Tobacco Settlement: States' Allocations of Fiscal Year 2005 and  
Expected Fiscal Year 2006 Payments (11-APR-06, GAO-06-502).	 
                                                                 
In the 1990's, states sued major tobacco companies to obtain	 
reimbursement for health impairments caused by the public's use  
of tobacco. In 1998, four of the nation's largest tobacco	 
companies signed a Master Settlement Agreement (MSA) to make	 
annual payments to 46 states in perpetuity as reimbursement for  
past tobacco-related health care costs. Some states have arranged
to receive advance proceeds based on the amounts that tobacco	 
companies owe by issuing bonds backed by future payments. The	 
Farm Security and Rural Investment Act of 2002 requires GAO to	 
report annually, through fiscal year 2006, on how states use MSA 
payments made by tobacco companies. To conduct this study, GAO	 
surveys the 46 states. This is the fifth and final of a series of
reports that provides information on the payments the 46 states  
received in fiscal year 2005 and expect to receive in fiscal year
2006 and states' allocations of these funds to various program	 
categories and changes from prior years.			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-502 					        
    ACCNO:   A51357						        
  TITLE:     Tobacco Settlement: States' Allocations of Fiscal Year   
2005 and Expected Fiscal Year 2006 Payments			 
     DATE:   04/11/2006 
  SUBJECT:   Allocation (Government accounting) 		 
	     Balances of budget authority			 
	     Budget administration				 
	     Claims settlement					 
	     Financial management				 
	     Funds management					 
	     Health care costs					 
	     Health care services				 
	     Payments						 
	     Reporting requirements				 
	     State budgets					 
	     State governments					 
	     Tobacco industry					 
	     Reimbursements					 
	     Master Settlement Agreement			 

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GAO-06-502

     

     * Report to Congressional Requesters
          * April 2006
     * TOBACCO SETTLEMENT
          * States' Allocations of Fiscal Year 2005 and Expected Fiscal Year
            2006 Payments
     * Contents
          * Results in Brief
          * States Received About $5.8 Billion in MSA Payments and
            Securitized Proceeds in Fiscal Year 2005 and Expect to Receive
            Somewhat Less in Fiscal Year 2006
          * States Allocated the Largest Portion of Their Funds to Address
            Health-Related Programs and Debt Service on Securitized Proceeds
            in Fiscal Year 2005 and Expect to Do the Same in Fiscal Year 2006
     * Objectives, Scope, and Methodology
          * Survey Methodology and Categorization of States' Allocations
          * Categories of States' Allocations
     * Allocations of MSA Payments for 46 States
     * States' Allocations of Combined MSA Payments and Securitized Proceeds
       for Fiscal Years 2000 through 2006
     * State-Specific Information on Amounts of MSA Payments and Securitized
       Proceeds Received and Allocated
          * Alabama
          * Alaska
          * Arizona
          * Arkansas
          * California
          * Colorado
          * Connecticut
          * Delaware
          * Georgia
          * Hawaii
          * Idaho
          * Illinois
          * Indiana
          * Iowa
          * Kansas
          * Kentucky
          * Louisiana
          * Maine
          * Maryland
          * Massachusetts
          * Michigan
          * Missouri
          * Montana
          * Nebraska
          * Nevada
          * New Hampshire
          * New Jersey
          * New Mexico
          * New York
          * North Carolina
          * North Dakota
          * Ohio
          * Oklahoma
          * Oregon
          * Pennsylvania
          * Rhode Island
          * South Carolina
          * South Dakota
          * Tennessee
          * Utah
          * Vermont
          * Virginia
          * Washington
          * West Virginia
          * Wisconsin
          * Wyoming
     * GAO Survey on States' Allocations of Fiscal Years 2005 and 2006 MSA
       Payments
     * GAO Contact and Staff Acknowledgments
     * PDF6-Ordering Information.pdf
          * Order by Mail or Phone

Report to Congressional Requesters

April 2006

TOBACCO SETTLEMENT

States' Allocations of Fiscal Year 2005 and Expected Fiscal Year 2006
Payments

Contents

Tables

Figure

April 11, 2006Letter

Congressional Requesters:

In the 1990s, states sued major tobacco companies to obtain reimbursement
for health impairments caused by the public's use of tobacco. During 1997
and 1998, four states-Florida, Minnesota, Mississippi, and Texas-settled
their lawsuits with the tobacco industry by negotiating independent
agreements.1 In November 1998, four of the nation's largest tobacco
companies-Philip Morris, USA;2 R.J. Reynolds Tobacco Company; Brown &
Williamson Tobacco Corporation; and Lorillard Tobacco Company-negotiated
and signed an agreement with the attorneys general of the remaining 46
states, the District of Columbia, and the five U.S. territories, thereby
settling a number of lawsuits brought by these parties against the
companies.3 This agreement is known as the Master Settlement Agreement
(MSA).4 The MSA commits the tobacco companies to make annual payments to
the 46 states and the aforementioned entities in perpetuity as
reimbursement for health care costs, such as Medicaid expenditures,
related to tobacco use.5 Each state receives a share of the annual MSA
payments based on a fixed percentage identified in the MSA. These
percentages were negotiated during the settlement and were based, in part,
on smoking-related health care costs for each state. The total payment
fluctuates annually based on a formula that considers participating
manufacturers' annual U.S. shipments of tobacco as compared with those of
1997, as well as other factors such as inflation. The MSA imposed no
requirements on how states spend their payments.

The Farm Security and Rural Investment Act of 2002 (the 2002 Farm Bill)
requires GAO to report annually, from fiscal years 2002 through 2006, on
how states use MSA payments made by tobacco companies. In addition to
these payments, 15 of the 46 states have received substantial advance
proceeds based on the amounts that tobacco companies owe by issuing bonds
backed by payments to be made in the future, a process known as
securitization.6 States can securitize the expected payment stream to
receive funds up front rather than over time as MSA payments are made.
This report also includes information about states' receipt and allocation
of these securitized proceeds.7 This report is the fifth and final in a
series of reports responding to the 2002 Farm Bill requirement.8  In
addition, we previously reported in June 2001 on states' receipt and use
of MSA payments for fiscal years 2000 and 2001.9

This report discusses the (1) amount of payments, including securitized
proceeds, received by the 46 states party to the MSA during fiscal year
2005, the amount of payments these states expect to receive in fiscal year
2006, and (2) states' allocation of these funds to various program
categories for fiscal year 2005 and expected allocations for fiscal year
2006.

To address our objectives, we surveyed state budget offices, or their
designees, in each of the 46 states to obtain MSA payment and allocation

information for fiscal years 2005 and 2006.11 We asked the states to 10,
categorize their MSA payment allocations for fiscal year 2005 and their
expected allocations for fiscal year 2006 using 13 categories. In
addition, we asked states if they securitized their payments and, if so,
the amount of proceeds they received from securitization and the
categories to which they allocated the securitized proceeds. We took
several steps to assess the reliability of the states' data, including
independently corroborating the data to the extent possible. We determined
that the data were reliable enough for our purposes. In addition, we
compared the data we received for fiscal years 2005 and 2006 with the
payment and allocation information we collected from states for our
earlier reports.12 We conducted our work from September 2005 through March
2006 in accordance with generally accepted government auditing standards.
See appendix I for more information on our scope and methodology and for
detailed definitions of the categories used in this report.13 Appendix II
shows each state's percentage share of annual MSA payments.

Results in Brief

The 46 states party to the MSA expect to receive a total of about $11.3
billion in fiscal years 2005 and 2006, mostly from payments made by
tobacco companies. These states reported receiving over $5.8 billion in
fiscal year 2005 and expect to receive $5.4 billion in fiscal year 2006.
These amounts are substantially less than those of previous years, when
total payments and proceeds averaged about $9.3 billion annually. The
decreases occurred because only one state, Virginia, chose to issue a bond
and receive securitized proceeds ($390 million) in 2005, and none plan to
do so in 2006. Since the MSA was signed, 15 of the 46 states securitized
all or part of their payments, including the two states (California and
New York) with the largest payments, which alone received $6.7 billion in
securitized proceeds in 2 prior years. Of the $46.7 billion states
reported receiving over the first 5 years, about $31.1 billion were MSA
payments from the tobacco companies and about $15.6 billion were
securitized proceeds.

States allocated the largest portions of their fiscal year 2005 tobacco
settlement funds to health-related programs (32 percent) and debt service
on securitized proceeds (24 percent). They expect health programs to
remain about 32 percent and debt service to increase to 29 percent for
fiscal year 2006. These two categories increased substantially from fiscal
year 2004, when health-related programs represented 20 percent and debt
service was 9 percent. However, while the percentage allocations to some
program categories increased in fiscal year 2005, the dollars allocated to
these categories decreased because of the nearly $4 billion decrease in
securitized proceeds from fiscal year 2004 to 2005.

States Received About $5.8 Billion in MSA Payments and Securitized
Proceeds in Fiscal Year 2005 and Expect to Receive Somewhat Less in Fiscal
Year 2006

The 46 states party to the MSA reported receiving about $5.5 billion in
MSA payments from the tobacco companies and about $390 million in
securitized proceeds for 2005. For fiscal year 2006, these 46 states
expect to receive close to the same amount of MSA payments;  14 however no
states expect to receive securitized proceeds. While the fiscal year 2005
and expected fiscal year 2006 MSA payments are similar to those of 2004,
the securitized proceeds for the 2 years are about $4 billion and $4.4
billion less than in fiscal year 2004, respectively. Table 1 shows the
payments and proceeds for each state for fiscal years 2005 and 2006.

Table 1: MSA Payments and Securitized Proceeds States Reported Receiving
in Fiscal Year 2005 and Expect to Receive in Fiscal Year 2006

                                        

                 Fiscal year                                 Expected                              
                    2005                                      fiscal                               
                                                               year                                
                                                               2006                                
    State         MSA payments  Securitized            Total              MSA payments Securitized             Total 
                      received     proceeds                             expected to be    proceeds  
                                   received                                   received expected to  
                                                                                       be received  
Alabama           $101,871,492            0     $101,871,492              $101,871,679           0      $101,871,679 
Alaska              21,759,260            0       21,759,260                22,133,477           0        22,133,477 
Arizona             93,933,400            0       93,933,400                89,553,200           0        89,553,200 
Arkansas            52,774,224            0       52,774,224                49,500,000           0        49,500,000 
Californiaa        406,932,000            0      406,932,000               401,637,000           0       401,637,000 
Colorado            87,367,598            0       87,367,598                88,934,450           0        88,934,450 
Connecticut        118,320,645            0      118,320,645               111,000,000           0       111,000,000 
Delaware            25,207,000            0       25,207,000                27,698,000           0        27,698,000 
Georgia            156,427,234            0      156,427,234               146,123,673           0       146,123,673 
Hawaii              38,357,999            0       38,357,999                42,154,625           0        42,154,625 
Idaho               23,151,453            0       23,151,453                24,071,285           0        24,071,285 
Illinois           296,629,800            0      296,629,800               282,459,316           0       282,459,316 
Indiana            130,000,535            0      130,000,535               132,132,122           0       132,132,122 
Iowa                55,425,528            0       55,425,528                56,409,091           0        56,409,091 
Kansas              53,131,448            0       53,131,448                52,000,000           0        52,000,000 
Kentucky           112,241,980            0      112,241,980               108,600,000           0       108,600,000 
Louisiana          144,591,814            0      144,591,814               145,366,560           0       145,366,560 
Maine               49,033,129            0       49,033,129                49,594,690           0        49,594,690 
Maryland           151,263,000            0      151,263,000               149,503,000           0       149,503,000 
Massachusetts      257,411,796            0      257,411,796               253,349,780           0       253,349,780 
Michigan           274,326,923            0      274,326,923               285,500,000           0       285,500,000 
Missouri           144,964,644            0      144,964,644               154,000,000           0       154,000,000 
Montana             27,070,703            0       27,070,703                26,102,000           0        26,102,000 
Nebraska            37,919,415            0       37,919,415                36,273,307           0        36,273,307 
Nevada              38,872,322            0       38,872,322                39,507,406           0        39,507,406 
New Hampshire       42,400,000            0       42,400,000                43,000,000           0        43,000,000 
New Jersey         246,462,646            0      246,462,646               249,152,772           0       249,152,772 
New Mexico          38,009,047            0       38,009,047                29,657,921           0        29,657,921 
New Yorka          410,564,424            0      410,564,424               434,741,632           0       434,741,632 
North              148,640,949            0      148,640,949               163,353,241           0       163,353,241 
Carolina                                                                                            
North Dakota        23,326,754            0       23,326,754                22,972,067           0        22,972,067 
Ohio               321,050,059            0      321,050,059              321,050,059b           0      321,050,059b 
Oklahoma            66,034,977            0       66,034,977                49,348,303           0        49,348,303 
Oregon              73,142,434            0       73,142,434                75,110,359           0        75,110,359 
Pennsylvania       366,258,217            0      366,258,217               351,180,000           0       351,180,000 
Rhode Island        45,817,205            0       45,817,205                47,988,000           0        47,988,000 
South               73,361,299            0       73,361,299                74,329,662           0        74,329,662 
Carolina                                                                                            
South Dakota        22,238,977            0       22,238,977                23,232,155           0        23,232,155 
Tennessee          156,708,209            0      156,708,209               153,000,000           0       153,000,000 
Utah                28,353,400            0       28,353,400                29,541,000           0        29,541,000 
Vermont             26,205,607            0       26,205,607                24,500,000           0        24,500,000 
Virginia           130,315,484 $389,977,667      520,293,151               132,777,945           0       132,777,945 
Washington         130,879,000            0      130,879,000               131,000,000           0       131,000,000 
West Virginia       56,495,804            0       56,495,804                55,400,000           0        55,400,000 
Wisconsin          132,054,977            0      132,054,977               138,929,751           0       138,929,751 
Wyoming             15,827,492            0       15,827,492                15,827,492           0        15,827,492 
Total          $5,453,132,303a $389,977,667  $5,843,109,970a          $5,441,567,020a,           0  $5,441,567,020a, 
                                                                                     b                             b 

Sources: State budget offices or their designees.

aThe amounts of MSA payments received and expected by California and New
York do not include MSA payments made to the counties and cities in those
states.

bWe used Ohio's 2005 MSA payment as an estimate for its expected 2006
payment based on Ohio's budget document, which advises state agencies to
expect the same or less tobacco funds for that year as was received in
2005. In responding to our survey, Ohio declined to provide an estimate of
its 2006 expected payment because of uncertainties in adjustments in MSA
payments that may result from changes in participating manufacturers'
share of the tobacco market.

Since fiscal year 2000, states have received a total of about $53 billion
in MSA payments and securitized proceeds; specifically, about $37 billion
from MSA payments and $16 billion in securitized proceeds (see table 2).
The amount of total payments and proceeds in fiscal year 2005 ($5.8
billion) was significantly less than in fiscal year 2004, when New York
alone received $4.2 billion in securitized proceeds. States that have
issued bonds backed by MSA payments must pay for debt service on these
bonds.

Table 2: MSA Payments and Securitized Proceeds Received by the 46 States
Since Fiscal Year 2000

                                        

    Fiscal year         MSA payments   Securitized proceeds             Total 
2000-01           $13,200,000,000           $928,900,000   $14,128,900,000 
2002                6,238,393,496          3,838,376,465    10,076,769,961 
2003                6,306,329,459          6,482,764,469    12,789,093,928 
2004                5,340,128,223          4,374,698,723     9,714,826,946 
2005                5,453,132,303            389,977,667     5,843,109,970 
Total             $36,537,983,481        $16,014,717,324   $52,552,700,805 

Sources: GAO-01-851 , GAO-03-407 , GAO-04-518 , GAO-05-312 , state budget
offices or their designees, and GAO analysis.

Note: This table does not include payments or proceeds that went to cities
and counties in California and New York.

In fiscal year 2005, Virginia was the only state that received securitized
proceeds. Fifteen states have received a total of about $16 billion in
proceeds from the sale of bonds since fiscal year 2000, as shown in table
3. Five of the states-Alabama, Alaska, Iowa, Oregon and Rhode Island-have
received proceeds in more than one year.

Table 3: Total Amount of Securitized Proceeds Received by States, Fiscal
Years 2000-2005

                                        

                State                              Total securitized proceeds 
Alabama                                                       $153,760,000 
Arkansas                                                        58,268,549 
Alaska                                                         203,000,000 
California                                                   2,485,000,000 
Iowa                                                           643,108,448 
Louisiana                                                    1,069,510,894 
New Jersey                                                   2,751,814,469 
New York                                                     4,200,000,000 
Oregon                                                        657,565,000a 
Rhode Island                                                   545,859,897 
South Carolina                                                 785,900,000 
South Dakota                                                   278,045,000 
Washington                                                     517,905,000 
Virginia                                                       389,977,667 
Wisconsin                                                    1,275,002,400 
Total                                                     $16,014,717,324a 

Sources: GAO-01-851 , GAO-03-407 , GAO-04-518 , GAO-05-312 , state budget
offices or their designees, and GAO analysis.

aOregon issued bonds, but did not securitize them with tobacco settlement
payments.

States Allocated the Largest Portion of Their Funds to Address
Health-Related Programs and Debt Service on Securitized Proceeds in Fiscal
Year 2005 and Expect to Do the Same in Fiscal Year 2006

The 46 states reported that in fiscal year 2005 they allocated the largest
portion of their combined MSA payments and securitized proceeds (32
percent) to health-related programs, and the next largest portion (24
percent) was allocated to debt service on securitized proceeds. In fiscal
year 2006, the states expected the funding proportion that is devoted to
health programs to remain at 32 percent and that which is devoted to debt
service to increase to 29 percent. These two categories increased
substantially from fiscal year 2004, when health-related programs
represented 20 percent and debt service was 9 percent. The increases were
accompanied by substantial decreases in state allocations to cover state
budget shortfalls. Also, while the percentage allocations to some program
categories increased in fiscal year 2005, the total number of dollars
allocated to these categories decreased because of the nearly $4 billion
decrease in securitized proceeds from fiscal year 2004 to 2005. For
example, the percentage allocation to health care increased from 20 to 32
percent, while the dollar amount decreased from about $2.26 billion in
fiscal year 2004 to $1.87 billion in fiscal year 2005 and is expected to
remain about the same in fiscal year 2006. Examples of the health-related
programs included Medicaid, Children's Health Insurance Program, and
cancer research and prevention. Figure 1 and appendix III provide more
details on states' allocations of their combined MSA payments and
securitized proceeds for fiscal years 2000 through 2005, and expected
allocations for fiscal year 2006.

In addition, between fiscal years 2004 and 2005, the portion of funds that
all states allocated to cover budget shortfalls decreased substantially
from 44 percent to 4 percent, as shown in figure 1. Our analysis shows
that changes in the allocations (primarily securitized proceeds) by New
York and New Jersey were the primary cause of that decrease. The funds
(about $6.3 billion) allocated by these two states accounted for over half
of the total funds ($11.4 billion) that all states allocated in fiscal
year 2004, but these amounts declined substantially in fiscal year 2005
and are expected to further decline in 2006. Specifically, in fiscal year
2004, New York allocated $3.8 billion to budget shortfalls while New
Jersey allocated $873 million. These two states' allocations accounted for
about 92 percent of all funds allocated to budget shortfalls in fiscal
year 2004. In fiscal year 2005, however, New York allocated only $354
million to budget shortfalls while New Jersey did not allocate any funds
to budget shortfalls. In fiscal year 2006, neither New York nor New Jersey
expect to allocate any funds to budget shortfalls.

Figure 1: States' Allocations of Combined MSA Payments and Securitized
Proceeds for Fiscal Years 2000 through 2005, and Expected Allocations for
Fiscal Year 2006

Note: Percentages may not add up to 100 because of rounding.

aWe did not obtain data for budget shortfalls and debt service on
securitized funds for fiscal year 2000 to 2001.

Tables 4 and 5 show the percentage of the combined MSA payments and
securitized proceeds that individual states allocated, and expect to
allocate, to various categories in fiscal years 2005 and 2006,
respectively.

Table 4: Allocation of States' Combined MSA Payments and Securitized
Proceeds, Fiscal Year 2005

                                        

       State         Budget     Debt on    Economic Education  General Health 
                 shortfalls securitized development           purposes 
                               proceeds for tobacco                    
                                            regions                    
Alabama             0.0%       12.8%        0.0%     11.5%     5.9%  44.6% 
Alaska               0.0        80.0         0.0       0.0      0.0    0.0 
Arizona              0.0         0.0         0.0       0.0      0.0  100.0 
Arkansas             0.0         9.5         0.0       4.8      0.0   57.3 
California           0.0       100.0         0.0       0.0      0.0    0.0 
Colorado             0.0         0.0         0.0      13.2     51.9   29.1 
Connecticut          0.0         0.0         0.0       0.0     95.5    1.7 
Delaware             0.0         0.0         0.0       7.3      0.2   61.6 
Georgia              0.0         0.0        30.1       0.0      0.0   57.1 
Hawaii               0.0         0.0         0.0       0.0      7.3   32.5 
Idaho                0.0         0.0         0.0       0.0      0.0    2.2 
Illinois             0.0         0.0         0.0       4.8     17.2   71.4 
Indiana              0.0         0.0        26.4       0.0      0.0   49.7 
Iowa                 0.0        36.0         0.0       1.8      1.9   56.0 
Kansas               0.0         0.0         0.0      16.3      1.4    2.5 
Kentucky             0.0         0.0        42.9       9.7      3.2   34.3 
Louisiana            0.0        59.6         0.0       0.0      0.2    9.9 
Maine                0.1         0.0         0.0      21.2      0.1   36.3 
Maryland             0.0         0.0         0.0       2.0     19.9   66.1 
Massachusetts        0.0         0.0         0.0       0.0    100.0    0.0 
Michigan             2.4         0.0         0.0      34.0      0.1   63.4 
Missouri            49.6         0.0         0.0       0.0      1.6   48.4 
Montana              0.0         0.0         0.0       0.0     10.6   68.5 
Nebraska             0.0         0.0         0.0       0.0      0.2   53.3 
Nevada               0.0         0.0         0.0      54.0      0.3   21.3 
New Hampshire        0.0         0.0         0.0      94.3      5.7    0.0 
New Jersey           0.0        99.9         0.0       0.0      0.0    0.1 
New Mexico           0.0         0.0         0.0       0.0     68.8   31.2 
New York            22.6        27.8         0.0       0.0      0.0    0.0 
North                0.0         0.0        17.5       0.0     38.5   34.4 
Carolina                                                            
North Dakota         0.0         0.0         0.0      45.0      0.0    2.1 
Ohio                 0.0         0.0        13.9       8.2      8.5   33.2 
Oklahoma             0.0         0.0         0.0       0.0      2.7   61.2 
Oregon               0.0        35.6         0.0       0.0      0.0   22.4 

Sources: State budget offices and their designees (data); GAO (analysis).

Notes: Percentages may not add up to 100 because of rounding. Appendix IV
shows the dollar amount.

Table 5: Expected Allocation of States' Combined MSA Payments and
Securitized Proceeds, Fiscal Year 2006

Source: State budget offices and their designees (data); GAO (analysis)

Notes: Percentages may not add up to 100 because of rounding. Appendix IV
shows the dollar amount each state allocated to the various categories.

We are sending copies of this report to interested congressional
committees and others upon request. Copies are also available at no charge
on the GAO Web site at http://www.gao.gov .

If you or your staff have any questions about this report, please contact
me at (202) 512-3841 or [email protected] . Contact points for our Offices
of Congressional Relations or Public Affairs may be found on the last page
of this report. Key contributors to this report are listed in appendix VI.

Robert A. Robinson Managing Director, Natural Resources   and Environment

List of Congressional Requesters

The Honorable Saxby Chambliss Chairman 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 Jim Bunning United States Senate

Objectives, Scope, and Methodology Appendix I

The Farm Security and Rural Investment Act of 2002 (the 2002 Farm Bill)
requires GAO to report annually, from fiscal years 2002 through 2006, on
how states use Master Settlement Agreement (MSA) payments made by tobacco
companies. This report is the fifth and final in a series of reports
responding to the 2002 Farm Bill requirement. In December 2002, we issued
the report Tobacco Settlement: States' Allocations of Phase II Funds (
GAO-03-262R ), which provides information on the National Tobacco Grower
Settlement Trust (commonly referred to as the Phase II agreement). In
February 2003, we issued the report Tobacco Settlement: States'
Allocations of Fiscal Years 2002 and 2003 Master Settlement Agreement
Payments ( GAO-03-407 ). In March 2004, we issued the report Tobacco
Settlement: States' Allocations of Fiscal Year 2003 and Expected Fiscal
Year 2004 Payments ( GAO-04-518 ). In March 2005, we issued the report
Tobacco Settlement: States' Allocations of Fiscal Year 2004 and Expected
Fiscal Year 2005 Payments ( GAO-05-312 ). We also reported on states'
receipt and use of MSA payments for fiscal years 2000 and 2001 in a June
2001 report, Tobacco Settlement: States' Use of Master Settlement
Agreement Payments ( GAO-01-8 51).

To respond to the Farm Bill requirement, the objectives of this study were
to provide information on (1) the amount of payments received by the 46
states party to the MSA during fiscal year 2005 and the amount of payments
these states expect to receive during fiscal year 2006 and (2) states'
allocations of MSA funds to various program categories for fiscal year
2005 and states' expected allocations for fiscal year 2006.21,

To address these objectives, we surveyed3 the executive budget offices, or
their designees, in the 46 states party to the MSA. In addition, we
performed some reliability testing and independently corroborated these
data, to the extent possible. We reviewed and compared MSA payment data
reported by states with amounts provided by the National Association of
Attorneys General.4 We contacted state officials to discuss any data
entries on the surveys that were questionable, and resolved all
discrepancies between the survey data and the data provided by National
Association of Attorneys General. We also reviewed previous GAO reports
and other relevant studies. Based on this work, we determined that the
data were reliable enough for our purposes. We conducted our work from
September 2005 through March 2006 in accordance with generally accepted
government auditing standards.

Our study focuses on the states' shares of MSA payments and does not
include information on allocations of MSA payments to cities and counties
in California and New York.5 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 before states received their fiscal year 2006 payments, we were
unable to obtain final information on the actual MSA payments states
received during fiscal year 2006. Consequently, we obtained information on
states' expected fiscal year 2006 MSA payments.

Survey Methodology and Categorization of States' Allocations

We used a survey instrument similar to the one used to obtain information
for our March 2005 report. In September 2005, we contacted the 46 state
budget officials, or their designees, who completed the surveys for our
March 2005 report. The officials in many of these states indicated they
would be the respondents for this year's survey and several identified new
respondents. In September 2005, we E-mailed the survey to the identified
officials in each of the 46 states party to the MSA. We received responses
from all 46 states. From these responses, we obtained information on MSA
payments states received in fiscal year 2005 and MSA payments they expect
to receive in fiscal year 2006, and the states' allocations and expected
allocations of MSA payments in fiscal years 2005 and 2006, respectively.
We also obtained information on the states' proceeds, if any, from
securitization or expected securitization in fiscal years 2005 and 2006,
respectively, and the allocation of the securitized proceeds. Furthermore,
in the survey, we asked the states to categorize their allocations of MSA
payments and securitized MSA proceeds for fiscal years 2005 and 2006 using
the 13 program categories developed for our report. (See below for the
definitions of the 13 categories.) The level of detail for individual
states varies because we are relying on state-reported information.

There are no sampling errors because this was not a sample survey.
Nevertheless, 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, we edited the completed
surveys for consistency and contacted state budget offices to clarify
responses, verified all survey data that were entered into our database,
and verified that the computer programs were written correctly.

In addition, we took information on MSA payments and securitized proceeds
received and allocated for fiscal years 2000 through 2004 that we
collected for previous GAO reports dealing with the MSA6 and compared it
with receipts and allocations for fiscal years 2005 and 2006.

Categories of States' Allocations

To standardize the information reported by the 46 states, we developed the
following categories and definitions for the program areas to which states
allocated their payments.

Budget shortfalls: This category is comprised of amounts allocated to
balance state budgets and close gaps or reduce deficits resulting from
lower than anticipated revenues or increased mandatory or essential
expenditures.

Debt service on securitized funds: This category consists of amounts
allocated to service the debt on bonds issued when the state securitized
all or a portion of its MSA payments.

Economic development for tobacco regions: This category is comprised of
amounts allocated for economic development 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 is comprised of amounts allocated 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 is comprised of amounts allocated for
attorneys' fees and other items, such as law enforcement or community
development, which could not be placed into a more precise category. This
category also includes amounts allocated to a 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 is comprised of amounts allocated for direct health
care services; health insurance, including Medicaid and the State
Children's Health Insurance Program (SCHIP); 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 is comprised of amounts allocated 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 growers: This category is comprised of amounts
allocated for direct payments to tobacco growers, including subsidies and
crop conversion programs.

Reserves/rainy day funds: This category is comprised of amounts allocated
to state budget reserves such as rainy day and budget stabilization funds
not earmarked for specific programs. Amounts allocated 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 is comprised of amounts allocated 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 allocated to special funds established for children's
programs.

Tax reductions: This category is comprised of amounts allocated for tax
reductions such as property tax rebates and earned income tax credits.

Tobacco control: This category is comprised of amounts allocated for
tobacco control programs such as prevention, including youth education,
enforcement, and cessation services.

Unallocated: This category is comprised of amounts not allocated for any
specific purpose, such as amounts allocated to dedicated funds that have
no specified purpose; amounts states chose not to allocate in the year MSA
payments were received that will be available for allocation in a
subsequent fiscal year; interest earned from dedicated funds not yet
allocated; and amounts that have not been allocated because the state had
not made a decision on the use of the MSA payments.

Allocations of MSA Payments for 46 States Appendix II

Each of the 46 states receives a share of the annual MSA payments based on
the following fixed percentages identified in the MSA.

Table 6: Allocations 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 
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 

Sources: GAO-05-312 and the MSA.

States' Allocations of Combined MSA Payments and Securitized Proceeds for
Fiscal Years 2000 through 2006 Appendix III

Sources: GAO-05-312 and state budget offices or their designees (data);
GAO (analysis).

Note: Percentages may not add up to 100 percent and allocations may not
add up to total allocations due to rounding. The amounts for each year are
in the current year dollars for that year. Percentages across years may be
compared but not dollars across years because the dollars are not adjusted
to a constant base year.

aWe did not obtain information on allocations for budget shortfalls and
debt service on securitized funds in fiscal years 2000 and 2001.

State-Specific Information on Amounts of MSA Payments and Securitized
Proceeds Received and Allocated Appendix IV

This appendix presents the following information for each of the 46 states
party to the MSA:

o the amount of MSA payments received and the categories to which they
were allocated for fiscal year 2005;

o the amount of MSA payments expected to be received and the expected
categories to which they will be allocated for fiscal year 2006; and

o the amount of securitized proceeds received or expected to be received
and the categories to which they were allocated or expected to be
allocated for fiscal years 2005 and 2006, respectively, if applicable
(applies to four states).

Tables 7 through 52 include only those program categories to which a state
reported allocating funds. If a category is not listed, it means the state
did not allocate funds to the category. In some cases, the total amounts
allocated may exceed the actual MSA payments and securitized proceeds
because the amounts allocated include carry-over funds from prior years
and/or the interest earned on those funds. Some states that allocated
funds to a program category did not provide examples of programs receiving
funds. Only Virginia received securitized proceeds in fiscal year 2005; no
states expect to receive proceeds in fiscal year 2006. However, Iowa, New
York, and South Dakota allocated or expected to allocate funds composed of
securitized proceeds received in prior years. In these four cases, we
combined securitized proceeds with MSA payments.

Alabama

Alabama reported receiving $101,871,492 from MSA payments in fiscal year
2005 and expects to receive $101,871,679 in fiscal year 2006.

Table 7: Alabama's MSA Payment Allocations

                                        

                      Fiscal year                 
                       allocation                 
Program area               2005 Expected 2006  Examples of programs        
                                                  receiving or expected to    
                                                  receive allocations         
Debt service on     $13,000,000   $13,000,000  
securitized funds                              
Education            11,675,163    11,675,188  Alternative schools,        
                                                  Department of Education     
General purposes      6,008,160    53,008,172  Juvenile probation          
                                                  officers, administration,   
                                                  forensic sciences           
Health               45,449,741    45,449,837  Public health, mental       
                                                  health, Medicaid, senior    
                                                  services                    
Social services      25,207,739    25,207,792  Child welfare, children's   
                                                  programs, youth services,   
                                                  rehabilitation services     
Tobacco control         530,689       530,690  Tobacco enforcement for     
                                                  minors                      
Total              $101,871,492 $148,871,679a  

Source: Alabama Executive Budget Office.

aIncludes carry-over funds.

Alaska

Alaska reported receiving $21,759,260 from MSA payments in fiscal year
2005 and expects to receive $22,133,477 in fiscal year 2006.

Table 8: Alaska's MSA Payment Allocations

                                        

                      Fiscal year                
                      allocation                 
Program area              2005 Expected 2006  Examples of programs         
                                                 receiving or expected to     
                                                 receive allocations          
Debt service on    $17,407,408   $16,900,000  
securitized funds                             
Tobacco control      4,351,852     5,085,339  Tobacco use prevention       
                                                 programs, use cessation      
                                                 grants, enforcement, counter 
                                                 marketing, evaluation of     
                                                 programs                     
Total              $21,759,260   $21,985,339  

Source: Alaska Department of Revenue - Tax Division.

Arizona

Arizona reported receiving $93,933,400 from MSA payments in fiscal year
2005 and expects to receive $89,553,200 in fiscal year 2006.

Table 9: Arizona's MSA Payment Allocations

                                        

                 Fiscal year                 
                  allocation                 
Program area          2005 Expected 2006  Examples of programs receiving   
                                             or expected to receive           
                                             allocations                      
Health         $94,142,500   $89,553,200  Health services, including       
                                             behavioral health                
Total         $94,142,500a   $89,553,200  

Source: Arizona Governor's Budget Office.

aIncludes interest earned.

Arkansas

Arkansas reported receiving $52,774,224 from MSA payments in fiscal year
2005 and expects to receive $49,500,000 in fiscal year 2006.

Table 10: Arkansas' MSA Payment Allocations

                                        

                      Fiscal year                
                      allocation                 
Program area              2005 Expected 2006  Examples of programs         
                                                 receiving or expected to     
                                                 receive allocations          
Debt service on     $5,000,000    $5,000,000  
securitized funds                             
Education            2,508,007     2,337,289  University of Arkansas'      
                                                 School of Public Health      
Health              30,235,237    27,230,395  Prevention and cessation,    
                                                 biomedical research,         
                                                 Medicaid, minority health    
Tobacco control     15,030,980    14,932,316  Enforcement related to sales 
                                                 to minors                    
Total              $52,774,224   $49,500,000  

Source: Arkansas Department of Finance and Administration.

California

California reported receiving $406,932,000 from MSA payments in fiscal
year 2005 and expects to receive $401,637,000 in fiscal year 2006.

Table 11: California's MSA Payment Allocations

                                        

                      Fiscal year                 
                       allocation                 
Program area               2005 Expected 2006         Examples of programs 
                                                     receiving or expected to 
                                                          receive allocations 
Debt service on    $406,932,000  $401,637,000  
securitized funds                              
Total              $406,932,000  $401,637,000  

Source: California Department of Finance.

Notes: These MSA payments exclude payments made to California cities and
counties. Cities and counties in the state received the same amount as the
state.

Colorado

Colorado reported receiving $87,367,598 from MSA payments in fiscal year
2005 and expects to receive $88,934,450 in fiscal year 2006.

Table 12: Colorado's MSA Payment Allocations

                                        

                      Fiscal year                 
                      allocation                  
Program area               2005 Expected 2006  Examples of programs        
                                                  receiving or expected to    
                                                  receive allocations         
Education           $16,355,403    $4,446,723  Read to Achieve             
General purposes     64,530,052    34,909,422  
Health               36,172,817    39,905,273  Visiting Nurses, Primary    
                                                  and Preventive Care grants, 
                                                  Children's Health Plan Plus 
                                                  and Prenatal Health Care,   
                                                  dental loan repayment,      
                                                  breast and cervical cancer, 
                                                  children's mental health,   
                                                  Ryan White AID/HIV,         
                                                  children with autism, the   
                                                  Medicaid Management         
                                                  Information System          
Infrastructure                0     7,114,156  
Social services       4,304,053     4,446,723  Veteran's Trust Fund, Tony  
                                                  Grampsas Youth Services     
Tobacco control       2,951,553             0  Tobacco use cessation       
Total             $124,313,878a  $90,822,297b  

Source: Colorado Governor's Office of State Planning and Budgeting.

aIncludes carry-over funds and interest earned.

bIncludes interest earned.

Connecticut

Connecticut reported receiving $118,320,645 from MSA payments in fiscal
year 2005 and expects to receive $111,000,000 in fiscal year 2006.

Table 13: Connecticut's MSA Payment Allocations

                                        

                     Fiscal year                 
                      allocation                 
Program area              2005 Expected 2006  Examples of programs         
                                                 receiving or expected to     
                                                 receive allocations          
General purposes  $112,984,760   $94,875,000  General Fund                 
Health               2,000,000    16,000,000  Biomedical Research Trust    
                                                 Fund, Tobacco and Health     
                                                 Trust Fund                   
Tobacco control        125,000       125,000  
Unallocated          3,210,885             0  
Total             $118,320,645  $111,000,000  

Source: Connecticut Office of Policy and Management, Fiscal and Program
Policy Section.

Delaware

Delaware reported receiving $25,207,000 from MSA payments in fiscal year
2005 and expects to receive $27,698,000 in fiscal year 2006.

Table 14: Delaware's MSA Payment Allocations

                                        

                    Fiscal year                 
                     allocation                 
    Program area            2005 Expected 2006      Examples of programs      
                                                  receiving or expected to    
                                                     receive allocations      
Program area             2005 Expected 2006  Examples of programs          
                                                receiving or expected to      
                                                receive allocations           
Education          $1,926,000    $2,188,000  Scholarships for nursing      
                                                students at community         
                                                college, survey on alcohol    
                                                use, 5-year study and         
                                                guidelines for lesser known   
                                                illnesses                     
General                57,100        57,100  Funding for one full-time     
purposes                                     staff to assist the Delaware  
                                                Health Care Commission        
Health             16,193,400    16,849,500  Delaware Prescription Drug    
                                                Assistance Program, Medicaid  
                                                coverage for Supplemental     
                                                Security Income Transition    
                                                and for Pregnant Women's      
                                                Diabetes Pilot Program,       
                                                Uninsured Action Plan,        
                                                various cancer programs,      
                                                Public Access Defibrillation  
                                                Program                       
Social services     2,888,700     2,926,500  Supplemental Security Income  
                                                supplement, substance abuse   
                                                transitional housing, Heroin  
                                                Residential Program, assisted 
                                                living, attendant care        
                                                services, caregiver support   
Tobacco control     4,684,500     4,684,500  Tobacco use prevention        
                                                education, enforcement        
                                                activities, Smoking Cessation 
                                                Quitline                      
Unallocated           542,700       992,400  
Total            $26,292,400a   $27,698,000  

Source: Delaware Department of Health and Social Services.

aIncludes carry-over funds.

Georgia

Georgia reported receiving $156,427,234 from MSA payments in fiscal year
2005 and expects to receive $146,123,673 in fiscal year 2006.

Table 15: Georgia's MSA Payment Allocations

                                        

                     Fiscal year                 
                     allocation                  
Program area              2005 Expected 2006  Examples of programs         
                                                 receiving or expected to     
                                                 receive allocations          
Economic           $47,123,333   $47,123,333  One Georgia Authority        
development for                               
tobacco regions                               
Health              89,362,868    99,148,370  Medicaid, state children's   
                                                 health insurance programs,   
                                                 critical access hospital     
                                                 reimbursement, public        
                                                 health, Medicaid home and    
                                                 community-based waiver       
                                                 programs, Georgia Cancer     
                                                 Coalition (includes the      
                                                 Georgia Cancer Coalition     
                                                 Eminent Cancer Scientists    
                                                 and Clinicians Program for   
                                                 Cancer Research)             
Social services      7,149,804     7,149,804  Home and community-based     
                                                 services to the elderly,     
                                                 early intervention for       
                                                 families at risk for child   
                                                 abuse                        
Tobacco control     12,733,995     3,205,245  Tobacco Use Prevention       
                                                 Program, compliance and      
                                                 enforcement for underage     
                                                 smokers                      
Unallocated              5,723                
Total            $156,375,723a $156,626,752b  

Source: Georgia Office of Planning and Budget.

aPayments received in fiscal year 2004 were budgeted for fiscal year 2005.

bPayments received in fiscal year 2005 were budgeted for fiscal year 2006.

Hawaii

Hawaii reported receiving $38,357,999 from MSA payments in fiscal year
2005 and expects to receive $42,154,625 in fiscal year 2006.

Table 16: Hawaii's MSA Payment Allocations

                                        

                       Fiscal year                
                       allocation                 
      Program area            2005 Expected 2006     Examples of programs     
                                                   receiving or expected to   
                                                      receive allocations     
General purposes     $2,784,010    $3,027,143  Centralized administrative  
                                                  services, Tobacco           
                                                  Enforcement Special Fund    
                                                  for the Attorney General's  
                                                  Office for MSA Enforcement  
Health               12,450,896    13,694,619  Department of Health's      
                                                  public health programs,     
                                                  Department of Human         
                                                  Service's children's health 
                                                  insurance programs          
Infrastructure        9,960,717    10,955,695  Debt service on University  
                                                  of Hawaii revenue bonds     
                                                  issued for the new Health   
                                                  and Wellness Center, to     
                                                  include a new biomedical    
                                                  research center and medical 
                                                  school                      
Reserves/rainy day    8,715,627     9,586,233  State of Hawaii's Emergency 
fund                                           and Budget Reserve Fund,    
                                                  health and social service   
                                                  programs                    
Tobacco control       4,446,749     4,890,935  Tobacco Prevention and      
                                                  Control Trust Fund          
Total               $38,357,999   $42,154,625  

Source: Hawaii Department of Budget and Finance.

Idaho

Idaho reported receiving $23,151,453 from MSA payments in fiscal year 2005
and expects to receive $24,071,285 in fiscal year 2006.

Table 17: Idaho's MSA Payment Allocations

                                        

                 Fiscal year                
                 allocation                 
Program area         2005 Expected 2006  Examples of programs receiving or 
                                             expected to receive allocations  
Health           $500,000             0  Catastrophic Health Care Cost     
                                            Program for tobacco-related       
                                            disease treatment                 
Social            270,000      $270,000  Youth courts and status offender  
services                                 programs as they relate to        
                                            tobacco and substance abuse       
                                            issues                            
Tobacco         1,169,700       430,000  Development of statewide youth    
control                                  coalitions, tobacco               
                                            counter-marketing, public health  
                                            districts' tobacco use cessation  
                                            programs, youth tobacco           
                                            investigations                    
Unallocated    21,211,753    23,371,285  
Total         $23,151,453   $24,071,285  

Source: Idaho Division of Financial Management.

Illinois

Illinois reported receiving $296,629,800 from MSA payments in fiscal year
2005 and expects to receive $282,459,316 in fiscal year 2006.

Table 18: Illinois' MSA Payment Allocations

                                        

                      Fiscal year                 
                      allocation                  
     Program area             2005 Expected 2006     Examples of programs     
                                                   receiving or expected to   
                                                      receive allocations     
Education           $13,800,000   $13,800,000  Payments to Centers for     
                                                  Academic Excellence for     
                                                  medical research            
General purposes     49,001,698    26,553,172  Technology marketing,       
                                                  technology centers,         
                                                  administrative fees charged 
                                                  to the tobacco fund, audit  
                                                  expenses charged to the     
                                                  tobacco fund, Court of      
                                                  Claims awards               
Health              203,765,481   238,414,550  Medicaid drugs, drugs for   
                                                  senior citizens             
Infrastructure        1,817,343     7,602,749  Capital maintenance on      
                                                  state owned facilities      
Social services       9,319,189     9,990,900  Outreach programs to the    
                                                  aging                       
Tobacco control       7,539,377    12,917,900  Tobacco prevention          
                                                  activities of local health  
                                                  departments, tobacco        
                                                  control programs, tobacco   
                                                  enforcement of MSA          
                                                  provisions, grant to the    
                                                  American Lung Association   
Total             $285,243,088a $309,279,271a  

Source: Illinois Governor's Office of Management and Budget.

aIncludes carry-over funds and interest earned.

Indiana

Indiana reported receiving $130,000,535 from MSA payments in fiscal year
2005 and expects to receive $132,132,122 in fiscal year 2006.

Table 19: Indiana's MSA Payment Allocations

                                        

                      Fiscal year                 
                      allocation                  
     Program area             2005 Expected 2006     Examples of programs     
                                                   receiving or expected to   
                                                      receive allocations     
Economic            $46,300,000   $43,100,000  Value Added Research Fund,  
development for                                Rural Development           
tobacco regions                                Administration Fund, Rural  
                                                  Development Council Fund,   
                                                  Technology Development      
                                                  Grant Fund, 21st Century    
                                                  Research and Technology     
                                                  Fund, Commission on         
                                                  Hispanic and Latino Affairs 
General purposes              0       300,000  Attorney General's Office   
Health               87,400,000    92,200,000  Breast cancer education and 
                                                  diagnosis; prostate cancer  
                                                  education and diagnosis;    
                                                  sickle cell; State          
                                                  Department of Health        
                                                  Administration; cancer      
                                                  registry; minority health   
                                                  initiative; HIV/AIDS        
                                                  services; testing for       
                                                  drug-afflicted babies; AIDS 
                                                  education; state chronic    
                                                  diseases; Women, Infants,   
                                                  and Children supplement;    
                                                  Maternal and Child Health   
                                                  supplement; aid to TB       
                                                  hospitals; Local Health     
                                                  Maintenance Fund; Local     
                                                  Health Department Trust     
                                                  Account; Community Health   
                                                  Centers; minority           
                                                  epidemiology; Children's    
                                                  Health Insurance Program;   
                                                  Prescription Drug           
                                                  Account/Hoosier Rx;         
                                                  Community Health Centers    
Infrastructure        2,900,000     8,200,000  Regional health care        
                                                  construction                
Social services      28,300,000    33,900,000  Developmentally Disabled    
                                                  Client Services, Division   
                                                  of Disability, Aging and    
                                                  Rehabilitative Services;    
                                                  Social Services Block Grant 
Tobacco control      10,800,000    10,100,000  Tobacco use prevention and  
                                                  cessation                   
Total             $175,700,000a $187,800,000a  

Source: Indiana State Budget Agency.

aIncludes carry-over funds and interest earned.

Iowa

Iowa reported receiving $55,425,528 from MSA payments in fiscal year 2005
and expects to receive $56,409,091 in fiscal year 2006. In addition, Iowa
reported $63,852,236 was available in fiscal year 2005 from a fund
composed of (1) securitized proceeds received in prior years and (2)
interest earned on these proceeds. Iowa expects $66,284,236 to be
available from this fund in fiscal year 2006.

Table 20: Iowa's Allocations of MSA Payments and Securitized Proceeds

                                        

                       Fiscal year                 
                       allocation                  
Program area                2005 Expected 2006  Examples of programs       
                                                   receiving or expected to   
                                                   receive allocations        
Debt service on      $42,978,000   $43,680,000  
securitized funds                               
Education              2,153,250     2,153,250  Early childhood            
                                                   development                
General purposes       2,297,285     3,331,285  Correctional programs      
Health                66,837,664    68,517,227  Medicaid, substance abuse  
Tobacco control        5,011,565     5,011,565  Tobacco use, control,      
                                                   cessation programs         
Total              $119,277,764a $122,693,327a  

Source: Iowa Department of Management.

aIncludes carry-over funds and interest earned.

Kansas

Kansas reported receiving $53,131,448 from MSA payments in fiscal year
2005 and expects to receive $52,000,000 in fiscal year 2006.

Table 21: Kansas' MSA Payment Allocations

                                        

                  Fiscal year                 
                  allocation                  
Program area           2005 Expected 2006  Examples of programs receiving  
                                                  or expected to receive      
                                                        allocations           
Education        $8,684,755    $9,329,045  Parent education, 4-year olds   
                                              at risk, vision research,       
                                              special education               
General             752,882       252,882  State General Fund, Children's  
purposes                                   Cabinet Administration          
Health            1,337,792     1,300,000  Healthy Start Home Visitor,     
                                              Telekid Health Care Link        
Social           41,865,293    41,863,081  Juvenile justice prevention and 
services                                   sanction grants, children's     
                                              mental health initiative,       
                                              family-centered systems of      
                                              care, therapeutic preschool,    
                                              childcare and child welfare     
                                              community services, Healthwave, 
                                              Medicaid, Smart Start Kansas    
                                              (early childhood care and       
                                              education), immunization        
                                              outreach, school violence       
                                              prevention, family              
                                              preservation, attendant care    
                                              for independent living          
Tobacco             500,000     1,000,000  Smoking prevention and          
control                                    cessation                       
Total         $53,140,722 a  $53,745,008a  

Source: Kansas Division of the Budget.

aIncludes interest earned.

Kentucky

Kentucky reported receiving $112,241,980 from MSA payments in fiscal year
2005 and expects to receive $108,600,000 in fiscal year 2006.

Table 22: Kentucky's MSA Payment Allocations

                                        

                     Fiscal year                 
                      allocation                 
     Program area            2005 Expected 2006      Examples of programs     
                                                   receiving or expected to   
                                                     receive allocations      
Economic           $48,195,900    $33,541300  Governor's Office for        
development for                               Agricultural Policy,         
tobacco regions                               Conservation: Environmental  
                                                 Stewardship                  
Education           10,908,800    10,908,800  Families and Children: Early 
                                                 Childhood Development        
                                                 Program, Governor's Office   
                                                 of Early Childhood           
                                                 Development Program;         
                                                 Kentucky Higher Education    
                                                 Assistance Authority: Early  
                                                 Childhood Scholarship        
                                                 Program                      
General purposes     3,616,980       175,000  General Fund, Department of  
                                                 Revenue: enforcement         
Health              38,461,300    38,370,400  Public Health: Health Access 
                                                 Nurturing Development        
                                                 Service, Folic Acid          
                                                 Distribution, Healthy Start, 
                                                 Universal Children's         
                                                 Immunization, Child Advocacy 
                                                 Centers, Early Childhood     
                                                 Mental and Oral Health;      
                                                                              
                                                 Mental Health: Substance     
                                                 Abuse Services to            
                                                 Medicaid-Eligible Women with 
                                                 Dependent Children;          
                                                                              
                                                 Children With Special Health 
                                                 Care Needs: Universal        
                                                 Newborn Hearing Testing and  
                                                 Vision Screening;            
                                                                              
                                                 Council on Postsecondary     
                                                 Education: Lung Cancer       
                                                 Research Program;            
                                                                              
                                                 Insurance: Kentucky Access   
                                                 (High Risk Individual        
                                                 Insurance Pool)              
Infrastructure       6,116,600    20,671,200  Debt Service: Water Resource 
                                                 Development, Rural           
                                                 Development Bond Fund        
Tobacco control      4,942,400     4,933,300  Smoking cessation            
Total             $112,241,980  $108,600,000  

Source: Kentucky Governor's Office for Policy Research.

Louisiana

Louisiana reported receiving $144,591,814 from MSA payments in fiscal year
2005 and expects to receive $145,366,560 in fiscal year 2006.

Table 23: Louisiana's MSA Payment Allocations

                                        

                      Fiscal year                 
                      allocation                  
Program area               2005 Expected 2006  Examples of programs        
                                                  receiving or expected to    
                                                  receive allocations         
Debt service on     $86,242,759   $87,148,112  
securitized                                    
funds                                          
General purposes        350,000       350,000  Attorney General            
                                                  enforcement programs        
Health               14,377,675    13,758,480  Medicaid, School-based      
                                                  Health Centers, Louisiana   
                                                  Children's Health Insurance 
                                                  Programs, health care       
                                                  science grants              
Tobacco control         500,000       500,000  Smoking prevention and      
                                                  cessation grants            
Unallocated          43,121,380    43,609,968  
Total             $144,591,814a  $145,366,560  

Source: Louisiana Division of Administration, Office of Planning and
Budget.

aIncludes carry-over funds.

Maine

Maine reported receiving $49,033,129 from MSA payments in fiscal year 2005
and expects to receive $49,594,690 in fiscal year 2006.

Table 24: Maine's MSA Payment Allocations

                                        

                    Fiscal year                 
                     allocation                 
    Program area            2005 Expected 2006      Examples of programs      
                                                  receiving or expected to    
                                                     receive allocations      
Budget                $55,218      $451,010  
shortfalls                                   
Education          10,423,452    10,793,711  Child care and development    
                                                activities, after-school      
                                                services, Head Start          
General                56,552        65,747  Attorney General enforcement  
purposes                                     and administration            
Health             17,883,261    17,920,623  Prescription drugs, Medicaid, 
                                                other health initiatives      
Social services     5,658,262     5,741,915  Substance abuse prevention,   
                                                intervention, testing,        
                                                treatment                     
Tobacco control    15,159,818    15,295,990  Community and school grants   
                                                and statewide coordination to 
                                                reduce tobacco addiction and  
                                                use; tobacco prevention,      
                                                control, treatment            
Total            $49,236,563a  $50,268,996a  

Source: Maine Department of Administrative and Financial Services, Bureau
of the Budget.

aIncludes carry-over funds and interest earned.

Maryland

Maryland reported receiving $151,263,000 from MSA payments in fiscal year
2005 and expects to receive $149,503,000 in fiscal year 2006.

Table 25: Maryland's MSA Payment Allocations

                                        

                     Fiscal year                 
                      allocation                 
     Program area            2005 Expected 2006      Examples of programs     
                                                   receiving or expected to   
                                                     receive allocations      
Education           $3,000,000    $3,000,000  Text books for nonpublic     
                                                 schools                      
General purposes    30,169,000    30,052,000  Legal fees (settlement with  
                                                 outside counsel), Attorney   
                                                 General's Office for         
                                                 Nonparticipating             
                                                 Manufacturers' Enforcement   
Health              99,924,000   104,362,000  Medicaid, cancer prevention, 
                                                 screening and treatment;     
                                                 heart and lung disease;      
                                                 breast and cervical cancer;  
                                                 management; drug addiction   
Payments to          5,653,000     5,956,000  Tri-County Council of        
tobacco growers                               Southern Maryland            
Tobacco control      9,854,000     9,230,000  Countermarketing, minority   
                                                 outreach and technical       
                                                 assistance, surveillance and 
                                                 evaluation, administration   
Unallocated          2,663,000             0  
Total             $151,263,000 $152,600,000a  

Source: Maryland Department of Budget and Management.

aIncludes carry-over funds.

Massachusetts

Massachusetts reported receiving $254,593,761 from MSA payments in fiscal
year 2005 and expects to receive $253,349,780 in fiscal year 2006.

Table 26: Massachusetts' MSA Payment Allocations

                                        

                 Fiscal year                 
                  allocation                 
Program area          2005 Expected 2006  Examples of programs receiving   
                                             or expected to receive           
                                             allocations                      
General       $254,593,761  $253,349,780  Commonwealth's General Fund      
purposes                                  
Total         $254,593,761  $253,349,780  

Source: Massachusetts Executive Office of Administration and Finance.

Michigan

Michigan reported receiving $274,326,923 from MSA payments in fiscal year
2005 and expects to receive $285,500,000 in fiscal year 2006.

Table 27: Michigan's MSA Payment Allocations

                                        

                  Fiscal year                 
                  allocation                  
Program area           2005 Expected 2006  Examples of programs receiving  
                                                  or expected to receive      
                                                        allocations           
Budget           $7,000,000             0  
shortfalls                                 
Education        99,300,000  $166,300,000  Merit Award scholarships and    
                                              tuition incentive grants for    
                                              higher education students,      
                                              Michigan Educational Assessment 
                                              Program testing for K-12        
                                              students, nursing scholarships, 
                                              Michigan Education Savings      
                                              Plan, general higher education  
                                              support                         
General             368,200       386,800  Attorney General administration 
purposes                                   
Health          185,100,000   122,300,000  Elder pharmaceutical            
                                              assistance, Medicaid personal   
                                              needs allowance, respite care,  
                                              Medicaid support, biomedical    
                                              research and development        
Total         $291,768,200a $288,986,800a  

Source: Michigan Office of Health and Human Services, State Budget Office.

aIncludes carry-over funds and interest earned.

Missouri

Missouri reported receiving $144,964,644 from MSA payments in fiscal year
2005 and expects to receive $154,000,000 in fiscal year 2006.

Table 28: Missouri's MSA Payment Allocations

                                        

                  Fiscal year                 
                  allocation                  
Program area           2005 Expected 2006  Examples of programs receiving  
                                              or expected to receive          
                                              allocations                     
Budget          $72,149,994   $84,089,532  
shortfalls                                 
General           2,375,886     2,145,573  General revenue fund to support 
purposes                                   programs such as education,     
                                              Medicaid, corrections           
Health           70,369,652    67,282,481  Payments to Medicaid providers, 
                                              grants to hospitals for         
                                              graduate medical education,     
                                              prescription drug assistance    
                                              for low-income seniors through  
                                              the Missouri Senior Rx Program  
Tobacco             482,414       482,414  Enforcement of state laws on    
control                                    underage tobacco use            
Total         $145,377,946a  $154,000,000  

Source: Missouri Division of Budget and Planning.

aIncludes carry-over funds.

Montana

Montana reported receiving $27,070,703 from MSA payments in fiscal year
2005 and expects to receive $26,102,000 in fiscal year 2006.

Table 29: Montana's MSA Payment Allocations

                                        

                     Fiscal year                 
                     allocation                  
    Program area             2005 Expected 2006      Examples of programs     
                                                   receiving or expected to   
                                                     receive allocations      
General             $2,977,777    $2,871,220  General Fund                 
purposes                                      
Health              19,263,236    14,065,685  State Children's Health      
                                                 Insurance Program (SCHIP),   
                                                 Medicaid, Mental Health      
                                                 Services, Hospice and Home   
                                                 Health, Tobacco Trust Fund,  
                                                 Montana Comprehensive Health 
                                                 Insurance                    
Social services      2,844,884             0  Childcare, child support     
                                                 enforcement, infant          
                                                 mortality abatement, poison  
                                                 control, AIDS prevention,    
                                                 independent living, extended 
                                                 employment                   
Tobacco control      2,509,368    $6,825,385  Tobacco prevention           
Unallocated            524,562     2,339,710  
Total            $28,119,823 a   $26,102,000  

Source: Montana Office of Budget and Program Planning.

aIncludes carry over funds.

Nebraska

Nebraska reported receiving $37,919,415 from MSA payments in fiscal year
2005 and expects to receive $36,273,307 in fiscal year 2006.

Table 30: Nebraska's MSA Payment Allocations

                                        

                    Fiscal year                
                    allocation                 
    Program area           2005 Expected 2006  Examples of programs receiving 
                                                   or expected to receive     
                                                        allocations           
General              $86,595       $88,437  MSA and tobacco tax law        
purposes                                    enforcement                    
Health            20,216,433    21,678,570  Behavioral health (Medicaid    
                                               and non-Medicaid), public      
                                               health, State Children's       
                                               Health Insurance Program,      
                                               biomedical research            
Social services    2,848,200     2,983,029  Community-based developmental  
                                               disability services, respite   
                                               care assistance                
Tobacco control    2,500,000     2,500,000  Tobacco use prevention,        
                                               control, and cessation         
                                               programs for youth and adults  
Unallocated       12,268,187     9,023,271  
Total            $37,919,415   $36,273,307  

Source: Nebraska Department of Administrative Services-Budget Division.

Nevada

Nevada reported receiving $38,872,322 from MSA payments in fiscal year
2005 and expects to receive $39,507,406 in fiscal year 2006.

Table 31: Nevada's MSA Payment Allocations

                                        

                 Fiscal year                 
                  allocation                 
Program area          2005 Expected 2006  Examples of programs receiving   
                                             or expected to receive           
                                             allocations                      
Education      $33,003,114   $16,250,000  Scholarship program for Nevada   
                                             students who attend a Nevada     
                                             higher education institution     
General            286,523       427,350  Attorney General's tobacco       
purposes                                  retail enforcement and master    
                                             settlement legal expenses        
Health          12,990,070    12,523,141  Grants to improve health         
                                             services for children and        
                                             persons with disabilities,       
                                             prescription drugs and           
                                             pharmaceutical services for      
                                             low-income seniors, endowment    
                                             fund to provide grants for the   
                                             promotion of public health       
Social          10,121,699     5,757,637  Grants that assist senior        
services                                  citizens to live independent of  
                                             care facilities, senior          
                                             services, homemaker program      
Tobacco          4,680,754     4,528,847  Grants to help fund tobacco      
control                                   cessation programs               
Total         $61,082,160a  $39,486,975a  

Source: State Treasurer's Office.

aIncludes carry-over funds and interest earned.

New Hampshire

New Hampshire reported receiving $42,400,000 from MSA payments in fiscal
year 2005 and expects to receive $43,000,000 in fiscal year 2006.

Table 32: New Hampshire's MSA Payment Allocations

                                        

                 Fiscal year                
                 allocation                 
Program area         2005 Expected 2006  Examples of programs receiving or 
                                            expected to receive allocations   
Education     $40,000,000   $43,000,000  Education Trust Fund, which       
                                            distributes grants to school      
                                            districts                         
General         2,400,000             0  General Fund                      
purposes                                 
Total         $42,400,000   $43,000,000  

Source: New Hampshire Office of Legislative Budget Assistant.

New Jersey

New Jersey reported receiving $246,462,646 from MSA payments in fiscal
year 2005 and expects to receive $249,152,772 in fiscal year 2006.

Table 33: New Jersey's MSA Payment Allocations

                                        

                    Fiscal year                 
                     allocation                 
Program area             2005 Expected 2006  Examples of programs          
                                                receiving or expected to      
                                                receive allocations           
Debt service on  $245,110,225  $249,152,772  
securitized                                  
funds                                        
Health                135,242             0  New Jersey Family Care, new   
                                                and expanded Community        
                                                Options for Seniors,          
                                                expansion of Cancer           
                                                Initiative, Senior Gold       
                                                Pharmaceutical Assistance     
Total            $245,245,467  $249,152,772  

Source: New Jersey Office of Management and Budget.

New Mexico

New Mexico reported receiving $38,009,047 from MSA payments in fiscal year
2005 and expects to receive $29,657,921 in fiscal year 2006.

Table 34: New Mexico's MSA Payment Allocations

                                        

                 Fiscal year                
                 allocation                 
Program area         2005 Expected 2006  Examples of programs receiving or 
                                            expected to receive allocations   
General       $26,139,047   $17,787,921  
Purposes                                 
Health         11,870,000    11,870,000  Lung and tobacco illness          
                                            research, poison control          
Total         $38,009,047   $29,657,921  

Source: New Mexico Department of Finance and Administration.

New York

New York reported receiving $410,564,424 from MSA payments in fiscal year
2005 and expects to receive $434,741,632 in fiscal year 2006. These MSA
payments include only the 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 counties in the state receive the other 49
percent of the annual MSA payments to New York.

Table 35: New York's Allocations of MSA Payments and Securitized Proceeds

                                        

                       Fiscal year                 
                       allocation                  
Program area                2005 Expected 2006  Examples of programs       
                                                   receiving or expected to   
                                                   receive allocations        
Budget shortfalls   $354,313,266             0  
Debt service on      447,946,434  $434,741,632  
securitized funds                               
Total              $802,259,700a  $434,741,632  

Source: New York State Division of the Budget.

aThis amount includes securitized proceeds received in fiscal year 2004.

North Carolina

North Carolina reported receiving $148,640,949 from MSA payments in fiscal
year 2005 and expects to receive $163,353,241 in fiscal year 2006.

Table 36: North Carolina's MSA Payment Allocations

                                        

                       Fiscal year                 
                       allocation                  
Program area                2005 Expected 2006  Examples of programs       
                                                   receiving or expected to   
                                                   receive allocations        
Debt service on                0    $1,979,096  
securitized funds                               
Economic             $27,200,505     5,059,214  Aerospace Alliance         
development for                                 Initiative Awards,         
tobacco regions                                 Economic Catalyst Awards,  
                                                   Diversification            
                                                   Initiatives, Agri-Economic 
                                                   Development, Workforce     
                                                   Development, Conservation  
                                                   of Natural Resources       
Education                      0     2,000,000  Golden Leaf Foundation     
General purposes      60,000,000    34,000,000  General Fund               
Health                53,500,000    40,245,278  Senior Care Prescription   
                                                   Drug Program, Childhood    
                                                   Obesity Reduction,         
                                                   Medication Assistance      
                                                   Program, Health            
                                                   Disparities                
Infrastructure                 0     1,979,096  Tobacco Trust fund         
                                                   transfer                   
Tobacco control       15,000,000    15,000,000  Youth tobacco use          
                                                   prevention and cessation,  
                                                   enforcement of tobacco     
                                                   laws prohibiting sales to  
                                                   minors                     
Total              $155,700,505a $100,262,684a  

Source: North Carolina Office of State Budget and Management.

aIncludes carry-over funds and interest earned. In addition, officials
reported that they excluded the allocation for administrative expenses for
fiscal year 2005 because the data were not available.

North Dakota

North Dakota reported receiving $23,326,754 from MSA payments in fiscal
year 2005 and expects to receive $22,972,067 in fiscal year 2006.

Table 37: North Dakota's MSA Payment Allocations

                                        

                    Fiscal year                
                    allocation                 
Program area            2005 Expected 2006  Examples of programs receiving 
                                               or expected to receive         
                                               allocations                    
Education        $10,497,039    10,337,430  45 percent of the MSA Funds    
                                               are deposited in the common    
                                               schools trust fund and         
                                               interest earned on the fund is 
                                               used for K-12 education        
Health               489,862       229,721  Dental loan repayment program, 
                                               breast and cervical cancer     
                                               screening                      
Infrastructure    10,497,039    10,337,430  Water projects                 
Tobacco control    1,842,814     2,067,486  Tobacco cessation programs     
Total            $23,326,754   $22,972,067  

Source: North Dakota Office of Management and Budget, Fiscal Management
Division.

Ohio

Ohio reported receiving $321,050,059 from MSA payments in fiscal year
2005. We used Ohio's 2005 MSA payment as an estimate for its expected 2006
payment based on Ohio's budget documents, which advise state agencies to
expect the same or less tobacco funds for that year as was received in
2005. In responding to our survey, Ohio declined to provide an estimate of
their 2006 expected payment because of uncertainties in adjustments in MSA
payments that may result from changes in participating manufacturers'
share of the tobacco market.

Table 38: Ohio's MSA Payment Allocations

                                        

                      Fiscal year                 
                      allocation                  
     Program area             2005 Expected 2006     Examples of programs     
                                                   receiving or expected to   
                                                      receive allocations     
Economic            $15,584,593   $13,030,277  Programs to increase the    
development for                                variety, quantity, and      
tobacco regions                                value of nontobacco         
                                                  agricultural products,      
                                                  strategic investment in     
                                                  communities adversely       
                                                  impacted by a reduction in  
                                                  tobacco demand, education   
                                                  and training for tobacco    
                                                  growers                     
Education             9,277,865     6,274,109  Technology enhancements in  
                                                  schools                     
General purposes      9,533,109    17,971,831  Administration, oversight,  
                                                  and enforcement activities  
                                                  related to the MSA, law     
                                                  enforcement facilities      
                                                  improvements                
Health               37,307,790    52,080,892  Minority health programs,   
                                                  alcohol and drug abuse      
                                                  prevention, biomedical      
                                                  technology transfer,        
                                                  support for children's      
                                                  hospitals, lung cancer and  
                                                  disease research and        
                                                  prevention                  
Infrastructure                0   245,922,706  School construction         
Social services       3,725,000     3,982,451  Funding for uncompensated   
                                                  health care of uninsured    
Tobacco control      37,050,428    47,905,890  Underage tobacco            
                                                  enforcement, use prevention 
                                                  and cessation programs      
Total             $112,478,785a $387,168,156a  

Source: Ohio Office of Budget and Management.

aOhio supports each year's programs with MSA payments received during the
prior fiscal year as well as interest earned.

Oklahoma

Oklahoma reported receiving $66,034,977 from MSA payments in fiscal year
2005 and expects to receive $49,348,303 in fiscal year 2006.

Table 39: Oklahoma's MSA Payment Allocations

                                        

                     Fiscal year                
                     allocation                 
Program area             2005 Expected 2006  Examples of programs          
                                                receiving or expected to      
                                                receive allocations           
General purposes   $1,806,502    $1,500,000  Attorney General's Evidence   
                                                Fund                          
Health             40,445,047    32,649,026  Medicaid, Tobacco Settlement  
                                                Endowment Trust Fund (to be   
                                                used for health programs)     
Social services             0     4,345,788  Child welfare, foster care    
                                                services for homebound        
                                                elders, senior nutrition      
Tobacco control    18,886,011    15,199,277  Tobacco Settlement Endowment  
                                                Trust Fund (to be used for    
                                                control programs)             
Unallocated         4,897,417             0  
Total             $66,034,977  $53,694,091a  

Source: Oklahoma Office of State Finance.

aIncludes carry-over funds.

Oregon

Oregon reported receiving $73,142,434 from MSA payments in fiscal year
2005 and expects to receive $75,110,359 in fiscal year 2006.

Table 40: Oregon's MSA Payment Allocations

                                        

                     Fiscal year                 
                     allocation                  
Program area              2005 Expected 2006  Examples of programs         
                                                 receiving or expected to     
                                                 receive allocations          
Debt service       $43,770,304   $58,737,984  
Health              27,600,000    12,250,000  Oregon Health Plan, the      
                                                 state's Medicaid acute       
                                                 health care delivery system  
Tobacco control        700,000             0  
Unallocated         50,925,577     4,122,375  
Total            $122,995,881a   $75,110,359  

Source: Oregon Department of Administrative Services.

aIncludes carry-over funds.

Pennsylvania

Pennsylvania reported receiving $366,258,217 from MSA payments in fiscal
year 2005 and expects to receive $351,180,000 in fiscal year 2006.

Table 41: Pennsylvania's MSA Payment Allocations

                                        

                  Fiscal year                  
                   allocation                  
Program area            2005 Expected 2006  Examples of programs receiving 
                                               or expected to receive         
                                               allocations                    
Healtha         $326,354,000  $333,295,000  Health research, adult health  
                                               insurance, uncompensated care, 
                                               medical assistance for workers 
                                               with disabilities, community   
                                               medical assistance             
Tobacco           44,503,000    32,963,000  Tobacco use prevention and     
control                                     cessation                      
Total         $370,857,000 a $366,258,000a  

Source: Pennsylvania Governor's Office of the Budget.

aIncludes carry-over funds.

Rhode Island

Rhode Island reported receiving $45,817,205 from MSA payments in fiscal
year 2005 and expects to receive $47,988,000 in fiscal year 2006.

Table 42: Rhode Island's MSA Payment Allocations

                                        

                      Fiscal year                
                      allocation                 
Program area              2005 Expected 2006  Examples of programs         
                                                 receiving or expected to     
                                                 receive allocations          
Debt service on    $45,315,618   $47,988,000  
securitized funds                             
Total              $45,315,618   $47,988,000  

Source: State of Rhode Island Budget Office.

South Carolina

South Carolina reported receiving $73,361,299 from MSA payments in fiscal
year 2005 and expects to receive $74,329,662 in fiscal year 2006.

Table 43: South Carolina's MSA Payment Allocations

                                        

                      Fiscal year                
                      allocation                 
Program area              2005 Expected 2006  Examples of programs         
                                                 receiving or expected to     
                                                 receive allocations          
Debt service on    $73,361,299   $74,329,662  
securitized funds                             
Total              $73,361,299   $74,329,662  

Source: South Carolina Office of State Budget.

South Dakota

South Dakota reported receiving $22,238,977 from MSA payments in fiscal
year 2005 and expects to receive $23,232,155 in fiscal year 2006. In
addition, South Dakota reported $14,322,737 was available in fiscal year
2005 from a fund composed of (1) securitized proceeds received in prior
years and (2) interest earned on these proceeds. South Dakota expects
$15,005,263 to be available from this fund in fiscal year 2006.

Table 44: South Dakota's Allocations of MSA Payments and Securitized
Proceeds

                                        

                     Fiscal year                
                     allocation                 
Program area             2005 Expected 2006  Examples of programs          
                                                receiving or expected to      
                                                receive allocations           
Debt service on   $23,222,138   $17,167,994  
securitized                                  
fundsa                                       
Educationb         13,572,737    15,005,263  General and special           
                                                education, technology in      
                                                schools, scholarships,        
                                                postsecondary vocational      
                                                education                     
Tobacco controlb      750,000             0  Tobacco prevention and        
                                                reduction plan                
Total             $37,544,875   $32,173,257  

Source: South Dakota Bureau of Finance and Management and South Dakota
Health and Education Facilities Authority.

aThe Education Enhancement Funding Corporation pays for the debt service
on securitized funds because the MSA payments are issued directly to the
corporation rather than to the state.

bThe state allocates these funds based on interest earned.

Tennessee

Tennessee reported receiving $156,708,209 from MSA payments in fiscal year
2005 and expects to receive $153,000,000 in fiscal year 2006.

Table 45: Tennessee's MSA Payment Allocations

                                        

                 Fiscal year                 
                  allocation                 
Program area          2005 Expected 2006  Examples of programs receiving   
                                             or expected to receive           
                                             allocations                      
General       $156,708,209  $153,000,000  General Fund                     
purposes                                  
Total         $156,708,209  $153,000,000  

Source: Tennessee Department of Finance and Administration.

Utah

Utah reported receiving $28,353,400 from MSA payments in fiscal year 2005
and expects to receive $29,541,000 in fiscal year 2006.

Table 46: Utah's MSA Payment Allocations

                                        

                       Fiscal year                
                       allocation                 
Program area               2005 Expected 2006  Examples of programs        
                                                  receiving or expected to    
                                                  receive allocations         
General purposes       $100,000      $100,000  Attorney General's Office   
Health               12,891,800    13,002,800  State Children's Health     
                                                  Insurance Program, cancer   
                                                  research, immunizations,    
                                                  health promotion            
Reserves/rainy day    8,506,000     7,385,300  Tobacco Permanent Trust     
funds                                          Fund (an endowment that     
                                                  allows the Legislature to   
                                                  allocate the interest to    
                                                  fund programs)              
Social services       2,000,000     2,000,000  Drug Courts, Drug Board     
                                                  Pilot Program               
Tobacco control       4,076,000     4,062,100  Tobacco Quit Line, TV       
                                                  campaign, prevention        
                                                  partnerships                
Unallocated             779,600     2,990,800  
Total               $28,353,400   $29,541,000  

Source: Utah Governor's Office of Planning and Budget.

Vermont

Vermont reported receiving $26,205,607 from MSA payments in fiscal year
2005 and expects to receive $24,500,000 in fiscal year 2006.

Table 47: Vermont's MSA Payment Allocations

                                        

                 Fiscal year                 
                  allocation                 
Program area          2005 Expected 2006  Examples of programs receiving   
                                             or expected to receive           
                                             allocations                      
General           $158,000      $158,000  Tax and Fund administration      
purposes                                  
Health          21,111,951    21,233,111  State Medicaid Match, drug and   
                                             alcohol programs                 
Social             652,349       579,000  Safe housing (project against    
services                                  domestic violence)               
Tobacco          4,919,317     5,132,698  Media campaigns, marketing       
control                                   enforcement                      
Total         $26,841,617a  $27,102,809a  

Source: Vermont Department of Finance and Management.

aIncludes carry-over funds.

Virginia

Virginia reported receiving $130,315,484 from MSA payments in fiscal year
2005 and expects to receive $132,444,540 in fiscal year 2006. In addition,
Virginia reported receiving $389,977,677 in securitized proceeds in fiscal
year 2005.

Table 48: Virginia's Allocations of MSA Payment and Securitized Proceeds

                                        

                    Fiscal year                 
                     allocation                 
Program area             2005 Expected 2006  Examples of programs          
                                                receiving or expected to      
                                                receive allocations           
Debt service on             0   $33,444,540  
securitized                                  
funds                                        
Economic          $45,157,742    75,601,135  Economic development          
development for                              projects, infrastructure,     
tobacco regions                              education, job training,      
                                                research, administration of   
                                                the Tobacco Indemnification   
                                                and Community Revitalization  
                                                Commission                    
Health             52,126,193    52,977,816  Virginia Health Care Fund for 
                                                support of the Medicaid       
                                                program                       
Payments to        20,000,000    13,710,000  Indemnification payments to   
tobacco growers                              tobacco growers               
Tobacco control    13,031,549    13,244,454  Public education campaigns to 
                                                discourage tobacco            
                                                consumption by minors,        
                                                research, administrative      
                                                budget of the Virginia        
                                                Tobacco Settlement Foundation 
Total            $130,315,484 $188,977,945a  

Source: Virginia Department of Planning and Budget.

aIncludes carry-over funds and interest earned.

Washington

Washington reported receiving $130,879,000 from MSA payments in fiscal
year 2005 and expects to receive $131,000,000 in fiscal year 2006.

Table 49: Washington's MSA Payment Allocations

                                        

                     Fiscal year                  
                      allocation                  
Program area               2005 Expected 2006  Examples of programs        
                                                  receiving or expected to    
                                                  receive allocations         
Debt service on     $38,217,000   $38,252,000  
securitized                                    
funds                                          
Health               92,662,000    92,748,000  Health services, including  
                                                  state match on optional     
                                                  children's Medicaid and     
                                                  State Children's Health     
                                                  Insurance Program;          
                                                  subsidized health insurance 
                                                  for low-income state        
                                                  residents; grants to        
                                                  community clinics; grants   
                                                  to local public health      
                                                  jurisdictions; statewide    
                                                  public health programs such 
                                                  as childhood immunizations  
Tobacco control      16,164,000    17,500,000  Tobacco prevention and      
                                                  cessation                   
Total            $147, 043,000a $148,500,000a  

Source: Washington State Office of Financial Management.

aIncludes carryover funds.

West Virginia

West Virginia reported receiving $56,495,804 from MSA payments in fiscal
year 2005 and expects to receive $55,400,000 in fiscal year 2006.

Table 50: West Virginia's MSA Payment Allocations

                                        

                       Fiscal year                
                       allocation                 
Program area               2005 Expected 2006  Examples of programs        
                                                  receiving or expected to    
                                                  receive allocations         
General purposes              0   $30,000,000  Worker's Compensation Debt  
                                                  Reduction Fund              
Health              $19,549,408    20,078,744  Institutional facilities    
                                                  operation                   
Reserves/rainy day   28,247,902             0  Medical Trust Fund          
funds                                          
Tobacco control       5,850,592     5,850,592  Tobacco Education Program,  
                                                  Alcohol Beverage Control    
                                                  Administration's Tobacco    
                                                  Retailer Education Program  
Unallocated           2,847,902             0  
Total               $56,495,804  $55,929,336a  

Source: West Virginia Department of Revenue-State Budget Office.

aIncludes carry-over funds and interest earned.

Wisconsin

Wisconsin reported receiving $132,054,977 from MSA payments in fiscal year
2005 and expects to receive $138,929,751 in fiscal year 2006.

Table 51: Wisconsin's MSA Payment Allocations

                                        

                      Fiscal year                 
                       allocation                 
Program area               2005 Expected 2006  Examples of programs        
                                                  receiving or expected to    
                                                  receive allocations         
Debt service on    $132,054,977  $138,929,751  
securitized funds                              
Total              $132,054,977  $138,929,751  

Source: Wisconsin Department of Administration.

Wyoming

Wyoming reported receiving $15,827,492 from MSA payments in fiscal year
2005 and expects to receive $15,827,492 in fiscal year 2006.

Table 52: Wyoming's MSA Payment Allocations

                                        

                 Fiscal year                 
                  allocation                 
Program area          2005 Expected 2006  Examples of programs receiving   
                                             or expected to receive           
                                             allocations                      
General           $261,245      $261,245  Alcohol compliance, attorney     
purposes                                  
Health           6,918,275     6,918,275  Substance abuse treatment and    
                                             prevention and intervention      
                                             services                         
Social           2,967,736     2,967,736  Drug court-related juvenile and  
services                                  family mentoring, community      
                                             services, day care, intensive    
                                             supervised probation             
Tobacco          5,680,236     5,680,236  Tobacco prevention, regional     
control                                   prenatal programs, community     
                                             tobacco prevention activities,   
                                             tobacco cessation, media         
Total         $15,827,492a  $15,827,492a  

Source: Wyoming Department of Health, Substance Abuse Division.

GAO Survey on States' Allocations of Fiscal Years 2005 and 2006 MSA
Payments Appendix V

GAO Contact and Staff Acknowledgments Appendix VI

Robert A. Robinson, 202-512-3841

In addition to the contact named above, Charles M. Adams, Assistant
Director; Beverly Peterson; Bernice H. Dawson; Chuck Bausell; Kevin Bray;
Stuart Kaufman; and Alison O'Neill made key contributions to this report.

(360634)

www.gao.gov/cgi-bin/getrpt?GAO-06-502.

To view the full product, including the scope

and methodology, click on the link above.

For more information, contact Robert A. Robinson at (202) 512-3841 or
[email protected].

Highlights of GAO-06-502, a report to congressional requesters

April 2006

TOBACCO SETTLEMENT

States' Allocations of Fiscal Year 2005 and Expected Fiscal Year 2006
Payments

In the 1990's, states sued major tobacco companies to obtain reimbursement
for health impairments caused by the public's use of tobacco. In 1998,
four of the nation's largest tobacco companies signed a Master Settlement
Agreement (MSA) to make annual payments to 46 states in perpetuity as
reimbursement for past tobacco-related health care costs. Some states have
arranged to receive advance proceeds based on the amounts that tobacco
companies owe by issuing bonds backed by future payments.

The Farm Security and Rural Investment Act of 2002 requires GAO to report
annually, through fiscal year 2006, on how states use MSA payments made by
tobacco companies. To conduct this study, GAO surveys the 46 states. This
is the fifth and final of a series of reports that provides information on

           o  the payments the 46 states received in fiscal year 2005 and
           expect to receive in fiscal year 2006 and
           o  states' allocations of these funds to various program
           categories and changes from prior years.

The 46 states that are party to the MSA reported receiving about $5.8
billion in fiscal year 2005 and expect to receive about $5.4 billion in
fiscal year 2006. Over the previous 5 years, on average, states received
$9.3 billion annually. The recent decrease in tobacco settlement funds
provided to states has occurred because securitized proceeds-payments
states obtained from the sale of bonds backed by future MSA payments-have
declined. Proceeds declined because only one state (Virginia) chose to
issue a bond and receive proceeds in fiscal year 2005, and the two states
(California and New York) with the largest payments issued bonds in prior
years. In fiscal year 2006, states reported that all of the tobacco
settlement funds they expect to receive will be payments from tobacco
companies, and none from securitized proceeds.

The MSA allows states to use their tobacco settlement payments for any
purpose. States reported that they used the largest portion of the fiscal
year 2005 payments and proceeds (32 percent) to fund health-related
programs and the next largest portion (24 percent) to fund debt service on
securitized proceeds. States expect health programs to account for the
same proportion of funds in fiscal year 2006, while they expect debt
service to increase to 29 percent.

Categories to Which States Allocated the Largest Portions of Tobacco
Settlement Payments and Securitized Proceeds (Fiscal Year 2005 and
Expected Fiscal Year 2006)

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