

tobacco cessation program, the Tobacco Trust Fund for cessation,
education, and prevention

(Continued From Previous Page)

Types of programs Fiscal years 2000 receiving funds, fiscal Program areas
and 2001 Fiscal year 2002 Fiscal year 2003

years 2002 and 2003

Unallocated 0 0 0

Total $148,653,000 $79, 599, 237 b $74,778,992

Source: Oklahoma Office of State Finance. a We did not obtain information
on allocations for budget shortfalls in fiscal years 2000 and 2001.

b The amount allocated for fiscal year 2002 includes carry- over funds
from prior years.

Oklahoma reported no changes in its decision- making framework for MSA
funds since fiscal year 2001. In November 2002, a proposal to change uses
of the Tobacco Trust Fund was rejected in a statewide referendum.

Oregon According to the terms of the MSA, Oregon receives 1.15 percent of
the annual payments made by the tobacco companies. Oregon expects to

receive a total of $332, 451,280 from the MSA through fiscal year 2003.
This total consists of

 about $160,976,000 received as of April 2001;  $86,524,314 received for
fiscal year 2002; and  $84,950,966 expected to be received for fiscal
year 2003. Table 41 shows the program areas to which Oregon allocated MSA
funds for fiscal years 2000 and 2001, 2002, and 2003, and the types of
programs that received these funds.

Table 41: Oregon*s MSA Payment Allocations Types of programs Fiscal years
2000 receiving funds, fiscal Program areas and 2001 Fiscal year 2002
Fiscal year 2003

years 2002 and 2003

Budget shortfall a $0 $0 Economic development for

$0 0 0 tobacco regions and payment to tobacco growers

Education and social services 0 133, 449,338 95, 530,949 Insurance Pool
Governing Board/ Oregon Health Plan General purposes and

0 99, 219,713 0 State general fund reserves/ rainy day funds Health 0 0
2,500,000 Bio- technology: Oregon

Health Sciences Center Infrastructure 0 0 0 Tax reduction 0 0 0 Tobacco
control 0 0 0 Unallocated 161,039,000 0 0

Total $161,039,000 $232, 669,051 b $98,030, 949 b

Source: Oregon Department of Administrative Services. a We did not obtain
information on allocations for budget shortfalls in fiscal years 2000 and
2001.

b The amounts allocated for fiscal years 2002 and 2003 include carry- over
funds and interest from fiscal years 2000 and 2001. Oregon did not
allocate any of its MSA payments until fiscal year 2002.

Oregon securitized a portion of its MSA payments in fiscal year 2003 and
received $150 million. The state pledged 77 percent of its MSA payments
for fiscal years 2004 through 2007 to service the debt on the bonds issued
to procure the securitized funds. Oregon allocated all of its fiscal year
2003 securitized proceeds for education. According to the state budget
office, these funds will most likely be used for the state school fund for
kindergarten through twelfth grade education.

During fiscal year 2002, Oregon also increased its appropriation of MSA
funds into the state*s general fund by about $100 million.

Pennsylvania According to the terms of the MSA, Pennsylvania receives 5.75
percent of the annual payments made by the tobacco companies. Pennsylvania

expects to receive a total of $1, 521, 974,654 from the MSA through fiscal
year 2003. This total consists of

 about $664,190,000 received as of April 2001;  $433, 529,654 received
for fiscal year 2002; and  $424, 255,000 expected to be received for
fiscal year 2003. Table 42 shows the program areas to which Pennsylvania
allocated MSA funds for fiscal years 2000 and 2001, 2002, and 2003, and
the types of programs that received these funds.

Table 42: Pennsylvania*s MSA Payment Allocations Types of programs Fiscal
years 2000

receiving funds, fiscal Program areas and 2001 Fiscal year 2002 Fiscal
year 2003

years 2002 and 2003

Budget shortfall a $0 $0 Economic development for

$0 0 0 tobacco regions and payment to tobacco growers

Education and social services 0 0 0 General purposes and

0 0 0 reserves/ rainy day funds Health 0 667,305, 000 433,529,000
Allocation to the Tobacco Settlement Fund, with

funding for health care insurance for the uninsured, home and community-
based care, contributions to the PACEnet program, tobacco use prevention
and cessation, broadbased

health research, medical care for workers with disabilities, and
uncompensated care

Infrastructure 0 0 0 Tax reduction 0 0 0

(Continued From Previous Page)

Types of programs Fiscal years 2000

receiving funds, fiscal Program areas and 2001 Fiscal year 2002 Fiscal
year 2003

years 2002 and 2003

Tobacco control 0 0 0 Unallocated 803,500,000 0 0

Total $803,500,000 $667,305, 000 b $433,529,000 c

Source: Pennsylvania Governor*s Office of the Budget, Bureau of Budget
Analysis. a We did not obtain information on allocations for budget
shortfalls in fiscal years 2000 and 2001.

b The amount allocated for fiscal year 2002 includes MSA payments received
in fiscal years 2000 and 2001, which were held pending the passage of
legislation that allowed the state to allocate these funds. c The amount
allocated for fiscal year 2003 includes MSA payments received in fiscal
year 2002.

Pennsylvania reported changes in its decision- making framework for MSA
funds since fiscal year 2001. In 2001, the state established the Tobacco
Settlement Fund as the special revenue fund that receives the proceeds
from the MSA. The fund maintains an endowment component to preserve a
portion of the receipts to ensure funds for future generations, sustain
critical programs if tobacco allocations decrease, and provide ongoing
revenue if tobacco allocations end. Pennsylvania also passed legislation
making distribution adjustments within the Tobacco Settlement Fund to
support health- related programs, and also redirected funding that was to
be deposited in an endowment account to support health- related programs

within the Tobacco Settlement Fund. Rhode Island According to the terms of
the MSA, Rhode Island receives 0.72 percent of

the annual payments made by the tobacco companies. Rhode Island expects to
receive a total of $209, 439, 291 from the MSA through fiscal year 2003.
This total consists of  about $103,428,000 received as of April 2001; 
$52,601,291 received for fiscal year 2002; and  $53,410,000 expected to
be received for fiscal year 2003. Table 43 shows the program areas to
which Rhode Island allocated MSA funds for fiscal years 2000 and 2001,
2002, and 2003, and the types of programs that received these funds.

Table 43: Rhode Island*s MSA Payment Allocations Types of programs Fiscal
years 2000 receiving funds, fiscal Program areas and 2001 Fiscal year 2002
Fiscal year 2003

years 2002 and 2003

Budget shortfall a Economic development for

$0 $0 $0 tobacco regions and payment to tobacco growers

Education and social services 0 0 0 General purposes and

102,853,000 53,630, 000 53,410,000 State general fund reserves/ rainy day
funds Health 0 0 0

Infrastructure 0 0 0 Tax reduction 0 0 0 Tobacco control 0 0 0 Unallocated
0 0 0

Total $102,853,000 $53,630, 000 b $53,410,000

Source: Rhode Island Budget Office. a We did not obtain information on
allocations for budget shortfalls in fiscal years 2000 and 2001.

b This amount is greater than the actual payment received in fiscal year
2002 because allocations were based on projected receipts for the year.

Rhode Island securitized its MSA payments and received $544, 238, 410 in
fiscal year 2002. The state pledged all of its fiscal years 2004 through
2043 MSA payments to service the debt on the bonds issued to procure the

securitized funds. Rhode Island allocated its securitized proceeds as
follows

 $295, 100,000 for infrastructure projects, including transportation
projects, correctional facilities, and other capital projects;

 $135,00,0000 to cover budget shortfalls; and  $114, 138,410 was
unallocated for fiscal year 2002, but $85, 000,000 of this funding was
subsequently allocated to the state*s general fund for fiscal year 2003.

Other than its securitization of its MSA payments for fiscal years 2004
through 2043, Rhode Island reported no other changes in its decisionmaking
framework for MSA funds since fiscal year 2001.

South Carolina According to the terms of the MSA, South Carolina receives
1.18 percent of the annual payments made by the tobacco companies. South
Carolina expects to receive a total of $340, 447, 600 from the MSA through
fiscal year 2003. This total consists of

 about $169,241,000 received as of April 2001;  $86,078,586 received for
fiscal year 2002; and  $85,128,014 expected to be received for fiscal
year 2003. Table 44 shows the program areas to which South Carolina
allocated MSA funds for fiscal years 2000 and 2001, 2002, and 2003, and
the types of programs that received these funds.

Table 44: South Carolina*s MSA Payment Allocations Types of programs
Fiscal years 2000 receiving funds, fiscal Program areas and 2001 Fiscal
year 2002 Fiscal year 2003

years 2002 and 2003

Budget shortfall a $0 $0 c Economic development for

$0 0 0 c tobacco regions and payment to tobacco growers

Education and social services 0 0 0 c General purposes and

0 0 0 c reserves/ rainy day funds Health 163,422,000 0 0 c

Infrastructure 0 0 0 c Tax reduction 0 0 0 c Tobacco control 1,750,000 0 0
c Unallocated 0 0 0 c

Total $165,172,000 $0 b $0 b c Source: South Carolina Office of State
Budget.

a We did not obtain information on allocations for budget shortfalls in
fiscal years 2000 and 2001. b South Carolina used its entire MSA payments
for fiscal years 2002 and 2003 to service the debt on the bonds issued
when the state securitized its MSA payments in fiscal year 2001. c Data
not applicable.

In fiscal year 2001, South Carolina securitized its MSA payments and
received $785.9 million. The state pledged all of its annual MSA payments
for fiscal years 2002 through 2030 to service the debt on the bonds issued
to procure the securitized funds. For fiscal year 2002, the state
allocated $791.3 million in securitized proceeds. According to the state
budget office, the state allocated these funds as follows

 $577.6 million for health purposes, including (1) the Silvercard- Senior
Citizen Prescription Assistance Program and (2) $553.6 million for a state
Health Care Trust Fund;

 $94.3 million for infrastructure, funding programs such as (1) water and
wastewater infrastructure grants and loans and (2) $92.7 million for an
Economic Development and Local Government Fund to be used for water and
wastewater infrastructure grants and loans throughout all regions of the
state;

 $117.8 million for payments to tobacco growers, tobacco quota holders
and warehousemen for reduced production since 1998, including $8.3 million
for the Tobacco Community Trust Fund; and

 $1.6 million for tobacco control purposes, such as youth smoking
prevention cessation.

South Carolina*s fiscal year 2002- 2003 Appropriations Act also redirected
$101 million in MSA payments from the unrestricted portion of the
Healthcare Tobacco Settlement Trust Fund to fund Medicaid and mental
health programs.

South Dakota According to the terms of the MSA, South Dakota receives 0.35
percent of the annual payments made by the tobacco companies. South Dakota
expects to receive a total of $101, 364, 928 from the MSA through fiscal
year 2003. This total consists of

 about $50,203,000 received as of April 2001;  $25,358,785 received for
fiscal year 2002; and  $25,803,143 expected to be received for fiscal
year 2003.

Table 45 shows the program areas to which South Dakota allocated MSA funds
for fiscal years 2000 and 2001, 2002, and 2003, and the types of programs
that received these funds.

Table 45: South Dakota*s MSA Payment Allocations Types of programs Fiscal
years 2000 receiving funds, fiscal Program areas and 2001 Fiscal year 2002
Fiscal year 2003

years 2002 and 2003

Budget shortfall a $0 $0 Economic development for

$0 0 0 tobacco regions and payment to tobacco growers

Education and social services 0 25, 358,785 0 Education Enhancement Trust
Fund

General purposes and 100,000 0 3,416,872 reserves/ rainy day funds Health
0 0 0

Infrastructure 0 0 0 Tax reduction 0 0 0 Tobacco control 700,000 0 0
Unallocated 48,400,000 0 0

Total $49,200,000 $25, 358,785 $3, 416, 872 b

Source: South Dakota Bureau of Finance and Management. a We did not obtain
information on allocations for budget shortfalls in fiscal years 2000 and
2001.

b South Dakota used its entire MSA payment for fiscal year 2003 to service
the debt on the bonds issued when the state securitized its MSA payments
in fiscal year 2003. The amount allocated in fiscal year 2003 to general
purposes reflects interest earned on prior MSA payments.

Since fiscal year 2001, South Dakota changed its decision- making
framework for MSA funds by establishing the Education Enhancement Trust
Fund. As of July 1, 2001, all of the state*s MSA payments were to be
deposited into this trust fund. South Dakota also securitized all of its
MSA

payments in fiscal year 2003 and received $243,596, 553. The state pledged
all of its annual MSA payments into perpetuity to service the debt on the
bonds issued to procure the securitized funds. According to the state
budget office, South Dakota allocated all of its fiscal year 2003
securitized proceeds for education purposes. The proceeds were deposited
into the Education Enhancement Trust Fund. Interest earned on the trust
fund balance is to be appropriated for education enhancement programs.

Tennessee According to the terms of the MSA, Tennessee receives 2.44
percent of the annual payments made by the tobacco companies. Tennessee
expects to receive a total of $705, 061,600 from the MSA through fiscal
year 2003. This

total consists of  about $354,356,000 received as of April 2001;  $180,
705,600 received for fiscal year 2002; and  $170, 000,000 expected to be
received for fiscal year 2003. Table 46 shows the program areas to which
Tennessee allocated MSA funds for fiscal years 2000 and 2001, 2002, and
2003, and the types of programs that received these funds.

Table 46: Tennessee*s MSA Payment Allocations Types of programs Fiscal
years 2000

receiving funds, fiscal Program areas and 2001 Fiscal year 2002 Fiscal
year 2003

years 2002 and 2003

Budget shortfall a $188, 863,700 $170,000,000 c Economic development for

$0 0 0 c tobacco regions and payment to tobacco growers

Education and social services 0 0 0 c General purposes and

0 0 0 c reserves/ rainy day funds Health 0 0 0 c

Infrastructure 0 0 0 c Tax reduction 0 0 0 c Tobacco control 0 0 0 c
Unallocated 356,379,000 0 0 c

Total $356,379,000 $188, 863,700 b $170,000,000 c Source: Tennessee
Department of Finance & Administration, Budget Office.

a We did not obtain information on allocations for budget shortfalls in
fiscal years 2000 and 2001. b This amount is greater than the actual MSA
payment received in fiscal year 2002 because allocations were based on
projected receipts for the year. c Data not applicable.

Tennessee reported no changes in its decision- making framework for MSA
funds since fiscal year 2001.

Utah According to the terms of the MSA, Utah receives 0.44 percent of the
annual payments made by the tobacco companies. Utah expects to receive

a total of $128,455,567 from the MSA through fiscal year 2003. This total
consists of

 about $64,006,000 received as of April 2001;  $32,551,745 received for
fiscal year 2002; and  $31,897,882 expected to be received for fiscal
year 2003. Table 47 shows the program areas to which Utah allocated MSA
funds for fiscal years 2000 and 2001, 2002, and 2003, and the types of
programs that received these funds.

Table 47: Utah*s MSA Payment Allocations Types of programs Fiscal years
2000 receiving funds, fiscal Program areas and 2001 Fiscal year 2002
Fiscal year 2003

years 2002 and 2003

Budget shortfall a $0 $17,800,000 Economic development for

$0 0 0 tobacco regions and payment to tobacco growers

Education and social services 2,000,000 2,000, 000 2,000,000 Drug Court,
Drug Board Pilot Program General purposes and

24,141,000 16,276, 000 Tobacco Permanent reserves/ rainy day funds
Endowment Fund

Health 9,500,000 11,496, 000 11, 497,000 Children*s Health Insurance
Program, cancer research

Infrastructure 0 0 0 Tax reduction 0 0 0

(Continued From Previous Page)

Types of programs Fiscal years 2000 receiving funds, fiscal Program areas
and 2001 Fiscal year 2002 Fiscal year 2003

years 2002 and 2003

Tobacco control 4,000,000 4,053, 000 4,061,000 Tobacco quit line, TV
campaign, prevention partnerships

Unallocated 8,641,000 0 0

Total $48,282,000 $33,825, 000 b $35,358, 000 b

Source: Utah Governor*s Office of Planning and Budget. a We did not obtain
information on allocations for budget shortfalls in fiscal years 2000 and
2001.

b The amounts allocated for fiscal years 2002 and 2003 include carry- over
funds from prior fiscal year MSA payments.

Utah reported increasing its appropriation of MSA payments from the
permanent trust fund into the state*s general fund since fiscal year 2001
by about $17.8 million.

Vermont According to the terms of the MSA, Vermont receives 0. 41 percent
of the annual payments made by the tobacco companies. Vermont expects to
receive a total of $117, 925,000 from the MSA through fiscal year 2003.
This total consists of  about $57,675,000 received as of April 2001; 
$30,920,000 received for fiscal year 2002; and  $29,330,000 expected to
be received for fiscal year 2003. Table 48 shows the program areas to
which Vermont allocated MSA funds for fiscal years 2000 and 2001, 2002,
and 2003, and the types of programs that received these funds.

Table 48: Vermont*s MSA Payment Allocations Types of programs Fiscal years
2000 receiving funds, fiscal Program areas and 2001 Fiscal year 2002
Fiscal year 2003

years 2002 and 2003

Budget shortfall a $0 $0 Economic development for

0 0 0 tobacco regions and payment to tobacco growers

Education and social services 0 1, 490,000 810,000 Opiate addiction
treatment

General purposes and 0 6, 550,000 3, 510,000 reserves/ rainy day funds
Health 33, 680,000 17, 250,000 17, 250,000 Medicaid

Infrastructure 0 0 0 Tax reduction 0 0 0 Tobacco control 14, 750,000 6,
870,000 9, 290,000 Education, youth

program, trust fund Unallocated 940, 000 0 0

Total $49,370, 000 $32, 160,000 b $30, 860,000 b

Source: Vermont Department of Finance and Management. a We did not obtain
information on allocations for budget shortfalls in fiscal years 2000 and
2001.

b The amounts allocated for fiscal years 2002 and 2003 include interest
earned on prior MSA payments.

Since fiscal year 2001, Vermont reduced its use of a dedicated fund by
transferring MSA funds from the state*s Tobacco Trust Fund to the general
fund. The state transferred about $6.6 million and about $3.5 million to
the general fund for fiscal years 2002 and 2003, respectively.

Virginia According to the terms of the MSA, Virginia receives 2.04 percent
of the annual payments made by the tobacco companies. Virginia expects to
receive a total of $595,148, 251 from the MSA through fiscal year 2003.
This total consists of

 about $294,180,000 received as of April 2001;  $149, 613,891 received
for fiscal year 2002; and  $151, 354,360 expected to be received for
fiscal year 2003.

Table 49 shows the program areas to which Virginia allocated MSA funds for
fiscal years 2000 and 2001, 2002, and 2003, and the types of programs that
received these funds.

Table 49: Virginia*s MSA Payment Allocations Types of programs Fiscal
years 2000

receiving funds, fiscal Program areas and 2001 Fiscal year 2002 Fiscal
year 2003

years 2002 and 2003

Budget shortfall a $0 $0 Economic development for

$144,673,000 74,135, 594 75,677,180 Economic development tobacco regions
and payment to

projects, infrastructure, tobacco growers

education and job training, research, administrative budget of the Tobacco
Indemnification and

Community Revitalization Commission, and indemnification payments

to tobacco growers Education and social services 0 0 0 General purposes
and

115,339,000 59,308, 475 60,541,744 Deposited to the state reserves/ rainy
day funds general fund and allocated through the budget process Health 0 0
0 Infrastructure 0 0 0 Tax reduction 0 0 0 Tobacco control 28, 835,000
14,827, 119 15,135,436 Public education campaigns to discourage

consumption by minors, research, and the administrative budget of the
Virginia Tobacco Settlement Foundation

Unallocated 0 0 0

Total $288,847,000 $148,271, 188 b 151,354,360

Source: Virginia Department of Planning and Budget. a We did not obtain
information on allocations for budget shortfalls in fiscal years 2000 and
2001.

b The amount allocated for fiscal year 2002 does not equal the amount
received because actual MSA payments exceeded estimates used for budget
development.

Virginia passed legislation authorizing the securitization of MSA funds in
2002. This legislation authorized the Governor to sell all or a portion of

Virginia*s proceeds from the MSA dedicated to the Tobacco Indemnification
and Community Revitalization Fund, which accounts for 50 percent of the
state*s share. The Tobacco Indemnification and Community Revitalization
Commission has proposed securitization of these funds for the spring of
2003, and approval by the Governor is pending.

Washington According to the terms of the MSA, Washington receives 2. 05
percent of the annual payments made by the tobacco companies. Washington
expects to

receive a total of $594, 401,000 from the MSA through fiscal year 2003.
This total consists of

 about $295,401,000 received as of April 2001;  $150, 000,000 received
for fiscal year 2002; and  $149, 000,000 expected to be received for
fiscal year 2003. Table 50 shows the program areas to which Washington
allocated MSA funds for fiscal years 2000 and 2001, 2002, and 2003, and
the types of programs that received these funds.

Table 50: Washington*s MSA Payment Allocations Types of programs Fiscal
years 2000 receiving funds, fiscal Program areas and 2001 Fiscal year 2002
Fiscal year 2003

years 2002 and 2003

Budget shortfall a $0 $0 Economic development for

$0 0 0 tobacco regions and payment to tobacco growers

Education and social services 0 0 0 General purposes and

700,000 0 0 reserves/ rainy day funds Health 198,464,000 145,000,000 111,
800, 000 Health services access for

low income residents, plus public health purposes- including direct
distributions to local public health districts and the state*s
immunization program

(Continued From Previous Page)

Types of programs Fiscal years 2000 receiving funds, fiscal Program areas
and 2001 Fiscal year 2002 Fiscal year 2003

years 2002 and 2003

Infrastructure 0 0 0 Tax reduction 0 0 0 Tobacco control 100,000,000 17,
500,000 17, 500, 000 Tobacco prevention and

control programs Unallocated 0 5,000,000 37, 200, 000 Set aside for
potential

debt service and sales costs for securitization

Total $299,164,000 $167,500, 000 b $166, 500,000 b

Source: Washington State Office of Financial Management. a We did not
obtain information on allocations for budget shortfalls in fiscal years
2000 and 2001.

b The amounts allocated for fiscal years 2002 and 2003 include carry- over
funds from prior fiscal years.

Washington reported changes in its decision- making framework for MSA
funds since fiscal year 2001. Primarily, the state passed legislation
authorizing the securitization of MSA funds. Washington securitized 30
percent of its MSA payments in fiscal year 2003 and received $450 million.
The securitization begins in fiscal year 2003 and will continue for 30
years. However, the sale of the bonds was structured with the expectation
that the bonds would be retired in 19 to 21 years rather than 30 years.
For fiscal year 2003, the state plans to pledge between $25 and $30
million from its MSA payment to service the debt on the bonds issued to
procure the securitized funds. Washington allocated all of its fiscal year
2003 securitized proceeds for infrastructure purposes. According to the
state budget office, these funds are earmarked for state debt service,
working capital, and capital expenditures. Washington also increased the
allocation of MSA funds into the state*s general fund for future payments
on the state*s securitized proceeds.

West Virginia According to the terms of the MSA, West Virginia receives 0.
89 percent of the annual payments made by the tobacco companies. West
Virginia

expects to receive a total of $266, 787, 064 from the MSA through fiscal
year 2003. This total consists of

 about $127,534,000 received as of April 2001;  $64,861,064 received for
fiscal year 2002; and  $74,392,000 expected to be received for fiscal
year 2003.

Table 51 shows the program areas to which West Virginia allocated MSA
funds for fiscal years 2000 and 2001, 2002, and 2003, and the types of
programs that received these funds.

Table 51: West Virginia*s MSA Payment Allocations Types of programs Fiscal
years 2000 receiving funds, fiscal Program areas and 2001 Fiscal year 2002
Fiscal year 2003

years 2002 and 2003

Budget shortfall a $0 $0 Economic development for

$0 0 0 tobacco regions and payment to tobacco growers

Education and social services 0 0 0 General purposes and

0 0 0 reserves/ rainy day funds Health 128,089,000 64, 579,940 69,345,408
Operation of state- run

hospitals, Medical Trust Fund b

Infrastructure 0 0 0 Tax reduction 0 0 0 Tobacco control 5,851,000 5,
850,592 5,850,592 Funding, training, and

technical assistance to community groups for prevention and cessation

Unallocated 0 0 0

Total $133,940,000 $70, 430,532 c $75,196,000 c

Source: West Virginia Department of Administration. a We did not obtain
information on allocations for budget shortfalls in fiscal years 2000 and
2001.

b Half of West Virginia*s MSA payments are deposited into a Medical Trust
Fund (MTF) annually. The principal of the MTF cannot be spent, but
interest earned can be used for the Public Employee Health Insurance
Reserve Fund, expansion of Medicaid, funding of public health programs,
funding for state- owned and operated health facilities. For fiscal year
2002, the state deposited $32,430,532 into the MTF, with an additional
deposit of $37,196,000 in fiscal year 2003.

c The amounts allocated for fiscal years 2002 and 2003 include carry- over
funds from prior years.

West Virginia reported no changes in its decision- making framework for
MSA funds since fiscal year 2001.

Wisconsin According to the terms of the MSA, Wisconsin receives 2.07
percent of the annual payments made by the tobacco companies. Wisconsin
expects to

receive a total of $604, 452,104 from the MSA through fiscal year 2003.
This total consists of

 about $290,634,000 received as of April 2001;  $156, 215,304 received
for fiscal year 2002; and  $157, 602,800 expected to be received for
fiscal year 2003. Table 52 shows the program areas to which Wisconsin
allocated MSA funds for fiscal years 2000 and 2001, 2002, and 2003, and
the types of programs that received these funds.

Table 52: Wisconsin*s MSA Payment Allocations Types of programs Fiscal
years 2000 receiving funds, fiscal Program areas and 2001 Fiscal year 2002
Fiscal year 2003

years 2002 and 2003

Budget shortfall a $0 $0 Economic development for

$0 0 0 tobacco regions and payment to tobacco growers

Education and social services 0 0 0 General purposes and

47, 952, 000 149,493, 700 142, 257,700 Direct aid to schools and reserves/
rainy day funds school property tax relief, aid to counties,
municipalities and technical colleges, medical assistance programs, other
aid and tax relief to individuals

and organizations, University of Wisconsin System, correctional system
Health 219, 032, 000 0 0 Infrastructure 0 0 0 Tax reduction 0 0 0 Tobacco
control 23, 500, 000 6,032, 300 15, 345,100 Unallocated 0 0 0

Total $290, 484, 000 $155,526, 000 $157, 602,800

Source: Wisconsin Department of Administration. a We did not obtain
information on allocations for budget shortfalls in fiscal years 2000 and
2001.

Wisconsin securitized a portion of its MSA payments in fiscal year 2002
and received $1,275,002, 400. The state pledged all of its annual MSA
payments through fiscal year 2032 to service the debt on the bonds issued
to procure the securitized funds. Wisconsin allocated $1.275 billion of
its fiscal year 2002 securitized proceeds to cover budget shortfalls.
According to the state budget office, the securitized funds were allocated
as follows:

 $681 million was deposited directly into the state general fund in
fiscal year 2002, and

 $594 million was deposited in an endowment fund where the proceeds plus
any interest earned on the fund will be used to pay for a portion of aid
to local governments in fiscal year 2003.

Wisconsin also reported that it decreased the use of dedicated funds and
passed legislation allowing the use of the entire securitized MSA proceeds
to address the state*s budget deficit. Initially, the state*s securitized
proceeds were to be deposited in an endowment fund, but subsequently went
to the state*s general fund for budget shortfalls.

Wyoming According to the terms of the MSA, Wyoming receives 0.25 percent
of the annual payments made by the tobacco companies. Wyoming expects to
receive a total of $66, 358, 967 from the MSA through fiscal year 2003.
This total consists of

 about $34,834,000 received as of April 2001;  $18,735,007 received for
fiscal year 2002; and  $12,789,960 expected to be received for fiscal
year 2003. Table 53 shows the program areas to which Wyoming allocated MSA
funds for fiscal years 2000 and 2001, 2002, and 2003, and the types of
programs that received these funds.

Table 53: Wyoming*s MSA Payment Allocations Types of programs Fiscal years
2000 receiving funds, fiscal Program areas and 2001 Fiscal year 2002
Fiscal year 2003

years 2002 and 2003

Budget shortfall a $0 $0 Economic development for tobacco $0 0 0 regions
and payment to tobacco growers

Education and social services 0 0 9,789, 960 Substance Abuse Treatment
Plan General purposes and

0 0 0 reserves/ rainy day funds Health 0 18, 735,007 3,000, 000 MSA
payment deposited into a Trust Fund currently earmarked for

future health and tobacco prevention spending

Infrastructure 0 0 0 Tax reduction 0 0 0 Tobacco control 38, 155,000
900,000 3,000, 000 Tobacco prevention in reducing sales to minors,
regional prenatal programs, community

tobacco prevention activities Unallocated 0 0 0

Total $38, 155,000 $19,635,007 b $15,789, 960 c

Source: Wyoming Office of the Attorney General. a We did not obtain
information on allocations for budget shortfalls in fiscal years 2000 and
2001.

b For fiscal year 2002, Wyoming budgeted its entire MSA payment to a trust
fund earmarked for future health and tobacco prevention programs. The
interest earned on the trust fund, totaling $900,000, was available to the
state for allocation to tobacco control programs in fiscal year 2002. c
For fiscal year 2003, Wyoming budgeted about $9.8 million of its MSA
payment to the Substance

Abuse Treatment Plan and for other social services programs. The remaining
$3 million was deposited into a trust fund earmarked for future health and
tobacco prevention programs. The interest earned on the trust fund was
available to the state for allocation to tobacco control in fiscal year
2002.

Since fiscal year 2001, Wyoming passed legislation granting rulemaking
authority for the Department of Health. The legislation allows the
Department of Health to establish treatment and prevention standards,
known as a Substance Abuse Plan, by amending revenue streams and using

funds received under the MSA. Because of the state*s new Substance Abuse

Plan, the amount of MSA payments allocated to the state*s trust fund
decreased.

Survey of States* Use of Master Settlement

Appendi x III Agreement Payments

Appendi x IV

GAO Contact and Staff Acknowledgments GAO Contact Anu K. Mittal 202- 512-
3841 Acknowledgments Gary Brown, Stuart Kaufman, Judy Pagano, and Kristy
Williams made key

contributions to this report. Thomas James, Rosellen McCarthy, and Amelia
Shachoy also made important contributions.

(360249)

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Report to Congressional Requesters

February 2003 TOBACCO SETTLEMENT States* Allocations of Fiscal Years 2002
and 2003 Master Settlement Agreement Payments

GAO- 03- 407

                                       A

Letter 1 Results in Brief 2 Background 6 States Expect to Receive More
Than $12 Billion in MSA Payments

for Fiscal Years 2002 and 2003 9 States* Allocations of MSA Payments
Changed Since 2001 13 Some States Changed the Way They Allocate MSA
Payments 20

Appendixes

Appendix I: Objectives, Scope, and Methodology 23

Appendix II: State- Specific Master Settlement Agreement Payments
Information 29

Appendix III: Survey of States* Use of Master Settlement Agreement
Payments 104

Appendix IV: GAO Contact and Staff Acknowledgments 115 Tables Table 1:
Percent Allocation of MSA Payments for 46 States 7

Table 2: Fiscal Year 2002 MSA Payments Received and Fiscal Year 2003
Payments Expected by the 46 States 9 Table 3: Securitized Proceeds
Received by 12 States for

Fiscal Years 2002 and 2003 13 Table 4: Allocations of MSA Payments by
Category, Fiscal

Year 2002 15 Table 5: Allocations of MSA Payments by Category, Fiscal Year

2003 17 Table 6: Allocations of Securitized MSA Proceeds by Category,

Fiscal Year 2002 19 Table 7: Allocations of Securitized MSA Proceeds by
Category,

Fiscal Year 2003 20 Table 8: Alabama*s MSA Payment Allocations 30 Table 9:
Alaska*s MSA Payments Allocations 32 Table 10: Arizona*s MSA Payment
Allocations 34 Table 11: Arkansas* MSA Payment Allocations 35 Table 12:
California*s MSA Payment Allocations 37 Table 13: Colorado*s MSA Payment
Allocations 39 Table 14: Connecticut*s MSA Payment Allocations 41 Table
15: Delaware*s MSA Payment Allocations 42

Table 16: Georgia*s MSA Payment Allocations 43 Table 17: Hawaii*s MSA
Payment Allocations 45 Table 18: Idaho*s MSA Payment Allocations 47 Table
19: Illinois* MSA Payment Allocations 49 Table 20: Indiana*s MSA Payment
Allocations 51 Table 21: Iowa*s MSA Payment Allocations 52 Table 22:
Kansas* MSA Payment Allocations 54 Table 23: Kentucky*s MSA Payment
Allocations 55 Table 24: Louisiana*s MSA Payment Allocations 57 Table 25:
Maine*s MSA Payment Allocations 59 Table 26: Maryland*s MSA Payment
Allocations 61 Table 27: Massachusetts* MSA Payment Allocations 63 Table
28: Michigan*s MSA Payment Allocations 64 Table 29: Missouri*s MSA Payment
Allocations 66 Table 30: Montana*s MSA Payment Allocations 68 Table 31:
Nebraska*s MSA Payment Allocations 69 Table 32: Nevada*s MSA Payment
Allocations 71 Table 33: New Hampshire*s MSA Payment Allocations 73 Table
34: New Jersey*s MSA Payment Allocations 74 Table 35: New Mexico*s MSA
Payment Allocations 76 Table 36: New York*s MSA Payment Allocations 78
Table 37: North Carolina*s MSA Payment Allocations 79 Table 38: North
Dakota*s MSA Payment Allocations 80 Table 39: Ohio*s MSA Payment
Allocations 82 Table 40: Oklahoma*s MSA Payment Allocations 83 Table 41:
Oregon*s MSA Payment Allocations 85 Table 42: Pennsylvania*s MSA Payment
Allocations 86 Table 43: Rhode Island*s MSA Payment Allocations 88 Table
44: South Carolina*s MSA Payment Allocations 89 Table 45: South Dakota*s
MSA Payment Allocations 91 Table 46: Tennessee*s MSA Payment Allocations
92 Table 47: Utah*s MSA Payment Allocations 93 Table 48: Vermont*s MSA
Payment Allocations 95 Table 49: Virginia*s MSA Payment Allocations 96
Table 50: Washington*s MSA Payment Allocations 97 Table 51: West
Virginia*s MSA Payment Allocations 99 Table 52: Wisconsin*s MSA Payment
Allocations 100 Table 53: Wyoming*s MSA Payment Allocations 102

Figures Figure 1: States* Allocations of MSA Payments, in Percents (Fiscal
Years 2000- 2001, 2002 and 2003) 4

Figure 2: States* Allocations of Securitized MSA Proceeds, in Percents
(Fiscal Years 2002 and 2003) 5 Figure 3: MSA States that Have Received
Securitized Proceeds and

Those that Have Not (Fiscal Years 2000- 2003) 12

Abbreviations

MSA Master Settlement Agreement NASBO National Association of State Budget
Officers NGA National Governors Association MTF Medical Trust Fund

This is a work of the U. S. Government and is not subject to copyright
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a

GAO United States General Accounting Office

The 46 states party to the MSA reported receiving a total of about $6.2
billion from the tobacco companies during fiscal year 2002 and expect to
receive an additional $6.2 billion for fiscal year 2003. These amounts
supplement the $13.2 billion the states had already received through April
2001. In addition, 12 of the 46 states issued bonds backed by all or a
portion of their future MSA payments, a process known as securitization.
Securitization allowed these states to receive upfront payments totaling
an additional $10.6 billion for the 2- year period in lieu of some or all
of their future MSA payments.

The MSA allows states to use their payments for any purpose. For fiscal
years 2002 and 2003, states reported allocations of MSA funds for a
variety of programs and budget priorities, although somewhat different
than the allocations made for fiscal years 2000 and 2001. For example, for
fiscal years 2002 and 2003, states reported that about half of their MSA
payments were allocated to health- related programs, which is an increase
from the 41 percent allocated in fiscal years 2000 and 2001. States also
allocated MSA payments to cover anticipated budget shortfalls, for
education and social services, and for general purposes and reserves. The
12 states that securitized future MSA payments allocated these proceeds
primarily to cover budget shortfalls (31 percent for fiscal year 2002 and
66 percent for fiscal year 2003). Securitized proceeds were also allocated
for infrastructure,

education and social services, and health programs. About half of the 46
states reported changes to the frameworks they use for making decisions
related to MSA funds since fiscal year 2001. The change most frequently
reported by the states was the passage of legislation affecting the use of
MSA funds. Other changes included the establishment of new goals or
revised requirements for the use of MSA funds and increases or decreases
in the use of dedicated funds, such as endowments or trusts.

States* Allocations of MSA Payments, in Percents (Fiscal Years 2000- 2001,
2002 and 2003)

TOBACCO SETTLEMENT

States* Allocations of Fiscal Years 2002 and 2003 Master Settlement
Agreement Payments

www. gao. gov/ cgi- bin/ getrpt? GAO- 03- 407. To view the full report,
including the scope and methodology, click on the link above. For more
information, contact Anu Mittal at (202) 512- 3841 or mittala@ gao. gov.
Highlights of GAO- 03- 407, a report to

congressional requesters

February 2003

The Master Settlement Agreement (MSA) requires four of the nation*s
largest tobacco companies to make annual payments to states in perpetuity
as reimbursement for past health care costs related to tobacco use. The
Farm Security and Rural Investment Act of 2002 requires GAO to report
annually on the amount of MSA payments states receive and how they

allocate these payments for the years 2002 through 2006.

This report provides information on the

 amount of MSA payments that the 46 states party to the MSA received for
fiscal year 2002 and the amount these states expect to receive during
fiscal year 2003;  states* allocations of MSA funds to various program

categories for fiscal years 2002 and 2003 and changes in these allocations
from prior

years; and  changes in states* decisionmaking frameworks for MSA funds
since fiscal year 2001.

To conduct this study, GAO sent a survey to budget officials in the 46
states party to the MSA. GAO did not independently verify the accuracy of
the information provided by the state budget offices.

Page i GAO- 03- 407 Tobacco Settlement

Contents

Contents

Page ii GAO- 03- 407 Tobacco Settlement

Contents

Page iii GAO- 03- 407 Tobacco Settlement

Page 1 GAO- 03- 407 Tobacco Settlement United States General Accounting
Office Washington, D. C. 20548

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Appendix I

Appendix I Objectives, Scope, and Methodology

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Appendix I Objectives, Scope, and Methodology

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Appendix I Objectives, Scope, and Methodology

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Appendix I Objectives, Scope, and Methodology

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Appendix I Objectives, Scope, and Methodology

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Appendix II

Appendix II State- Specific Master Settlement Agreement Payments
Information

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Appendix II State- Specific Master Settlement Agreement Payments
Information

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Appendix II State- Specific Master Settlement Agreement Payments
Information

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Appendix II State- Specific Master Settlement Agreement Payments
Information

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Appendix II State- Specific Master Settlement Agreement Payments
Information

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Appendix II State- Specific Master Settlement Agreement Payments
Information

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Appendix II State- Specific Master Settlement Agreement Payments
Information

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Appendix II State- Specific Master Settlement Agreement Payments
Information

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Appendix II State- Specific Master Settlement Agreement Payments
Information

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Appendix II State- Specific Master Settlement Agreement Payments
Information

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Appendix II State- Specific Master Settlement Agreement Payments
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Appendix II State- Specific Master Settlement Agreement Payments
Information

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Appendix II State- Specific Master Settlement Agreement Payments
Information

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Appendix II State- Specific Master Settlement Agreement Payments
Information

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Appendix II State- Specific Master Settlement Agreement Payments
Information

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Appendix II State- Specific Master Settlement Agreement Payments
Information

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Appendix II State- Specific Master Settlement Agreement Payments
Information

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Appendix II State- Specific Master Settlement Agreement Payments
Information

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Appendix II State- Specific Master Settlement Agreement Payments
Information

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Appendix II State- Specific Master Settlement Agreement Payments
Information

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Appendix II State- Specific Master Settlement Agreement Payments
Information

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Appendix II State- Specific Master Settlement Agreement Payments
Information

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Appendix II State- Specific Master Settlement Agreement Payments
Information

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Appendix II State- Specific Master Settlement Agreement Payments
Information

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Appendix II State- Specific Master Settlement Agreement Payments
Information

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Appendix II State- Specific Master Settlement Agreement Payments
Information

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Appendix II State- Specific Master Settlement Agreement Payments
Information

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Appendix II State- Specific Master Settlement Agreement Payments
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Appendix II State- Specific Master Settlement Agreement Payments
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Appendix II State- Specific Master Settlement Agreement Payments
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Page 59 GAO- 03- 407 Tobacco Settlement

Appendix II State- Specific Master Settlement Agreement Payments
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Appendix III

Appendix III Survey of States* Use of Master Settlement Agreement Payments
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Appendix IV

United States General Accounting Office Washington, D. C. 20548- 0001
Official Business Penalty for Private Use $300 Address Service Requested

Presorted Standard Postage & Fees Paid

GAO Permit No. GI00
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