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Document 2 of 528.

October 5, 2000, Thursday

SECTION: CAPITOL HILL HEARING

LENGTH: 13815 words

HEADLINE: HEARING OF THE SENATE COMMERCE, SCIENCE AND TRANSPORTATION COMMITTEE

SUBJECT: TOBACCO SETTLEMENT REVENUES

CHAIRED BY: SENATOR JOHN MCCAIN (R-AZ)

LOCATION: 253 RUSSELL SENATE OFFICE BUILDING, WASHINGTON, D.C.

WITNESSES:

DAVID SATCHER, ASSISTANT SECRETARY, PUBLIC HEALTH AND SCIENCE, SURGEON GENERAL, DEPARTMENT OF HEALTH AND HUMAN SERVICES;

BETTY MONTGOMERY, ATTORNEY GENERAL, OHIO;

FRANCIS COOLIDGE, PAST CHAIRMAN, NATIONAL BOARD OF DIRECTORS, AMERICAN CANCER SOCIETY;

MATTHEW MYERS, PRESIDENT, CAMPAIGN FOR TOBACCO-FREE KIDS;

JOHN HURSON, DELEGATE, MARYLAND GENERAL ASSEMBLY;

BODY:

SEN. JOHN MCCAIN (R-AZ): Good morning. I want to thank the witnesses for their presence. I would like to discuss this issue a bit before we call our witnesses.

In November of 1998, 46 States settled lawsuits they had filed against tobacco companies. Over the next 25 years, the settlement will pay an additional $206 billion to the States involved. Four other States that have reached separate settlements with the tobacco industry will receive an estimated $40 billion. That's Florida, Minnesota, Mississippi, and Texas.

At the onset of the litigation, one of the most recurring and dominant refrains by State officials pursuing the litigation was the critical need to reduce the use of tobacco products by children. The settlement funds are now arriving in State coffers at a time when most State economies are at their greatest. State governments in the United States reported a total surplus of $35 billion in 1999. The settlement agreement placed no restrictions on the use of the funds. While many States are still in the process of determining the use of the funds, questions are being raised by public health advocates and members of this committee about the amount of funding that is being devoted to tobacco use prevention and reduction programs. Matt Myers, of the Campaign for Tobacco-free Kids, who we had the great privilege of working with as we attempted to pass legislation through the Congress of the United States, and has been an advocate of children for many years, has stated that of 30 States that dealt with the tobacco settlement money in 1999, only eight provided enough new funding for truly comprehensive tobacco prevention and cessation programs.

For example, it has been reported that the mayor of Los Angeles intends to use $100 million of the city's tobacco settlement payment to address lawsuits involving police corruption.

We want to examine a series of recommendations by the Surgeon General and the Centers for Disease Control about effective programs to reduce tobacco use. This committee will also review the uses to which the States have devoted settlement dollars.

Beginning in 1998, payments from tobacco companies were credited to an escrow account. Each State's annual allotment from the account is based on a complex formula that accounts for its historical health spending. The total annual payments will be adjusted based on a number of factors, including the consumer price index and the amount by which domestic tobacco sales declined. As a result, a great deal of uncertainty exists about the precise amount of funding the States will receive.

Under the terms of the agreement, States must enact certain legislation and take other actions to receive their settlement payments in full. States must enact a model statute, as drafted in the master settlement agreement, or the payments could be reduced. 44 States have enacted model statutes to date.

Next, States must achieve State-specific finality under the agreement by having their State courts approve the master settlement, and all parties must be released from liability except for criminal liability. To date, 44 of the 46 States which were part of the MSA have achieved State-specific finality.

The Surgeon General and the CDC describe tobacco use as, quote, the single most preventable cause of death and disease in our society. Annually, tobacco use causes more than 433,000 deaths, and costs the Nation between $50 and $73 billion in medical expenses alone. Their recommended goals for comprehensive tobacco control programs focus on preventing the initiation of tobacco use by young children, promoting quitting among young people and adults, eliminating nonsmokers' exposure to environmental tobacco smoke, and identifying and eliminating the disparities relating to tobacco use among different population groups.

Commenting on the funding necessary to establish comprehensive tobacco control programs, the CDC says the amount necessary will, of course, vary from States to State. However, it recommends a range of $5 to $20 per person is necessary to implement all of the components of a comprehensive tobacco control program, depending on the population of each State.

The CDC has reported that no State -- no State -- is currently implementing all of its recommended program components fully. The most comprehensive review of the States' use of tobacco funds has been done by the National Conference of State Legislatures. Similar work has been done by the American Cancer Society, and the Campaign for Tobacco-Free Kids.

According to NCSL, as of July this year 44 State legislatures have appropriated nearly $8 billion in tobacco settlement funds to be placed in endowments, trust funds, and general revenue accounts to fund tobacco prevention, health care, and education activities. Six remaining States, Arizona, Missouri, Oklahoma, Oregon, and Pennsylvania, have yet to decide how to spend the funds.

As a group, States are spending a little more than half the money on either health care programs or tobacco prevention programs. A mere 9.2 percent of the funds is being used for tobacco prevention programs. The vast majority of the funding, 43.2 percent is being used for health care services. However, the NCSL report demonstrates that individual States are using the settlement funding for a variety of purposes.

New Hampshire spent all of its fiscal year 2000 funds to correct flaws in its education formula.

Georgia established the one Georgia trust fund and appropriated $62 million of the $144.2 million it received to attract business to rural regions of the State.

The State of Virginia has allocated $18 million of the $179 million it received for fiscal year 2001 to tobacco prevention programs. $89.5 million has been used to indemnify tobacco growers from the effects of the MSA and revitalize tobacco-growing communities.

Nevada will use 10 percent of the funding for tobacco prevention, but some of the money will be used to aid public broadcasting television stations develop DVD television.

Illinois will spend $26.4 million on tobacco prevention programs. However, $315 million of the $437.4 million allocated to the State for fiscal year 2001 will be used for either a property tax rebate or an earned income tax credit.

I want to say a word about legal fees. In some States, legal fees represent more than a quarter of the total settlement award, far outweighing the amount of funding used for tobacco prevention and reduction programs. Of the State of Mississippi's estimated $4.1 billion settlement, attorney's fees will eat up $1.4 billion, or 34.1 percent of the funds. Michael Horowitz of the Hudson Institute estimates that the tobacco settlement will provide $500 million per year to 200 to 300 lawyers.

I want to repeat that. The tobacco settlement, according to Michael Horowitz of the Hudson Institute, will provide $500 million per year to 200 to 300 lawyers, most probably in perpetuity.

The State Attorney Generals accounted for these statistics by stating that the payments to attorneys are from a separate and distinct account being paid by the tobacco companies. I think that is a disingenuous argument.

As part of the MSA, the tobacco-free arbitration panel was established to oversee payments to the plaintiffs' counsel. The inmates were guarding the asylum. However, some attorneys have refused to submit their fee requests to the panel, and insist on payment according to contingency fee agreements.

One example of this is Maryland attorney Peter Angelos. Mr. Angelos has previously insisted on full payment on the original 25 percent contingency fee contract. This would potentially result in Angelos' receiving a payment of $1 billion from Maryland's $4 billion settlement award.

A dispute has resulted over this payment in Maryland, with leaders of the State legislature claiming that a subsequent reduction of half of that fee was agreed to by Angeles due to -- only $500 million, I guess, was agreed to by Angeles due to the fact Maryland State tort law was changed in order to assist Angelos in winning the case.

Three firms representing Wisconsin billed the tobacco companies $75 million for the case's 26,284 hours of work. Even though this sum was a substantial reduction from the firms' original request for $847 million (20 percent of the $4.2 billion to be awarded Wisconsin) the reduced sum still represents a fee of $2,853 per hour, not bad compensation.

I would like to thank the witnesses for being here today, and I'd like to ask Mr. David Satcher, who is the Assistant Secretary of Health and the Surgeon General of the United States, to please come forward as our first witness.

I am sorry. I would welcome you, and how do you pronounce your name, Mr. Pechacek -- but I would like to first ask for opening statements. Senator Wyden.

SEN. RON WYDEN (D-OR): I am going to be very brief, and I am going to have to be in and out this morning because we have other hearings at this time as well. First, Mr. Chairman, I want to thank you for holding this hearing and for all of your efforts since I have been in the United States Senate on this matter of protecting children in particular.

It is very clear that we have significant problems with respect to protecting America's youngsters. You have consistently worked with me and others who have been active on this cause, and I want you to know that we very much appreciate your leadership on this issue.

SEN. MCCAIN: Thank you very much, Senator Wyden.

SEN. WYDEN: Mr. Chairman, it has been almost 7 years now sine the tobacco executives told me when they were under oath that nicotine is not addictive, and it is very clear since that time that while some progress has been made on some fronts there is still a long, long way to go to protect America's youngsters.

In 1998, the Senate debated whether to require the States to spend a portion of the tobacco settlement funds on health care. Although it sounded at the time like a significant amount of money was being discussed for 39 States and the District of Columbia, the 20 percent of total settlement dollars earmarked for health programs actually turned out to be less than what the CEO's of RJR and Phillip Morris made in compensation in just 1 year.

Mr. Chairman, you, in your opening statement, outlined -- and I think it is very important that it be part of the record -- some of the flaws in the settlement, some of the problems that we have seen since its enactment with respect to how those critically used funds have been siphoned off.

I want to make it clear, I am not against CEO's being compensated for their work, but when you have so many States in this country spending less on protecting youngsters than the executives of just a couple of these companies, and then you add on to it the holes in the settlement that you pointed out in your opening statement, it is very clear to me that there is significant work to be done to reform this program.

And so I am very pleased that you are holding this hearing. I hope the Congress will come back next year and look at a way to reform this program to get it back on track so it is doing what is essential for the public health, and that is to ensure that an adequate portion of these resources is actually spent on smoking prevention and cessation with a special focus on young people.

So I look forward to working with you, Mr. Chairman. I am very appreciative you are holding this hearing.

SEN. MCCAIN: I thank you, Senator Wyden, and I would like to make an additional comment. I think Dr. Satcher will testify in States where there have been vigorous anti-youth smoking programs, combined with the increase in the cost of a pack of cigarettes, we have seen positive results, and I think Matt Myers will also agree with this, that in States where they have not been doing that we have not seen the reduction in youth smoking, so there is a direct connection that frankly was derided by some at the time we were working on the tobacco bill.

Senator Burns, welcome.

SEN. CONRAD BURNS (R-MT): Thank you very much, Mr. Chairman. Thank you for holding this hearing, and I will be very, very short. When we got notification of this hearing we contacted our Attorney General's Office in Montana to see how we were doing up there and how the funds were being spent, and I am very happy to report that our programs are in place, the models are in place.

And just visiting with some of the public health folks across the State of Montana, of all the programs like helping people to quit smoking and the health problems and second-hand smoke and all these programs, prevention is probably -- and especially with children -- has probably been the most successful to this date. The Tobacco-Free Kids are to be congratulated for their work in this area and education also as far as tobacco is concerned.

So I just want to report to you that we are doing well in Montana, and I am also glad to hear your report this morning. I was really concerned that our lawyer friends were not going to be justly compensated.

[Laughter.]

SEN. MCCAIN: Thank you very much. I know of your abiding concern for them.

SEN. BURNS: I have a great concern.

I am afraid they will just have many hungry days.

SEN. MCCAIN: Could I mention to our witnesses, I think we are going to have a vote at 10:00, which means we are going to have to break, and then I would imagine, if the past few days has been true, that there will be an objection lodged to the hearing continuing past 11:30, so we will try and expedite our opening statements, and I will try to restrain myself as well.

Welcome, Dr. Satcher, and thank you for the wonderful work you do in a broad variety of areas. We are proud of your service to our country.

DR. DAVID SATCHER: Thank you, Chairman McCain, members of the committee. I am David Satcher, Surgeon General and Assistant Secretary for Health, and I am pleased to appear before you and to present testimony on our newest tobacco-related Surgeon General's report, which was entitled, Reducing Tobacco Use.

I am accompanied by Mr. Pechacek, Associate Director for Science in CDC's Office on Smoking and Health. He was also associate scientific editor of the new report.

I do want to express my appreciation, Mr. Chairman, particularly at what I know is a very busy time in this legislative season for your holding this hearing and for your continuing concern and leadership on tobacco control. Let me just say that this was the 52nd report from the Office of the Surgeon General. It was the 29th report on tobacco use. It is the first ever to provide an in-depth analysis of various methods to reduce tobacco use.

Our report shows we have the tools, the knowledge, and the resources to cut smoking rates in half by the end of this decade, and that is the goal of Healthy People 2010. The question is, do we have the will? Although our knowledge of tobacco control remains imperfect, we know more than enough to take on the tobacco control challenges of the 21st Century. Our findings tell us that our lack of greater progress in tobacco control is a result of our failure to implement proven strategies rather than a lack of knowledge about what to do.

I think the sobering reality is that smoking remains a leading cause of preventable death and disease in the United States today. More than 400,000 adults die prematurely from tobacco-related diseases each year. Today, nearly a quarter of U.S. adults and about a third of U.S. teenagers continue to smoke, and we believe efforts should focus on promoting quitting among adults and youth smokers, preventing young people from ever starting to smoke, protecting citizens from second-hand smoke, and eliminating racial and ethnic disparities in tobacco-related diseases.

This last goal, eliminating disparities, poses a great national challenge. We are wholeheartedly committed to expanding our research efforts and designing even more effective programs that address the unique cultural, ethnic, social, and socioeconomic needs of different populations.

At the beginning of September I participated in a World Federal of Public Health Association meeting in China. I reported at that meeting that today more than 4 million people die each year from smoking in the world. By 2030, that number will rise to 10 million, 70 percent of whom will be from developing countries. The United States is committed to working side-by-side with other nations and international organizations such as WHO to create a broad framework to curb the global epidemic of tobacco-related disease.

Later this month, the WHO will meet to begin the first stage of a negotiation on a framework convention on tobacco control. Although the report was developed primarily to guide decisions about effective tobacco control programs in this country, the report's findings have clear global applications. I want to now share briefly with you some of the major conclusions of the new tobacco report.

The report suggests the most serious challenge to our efforts to prevent tobacco use is the pervasive ongoing tobacco advertising and promotion campaigns by the tobacco industry. The industry spent $6.7 billion to market tobacco in the United States in 1998, more than $18 million a day. This marketing campaign takes place despite overwhelming evidence of the adverse health effects of tobacco use.

The regulation of tobacco sales and promotion is required to protect young people from influences to take up smoking, and in which many of them become addicted before they are actually old enough to legally purchase tobacco, and that is the bad news.

The good news in the report concludes that our major methods of reducing tobacco use are effective particularly when used as part of a comprehensive control program, and I will mention four of those strategies. The first are school programs. The report finds that educational strategies can postpone or prevent smoking onset in 20 to 40 percent of adolescents. School-based programs are most effective when combined with mass media programs and the community-based efforts involving parents and other community resources.

Unfortunately, less than 5 percent of schools Nation-wide are fully implementing the CDC school health guidelines. The report concludes secondly that pharmacologic treatment of nicotine addiction, combined with behavioral support, will help 20 to 25 percent of users to quit smoking for good. In fact, we now know that if physicians would just ask their patients to quit smoking 5 to 10 percent of their patients would in fact quit, and that would represent a two to fourfold increase in the quit rate.

If you go further and add to that programs of pharmacological treatment and counseling, 20 to 25 percent of users would quit, and that is a tenfold in crease in the quit rate that we have in this country.

These findings are critical, because 70 percent of smokers actually want to quit, and yet only 2.5 percent are now able to succeed in any given year. Addiction is, in fact, a chronic disease.

The Public Health Service recently issued a clinical practice guideline that highlights effective treatment methods for nicotine addiction. The broad application of this guideline could produce some more rapid short-term impact on the statistics.

The report concludes the clean air regulations and restrictions of minors' access to tobacco use help to change social norms with regard to smoking, and may reduce smoking rates directly. The report is clear that optimal protection of nonsmokers and smokers requires a smoke-free environment. However, despite the existence of numerous laws and policies in support of smoke-free schools, work site, and public places, only California today meets the Healthy People 2010 objective to eliminate exposure to second-hand smoke by the banning of indoor smoking or limiting it to separately ventilated areas.

I want to point out, Mr. Chairman, that almost 30,000 children per year are estimated to have the onset of asthma because of exposure to second-hand smoke. The report also concludes that economic approaches to tobacco control are good public health policy. It is estimated that a 10-percent increase in price can lead to an overall reduction in smoking of 3 to 5 percent, and as high as 7 percent in teenagers.

The report also notes that the need to improve tobacco warning labels in the United States is great. The report shows that consumers receive very little information regarding the ingredients, additives, and potential toxicity of tobacco products.

I want to conclude by highlighting that the most effective approach to controlling tobacco use is the comprehensive approach, one that combines education, clinical, regulatory, and economic strategies in an integrated program. Comprehensive State-wide tobacco control programs funded by excise taxes on tobacco products and settlement funds from the tobacco industry have emerged as the model for future effort to reduces tobacco use. They have been very effective where used.

Mr. Chairman, let me return to where I began. We know what works. We have the public health tools necessary to cut the tobacco use by 50 percent over the next decade. Every death from tobacco use is a preventable death. I hope that this report will serve as a blueprint for coordinated national tobacco control efforts to reduce the devastation of tobacco-related diseases and death in our Nation.

It is time to exercise our collective will to put this blueprint into action. It is not an exaggeration to suggest that tobacco control represents the most important public health intervention since the development of the polio vaccine.

The challenge for us is one of will. Do we have the will to take advantage of this golden opportunity?

Thank you, Mr. Chairman.

SEN. MCCAIN: Thank you, Dr. Satcher.

We referred earlier to the fact that there are a number of States, and we will get into it perhaps with the next panel, that simply have not lived up to the commitments they made at the time that the tobacco agreement settlement was made, I might add, an agreement between lawyers.

Are you concerned about some States not spending enough of their tobacco settlement proceeds on tobacco cessation prevention programs, and are there certain States you know of that have exemplary approaches. In other words, maybe you could give me both sides of this, or parts of this equation.

DR. SATCHER: We are very concerned that so few States are using the settlement funds to implement programs to prevent the initiation of smoking by teenagers, programs to help with the cessation of smoking, programs to help strengthen regulations to protect the environment. As I pointed out, 30,000 children a year have the onset of asthma because of being exposed to smoke. We do have very clear evidence that these programs make a difference, and they were the basis for this report.

California has had a 50-percent reduction in smoking over the last 10 years between 1988 and 1999, and

SEN. MCCAIN: Can I interrupt? They began these programs even before the settlement.

DR. SATCHER: They use excise taxes. They raised the excise tax from, I believe, 10 to 30 cents. Massachusetts did a similar thing and has had a dramatic reduction in the initiation of smoking. More recently, Florida, using a new program called TRUTH, has reduced the initiation of smoking by teenagers from almost 20 percent per year, and this was a range from middle school to high school, down to about 8.9 percent, 40-percent of more reduction, and so we have a lot of evidence, even in Arizona in recent years between 1996 and 1999.

We really have not had much reduction in smoking in this country, either. There has been more than a 20 percent reduction, again because of initiating programs consistent with the settlement agreement, and so we have a lot of evidence that where States have initiated programs consistent with these recommendations we are seeing results. We are saving a lot of lives.

SEN. MCCAIN: Would it be possible, Dr. Satcher, and if you're reluctant to do this I can understand, but if you could inform this committee, and perhaps in the next report point out where States are successfully carrying out the commitment that they have made, and I put in quotes the commitments they made at the top of the settlement and the results, and the States that are not, and the lack of results?

I think frankly the only way we are going to get the Governors and the legislatures to use this pot of gold they found at the end of the rainbow for the purposes that they committed to as a part of the settlement -- I do not think any Americans would have supported a tobacco settlement that went for tax rebates. That is not what this is all about. It is an affront, I think, to many Americans to hear these kinds of commitments, and I have got a bunch of quotes from the Campaign for Tobacco-Free Kids and the American Cancer Society, the American Heart Association, American Lung Association which are really kind of chilling.

Governor after Governor, Attorney General after Attorney General, this is it, we will devote all this money to these programs, and they did not -- and they did not, in many, many cases. But as you pointed out, in some cases they did. Massachusetts and California being perhaps the best examples, at least of the ones that I have seen. There are other success stories, but there are many failures, and so would it be possible for you to get into that a little bit for us?

DR. SATCHER: You are going to hear that from the next panel, and they are better prepared right now than I am to talk about those States that have not. CDC is, in fact, doing a very comprehensive study of the States, and that will be finished in January of 2001, and I usually like to wait for the CDC in terms of what we say at our level.

SEN. MCCAIN: Perhaps, Dr. Satcher, after they issue that report in January we could have another hearing and you could prepare yourself at that time.

DR. SATCHER: I would be delighted.

SEN. MCCAIN: We are not talking about a scholastic argument here. We are talking about kids dying because the assets available are not being used to address the problem, which was the promise when the agreement was made. That is a bit disturbing, and I understand why it might contribute to the cynicism of people about the Government.

DR. SATCHER: I agree 100 percent. What the CDC has told us, and it makes sense, is that different States are taking different strategies for accessing this money and using it. Some States are saying, give us a lump sum right now as opposed to the amount we would get over 25 years, and so they will get a lump sum of money which is much smaller than what the total sum would be, and therefore how they budget this money in these various areas is a little bit more difficult for us to evaluate until we look at it in more depth.

But let me just say clearly, and I mentioned that Arizona, California, Massachusetts, Maine, Oregon, are States that are, in fact, according to what we know right now, implementing programs of the kind that we recommend. Some of them have had excise taxes working for them even before the settlement fund, but they are implementing the programs which CDC recommends that they implement.

SEN. MCCAIN: And there is not a doubt in your mind that these programs work?

DR. SATCHER: Our data show that if you begin educating children in elementary school and you continue your programs telling them the harmful effects of tobacco you reduce the initiation of smoking between 20 and 40 percent in the States where we looked. I mean, that is a lot of lives. That is almost a 1/2 million children a year that will not begin to smoke in this country.

5 million children in this country today under 18 years of age will die from smoking if things continue as they are going now, and so that is how serious this problem is. But by the same token, that is how relevant and how critical this opportunity is that we have, if States use the tobacco settlement funds.

I mean, even if you want to make the economic argument, we spend between 50 and $100 billion a year dealing with either medical care for smoking-related diseases or the indirect cost from smoking, so in the long run it even makes sense in terms of an investment, but the problem is that we are going to find ourselves years from now with people continuing to die from smoking because we did not implement these programs that we know can work.

And I just want to say one other thing, because I am concerned about children especially. I agree with David Kessler when he said that smoking is a pediatric disease, because children begin to smoke and before they are 18 years of age they are addicted, and addiction is a disease. It is not easy to quit smoking once you are addicted. Some people can quit easier than others, but for most people it is not easy. 70 percent of smokers would like to quit this year. Less than 3 percent will quit.

The other thing I am concerned about with children is the fact that as I said before almost 30,000 children a year have the onset of asthma by being exposed to environmental tobacco smoke, and so there are a lot of, quote, innocent victims being affected by this, and I think to a great extent smokers in a way are innocent victims if they are addicted when they are children and they have trouble shaking this addiction, but there are a lot of people who do not smoke. 3,000 people a year die from lung cancer who do not smoke, because they are exposed to it, and we are estimated that between 40,000 and 60,000 people die from heart disease, not smokers, but people exposed to smoking environments.

So we know that the recommendations that we have made can make a tremendous difference in this country.

SEN. MCCAIN: Well, doctor, I hope you stay involved in this issue. I know you have been, and you have been the most persuasive spokesperson, not only because of your own personal credentials, but the fact that you are the Surgeon General of the United States of America, and we are very grateful for that, and I would like for you to next year help us get into this issue of how this money is being spent.

If there is no dispute that there is a direct relation between the antitobacco use programs and the reduction in the use of tobacco, i.e., as you so eloquently illustrate, saving thousands and thousands of lives, then it seems to me we ought to put the States' feet in the fire to comply with the agreement that they made.

The whole reason, rationale, as I understood, for the settlement was not to provide another windfall of money for the States, but to achieve a goal of reducing smoking, particularly among children, the use of tobacco particularly.

My friend Joe Garagiola is very interested in me saying the use of tobacco rather than just saying gee, here we have got a whole bunch of money, we can give a tax rebate, and I think it is really a betrayal, almost, when they use this money for other purposes than for what the stated intentions were, and again, we have got this report that I just referred to earlier, the statements made by the Governors and the Attorneys General.

When the settlement was made all were committed to programs which would reduce the use of tobacco, and unfortunately that has not been the case, some more egregious than others, so I hope you will stay involved in that part of the issue as well, because I think the thing that will bring these States, the Governors and legislatures around very frankly is a lot of visibility.

DR. SATCHER: Well, we plan to stay involved, and also we have tried to be available to States that have asked for our support, and I am willing to travel to any State that would like our help in helping them to develop these programs, and so this is critical, so we are willing to do that.

SEN. MCCAIN: Thank you. Did you have a comment, sir?

MR. TERRY PECHACEK: Just to reinforce the point that a key component of the Center for Disease Control's program is technical assistance to the States. In response to this issue, our guidelines are released not in any way to mandate. This is in response to the States. We are providing the budgetary guidelines to help States fulfill these types of commitments and to develop effective programs, so that is a key portion of our overall program.

SEN. MCCAIN: Well, I also -- to state the obvious there are some great success stories out there. California is one of them, Massachusetts is another one, and there are other States that are great success stories, and I would recommend that the States that are not achieving these reductions should probably look to what is being accomplished in other States and how they did it, as well as your guidelines.

DR. SATCHER: Mr. Chairman, in part that is what CDC's Best Practices outline does. CDC has looked at these successful States, and they have pulled together the Best Practices, so any State that wants to know what has worked in other States can find them in this document, Best Practices, or in the Surgeon General's report on reducing tobacco use.

SEN. MCCAIN: Thank you. We look forward to seeing you in January or February, Dr. Satcher. Obviously, I hope to see you before. I hope you will continue the great work that you are doing, and we look forward to working very closely with you. Thank you very much.

DR. SATCHER: Thank you, Mr. Chairman.

SEN. MCCAIN: Thank you. Since we have this vote on, we will take a brief break before we call the next panel, and I will be back in 5 to 10 minutes, as quickly as I can get over and back.

[Recess.]

SEN. MCCAIN: The committee will reconvene. Our next panel is Betty D. Montgomery, Attorney General of Ohio, Mr. Francis L. Coolidge, immediate past chairman, national board of directors, American Cancer Society, Mr. Matt Myers, president, Campaign for Tobacco-Free Kids, and Mr. John Hurson, delegate from the Maryland General Assembly. I believe Mr. Hurson is also Majority Leader, is that correct?

MR. JOHN HURSON: That is correct.

SEN. MCCAIN: Congratulations, or should I say condolences?

[Laughter.]

SEN. MCCAIN: We want to begin with Attorney General Montgomery. Thank you for being here.

MS. BETTY D. MONTGOMERY: Thank you, Mr. Chairman. It is a pleasure to be here. It is a pleasure to be able to be here at such a momentous time in our history, where we have had the largest civil settlement in the world, and we have an opportunity to make a real difference in the public health in this country.

When Ohio entered into the lawsuit, or began the analysis on this lawsuit was back in March of 1996. A year later we announced our intention to sue, and as we did our investigations, as you certainly know, we found a pattern of corrupt activity regarding anticompetitive behavior. We found violations of consumer laws. We found representations, misrepresentations regarding addiction, and the like. You have heard all that testimony.

Most importantly for us and all the Attorneys General was the unsettling discovery that there was a pattern of directly marketing to underage children, to minors, with their marketing campaigns, so that as you know we ultimately, as Attorneys General, 46 States, 5 Commonwealths and Territories, and the District of Columbia, reached an agreement with the tobacco companies regarding this lawsuit.

This lawsuit was heard around the world. The settlement was equally striking because of the work, frankly, of the State Attorneys General, and we now have banned certain kinds of activities. We have no more billboards. We have tobacco advertisements in teen publications banned. Multimillion conspiracies to hide the truth about smoking have been exposed, and we pray that all of these things are a thing of the past as we move forward.

You know, there are four additional States that settled outside of the master settlement agreement. I am very pleased to report to you, Senator McCain, that Ohio under the master settlement agreement received the fourth largest settlement under the master settlement agreement, which would total about, over $10 billion by the time we are done in the next 25 years.

I have been humbled by the fact that Ohio has at this point been held as a model for allocating tobacco settlement dollars for the public health purpose. I have to tell you I attribute that to the fact that from the very beginning we worked very closely with the public health community before we filed the lawsuit, during the lawsuit, at the time of the settlement of the lawsuit, and now, as we are planning our structure on how we are going to spend those dollars the public health community has been a vital and equal partner in that expenditure and that planning.

In fact, in June of 2000 the Campaign for Tobacco-Free Kids quarterly legislative newsletter was kind enough to compliment Ohio for our work, and I appreciate that. That was a bit of a surprise. As a result of the newsletter and previous national and regional seminars our office has been contacted by an awful lot of States and legislators to see what model those States can use to successfully spend tobacco money to fund smoking cessation and prevention programs, as well as other public health priorities.

Our General Assembly -- Senator McCain, I am a creature of the General Assembly.

I have a great respect for the collective wisdom of the legislative body to make decisions, and we were very fortunate in Ohio to have both the House and the Senate, under the leadership of Senator Finan and Speaker Davidson, as well as Governor Taft, who it was not a question that money was going to be focused on intervention and prevention programs, and so that was not an argument we had to make.

As a result, our General Assembly has set up priorities and created a blueprint by up-fronting our settlement dollars for public health-related trust funds. In fact, at least 43 percent of our dollars are spent and are sequestered for public health moneys, for public health issues over the next 12 years directly, and it is very hard to bind a legislature, but we have done everything we can to bind the future legislatures to that commitment.

We credit our success, as I said, to the public health community. These groups included the American Lung Association and the Heart Association, the Cancer Association. Obviously, the Campaign for Tobacco-Free Ohio, the Ohio Department of Health, the Ohio Department of Human Services, and the Ohio Hospital Association.

Prior to the creation, we frequently met, as I discussed, and I asked them at some point as we were going through this to create for me a blueprint, what is it ideally you think you need in terms of expenditures of dollars, come back to me with the blueprint so we can use that as we work through our lawsuit and as we work through the General Assembly.

When the settlement first appeared possible back in 1998, I met personally with the public health community and, in fact, the blueprint that they prepared, known now as the State-wide tobacco use prevention plan, was ultimately used frankly for an earmark, as a guideline for us in the subsequent hearings, both in planning hearings as well as legislative hearings. The plan utilized the foundation concept with governing boards. It specifically focused on tobacco prevention and cessation programs, and provided for grants to be awarded on a competitive basis while encouraging public-private partnerships.

After developing these recommendations, we stood shoulder-to- shoulder with the Tobacco Settlement Task Force. We created a task force, and it was a broadbased task force of 15 members, and we had some 60 different witnesses. We had over a dozen hearings in which we listened to all of the folks' ideas about what Ohio should be doing with its dollars, and so we had sort of a prelegislative meeting, put together, then, a plan, which we then presented to the General Assembly, and the General Assembly, or the task force recommendations, which were approved in a 14 to 1 vote, created individual funds focusing on health programs, smoking prevention, biomedical research, school facilities, education technology, some relief for farmers, and for some law enforcement involvement.

Again, strong leadership by good people in the State who were listened to made all the difference in the world. We signed this. It was not without legislative wrangling, as you might expect, Senator McCain. We had the same kind of issues we have heard you speak about today. We had the debates about tax relief. We had the debates about where these dollars should or should not be spent, even though we had a very strong recommendation from critical members of the legislature.

I will not tell you that it was an easy process, but at the end of the day I think we can say that at this stage we are very pleased with the product. Hopefully, now the future leaders of this State will have the responsibility of determining the uses and allocations, but we think the blueprint is a strong enough blueprint that it will be hard for them to depart from it.

Every 6 years the General Assembly, a committee consisting of Senators and State representatives, including the minority parties, will reexamine the use of tobacco moneys under the master settlement agreement. This is to ensure, quite frankly, that the dollars are being spent the way they were intended to address public health issues.

All the money that Ohio will receive from tobacco will be divided into eight trust funds, and I know you are busy, and I do not want to bore you with a lot of this, but I will give you a very brief summary. The trust fund, the Tobacco Use Prevention and Control Foundation will include about $1.26 billion, or over 25 percent of the total dollars we expect to get, and that foundation is the heart and soul of our tobacco intervention programs and cessation programs made up of members of the public health community, made up of members of the General Assembly, and public elected officials.

SEN. MCCAIN: Ms. Montgomery, I apologize for asking you to shorten because of arcane rules of the Senate we do not have a lot of time because we will be shut down.

MS. MONTGOMERY: Anyway, we have a number of trust funds. We will submit the testimony on that. One of the other things we have done which is rather unique is also focus dollars in biomedical research, particularly directly related to tobacco-related diseases and the like.

Mr. Chairman, knowing you have other members here to speak, and having been a member of the General Assembly myself, I recognize there are other priorities here. I would ask to submit the testimony as well as, I have some testimony from Christine Gregoire, without whom we would not be sitting here today talking about this. As Attorney General of Washington she asked, and I would probably request that we could submit the letter that she sent to me for the committee to look at.

SEN. MCCAIN: Without objection. You see, if someone objects there is a time limit as to how long our hearings can proceed, but I do appreciate your testimony, and your complete testimony and that of Christine Gregoire, who is the Attorney General of the State of Washington, will be made a part of the record.

Mr. Coolidge, welcome.

MR. FRANCIS L. COOLIDGE: Thank you. I am Francis Coolidge, immediate past chair --

SEN. MCCAIN: You need the microphone.

MR. COOLIDGE: I am Francis Coolidge, the immediate past chair of the American Cancer Society, and on behalf of the 18 million volunteers and supporters of the society I would like to thank you, Senator, and your committee colleagues, for inviting me to speak here today.

3 years ago, John Seffrin, our CEO, testified before this committee about the need for national legislation to protect the health of Americans from the harms of tobacco. Unfortunately, what was true then is still true today. One in three people who die from cancer dies because of tobacco, and despite the master settlement agreement we are still in need of national policies to address the tobacco problem in this country.

The society and our partners in the public health community had great hopes that the MSA would have a positive impact on tobacco control in this country. Unfortunately, the Congress, without your support, waived its rights to any of the MSA money without requiring that the States spend even a single penny of it on tobacco control, and that failure has resulted in a dismal record and a wholly inadequate spending by the States to address the problem of tobacco use.

According to the new study report produced by the Campaign for Tobacco-Free Kids, an average of 7.5 percent of the settlement money, less than a dime out of every dollar, is going to tobacco control. Only a handful of States have allocated even the minimum amount of funding for tobacco control recommended by the Centers for Disease Control and Prevention, and not a single State-based tobacco control program conforms to the CDC's best practices guidelines in this respect.

Unless more of the settlement money is devoted to addressing the scourge of tobacco, future generations will continue to needlessly suffer from tobacco-related disease and death. This represents an extremely costly missed opportunity.

Let me illustrate the problem by briefly sharing with you three experiences, in each of which the society has dedicated significant resources. In Maryland, many months of hard work by the society and others, including Mr. Hurson, resulted in legislation that established long-term funding allocations for tobacco settlement payments, including a first payment for program ramp-up of $46 million for anticancer and tobacco programs, and payments for the next 10 years of approximately $80 million in the same areas.

The Maryland experience, however, as well as the commendable Ohio decision to endow tobacco prevention and cessation programs, is the exception. Take the example of Kansas where, notwithstanding the efforts of the public health community the State legislature voted to put the first $70 million of settlement funds into deficit reduction, and the State allocated a mere $500,000, an amount well below the $18 million minimum that CDC recommends for Kansas to invest in a comprehensive tobacco control program.

Lastly, consider Connecticut. That State consistently ranks as the country's wealthiest in terms of average and disposable income, and since 1995 it has enjoyed a budget surplus, and yet during the 2000 legislative session, although Connecticut received approximately $110 million in settlement funds, the State failed to dedicate any funding to State tobacco control efforts. We are deeply concerned, because our experiences such as those in Connecticut and Kansas have been far more common than that in Maryland.

While the States have an important role to play in tobacco control, this is also a national and global issue in which Congress has an absolutely critical role to play. In this respect, Mr. Chairman, the society applauds your leadership in addressing tobacco control from a national perspective. With your indulgence, I will briefly touch on four of the essential policies that can only be effectively implemented at the Federal level.

First, we must have strong, effective, meaningful regulation of tobacco products by the Food & Drug Administration. The Nation's deadliest consumer product cannot continue to be totally unregulated.

Second, Federal funding for tobacco control and prevention programs is another priority. CDC, as you know, plays a unique role in advising and assisting all States in their tobacco control efforts, and this work leverages State dollars and effectively weaves the several State programs into a national one. Unless CDC's national tobacco control program is adequately funded this year, State programs will fall short of their potential.

Third, the Government's coverage of cessation benefits and services now falls far short of recommendations made by the Surgeon General and other leading public health experts. The medicare, medicaid, and MCH Smoking Cessation Promotion Act, sponsored by Senators Brownback and Durbin, would help work to reduce and prevent cancer-related illness and death among key at-risk populations and the society supports its enactment.

And finally, the Federal Government has an obligation to its taxpayers to hold tobacco companies accountable for their well- documented wrongdoings. Right now, the Department of Justice is pursuing civil RICO charges against those companies. We urge Congress to provide the DOJ funding to pursue these claims in fiscal year 2001 and beyond, as necessary.

The ACS looks forward to working with you and your colleagues to address these and many of the other issues I have outlined today in my written testimony. We stand ready to join with you to protect our children from tobacco use and to help those currently addicted to quit. With this Federal-State-public-private partnership we will surely save both lives and money through a significant reduction in tobacco-related disease.

Mr. Chairman and members of this committee, please know the American Cancer Society sincerely appreciates the opportunity to present our views and thanks you for taking the time out of your schedule at this busy time of year to hold a hearing on this most important public health issue. I will be pleased to answer any questions you may have.

SEN. MCCAIN: Thank you, Mr. Coolidge.

Mr. Myers, welcome back before the committee.

MR. MATTHEW MYERS: Mr. Chairman, it is a pleasure to be here. My name is Matthew Myers. I want to start out by thanking you for your leadership here. You have made a difference, and we look forward to continuing to work with you on this issue.

SEN. MCCAIN: In the interests of straight talk and a complete record, I also failed.

[Laughter.]

MR. MYERS: We were deterred for a time.

I have three points that I am going to make in my testimony today. First, that two often the States have failed to use the money for which it was intended, just as you said, and I would like to provide you some details.

Second, the need for action has never been greater. Despite the hope and promise of the MSA, the evidence shows the tobacco marketing that has the greatest impact on our children has not seen a fundamental change and, if anything, has even increased in the last 2 years.

And last, the need for Congress itself to act has not been dissipated. We have not seen a fundamental change in the tobacco industry and the same reasons that motivated this Congress to move forward 2 years ago are as real today.

Let me try to provide you some concrete numbers, if I can, about how the States are doing. As you know, we have provided the committee with a brand new report, a score card on how the States are doing, that itemizes them one by one. It is not a pretty picture. Of the 44 States that have acted, only 15 have provided substantial new money. That means more than 50 percent of what the CDC has recommended as a minimum standard. Only five, or a third of those, actually either meet or come close to the CDC's standard, and in several cases that is not using settlement money.

What we also see is that, in addition to those 15, 14 others have allocated what we call modest amounts of money, between 25 and 50 percent of what the CDC allocated, far too little to make a truly fundamental decision, a change we all think is necessary, and -- excuse me. I got that number flipped around. It was 11 are between 25 and 50 percent, and it is 14 who fall under the 25 percent figure.

What that does is paint us a picture of a real set of States that are haves and have-nots. It is a pleasure to be on a panel with two of the States that are role models that have taken their commitment seriously and during the process of allocating --

SEN. MCCAIN: Do you see any connection, Mr. Myers, between those who have allocated the money and those who have not, and the results as far as reduction of the use of tobacco?

MR. MYERS: There is a direct connection between those. As you correctly noted, in the State of Florida, where we have a program that is 2 years old, we see a 40-percent reduction in tobacco use among middle school students and an 18-percent reduction in high school students. The State of Massachusetts, we have seen a 16 percent reduction since 1996 in teenage tobacco use.

Massachusetts is an interesting study, and I do not have this in my figures. If you compare Massachusetts to Rhode Island, which is using most of the money to repeal a car tax and virtually none for a comprehensive tobacco prevention program, during the same period of time that Massachusetts saw a 16-percent reduction, they saw an actual increase in tobacco use among their children.

We are not talking about experimental programs. We actually know how to reduce tobacco use among kids.

Let me also point out something different, and that people do not often focus on. Massachusetts and California have programs to reduce tobacco use among pregnant women who smoke. Both of them succeeded in reducing tobacco use among that population by between 45 and 50 percent. Just in terms of the number of healthier babies that were born, babies who did not need long-term care, those programs paid for themselves.

My second point to you, sir, is that the need for action is no less today than when you first became involved. The hope had been that the master settlement agreement would bring about a different attitude and a different set of actions in the tobacco companies.

While the master settlement itself, even if it was fully implemented in total good faith by the tobacco companies, it only addresses less than 25 percent of the marketing dollar of the tobacco companies, but what we have seen is all too typical of the tobacco companies. In the year after the master settlement agreement, tobacco advertising in magazines with high youth readership, more than 15 percent, actually went up, not down. That is a stunning, stunning condemnation of the tobacco industry's good faith.

And when you look at the kind of advertising we are talking about, all you have to do is look at this chart over here, or let me show you a relatively recent edition of Rolling Stone, where the woman who you probably do not know, because I do not know who she was, but my teenage son told me who she was, the woman who plays Buffy the Vampire Slayer, in this, and look at the kind of advertising we are talking about, or in this edition, where we have Britney Spears, the teenage heartthrob. In both cases, face to face, Marlboro advertising. Or even a more recent edition, within the last 2 months, what we see, another one of these magazines, and you open it up, and you see the kind of advertising that is just directly targeted to these sorts of kids, when we talk about this.

We went to retail stores, and we looked at what happens in retail stores since the master settlement agreement. Again what we found is advertising went up, not down. If you look at this photo that we have got over there, all too often, that is the kind of thing we are seeing. That is not the good faith change we hoped to see when we did there.

And while billboards came down, the master settlement agreement permits outward-facing signs in convenience stores, and outdoor signs right on convenience store land. Good faith would have been, we would have no longer seen them. The reality is, we see more of them today than we saw before.

The master settlement agreement eliminated the ability of tobacco companies to put their brand name on T-shirts and other goods. We thought that was going to be a great step forward. Have the tobacco companies complied in good faith? Well, to the letter, maybe, yes, but let me show you that advertisement for Kool. You buy a package of Kool, and what is next to it? I would actually like to hand this to you later on, a little pocket radio, which is exactly the sort of thing you would find a young adolescent -- this does not appeal to people your age and my age.

The unfortunate reality of what we see is that the tobacco industry responded to the master settlement agreement as they so often have before, as something to get around, and we are also seeing it in ethnic marketing, too. Here is a magazine targeted to Latinos, many Latino youth, and if you open it up it is filled with the same kind of advertising that we see here. Here is a Marlboro ad, and here is a Virginia Slims ad, appealing to, again -- and what we are talking about here is by and large in this case a female population that does not smoke, who they are reaching out to.

A long way of saying, sir, we have a long way to go. The master settlement agreement was a good, solid attempt by the Attorney Generals, but both because the States have not lived up to their commitments and because the tobacco companies have not really changed, I would like to also focus on one other important area, because the master settlement agreement was designed to force the tobacco companies to tell us the truth about the health effects of smoking.

You held a hearing where you sat here and they weaseled around on addiction. You do not have to go back to 1994. The tobacco companies tell us they have turned over a new leaf, that they are going to tell the truth on these issues. If you go to their web sites and you watch their ads, you would think it is really true, but let me give you a couple of quotes of what they are really saying when people are not looking, what they are really telling out there.

A good example. Despite acknowledging on their web sites that there is an overwhelming consensus about the health effects of smoking, less than a year ago Phillip Morris, under oath, filed the following affidavit in court in New York and they said, and I quote a specific quote exactly, it has not been scientifically established whether cigarette smoking causes any of these diseases in humans.

On the issue of addiction, which I would have hoped we would have put to bed, let me again quote from the sworn affidavit from Phillip Morris a year after the master settlement agreement, and I quote, nicotine in cigarettes is not addictive under objective, scientifically verifiable, pharmacologic criteria used to define that term.

Unfortunately, they may be spending hundreds of millions of dollars to tell the American public they have changed, but the facts do not support that conclusion.

Sir, we hope that we can push the States, with your assistance, to live up to their promise. We also think it is essential to recognize that there is truly important unfinished business in this body. The authority for the Food & Drug Administration is a top priority. We need the kind of comprehensive legislation that you have championed.

We should not be giving the tobacco companies breaks through the Foreign Sales Credit Act. That does not make any sense whatsoever, and we ought to ensure that the special interests of the tobacco industry does not have Congress intervene to cut off the Department of Justice's lawsuit. That lawsuit ought to be decided on its merits, and that is even more important today, now that the judge in the district court has permitted that lawsuit to go forward.

I want to thank you for continuing to champion these issues. We in the public health community offer you our full support, and to work with you and the type of public officials we have up here today to really tackle this problem. As Dr. Satcher said, this is real life and death. If we can reduce by 50 percent the number of kids who smoke, we are talking about saving millions of our children's lives. There is virtually nothing else we can do that can have that kind of public health impact.

Thank you very much.

SEN. MCCAIN: Thank you, Mr. Myers. Thank you for your impassioned and dedicated advocacy to this issue for many years, and you have brought great credibility, and we thank you for it.

Majority Leader Hurson. Thank you, sir.

MR. HURSON: Mr. Chairman, my name is John Hurson. I am the Majority Leader of the Maryland House of Delegates of the Maryland General Assembly, and before I go on I would just like to also tell you how much, Mr. Chairman, I support your activities on campaign finance reform. We have talked about that. I hope to see you in Annapolis helping us pass that as well.

SEN. MCCAIN: It will be my pleasure, sir.

MR. HURSON: I am speaking on behalf of the national Conference of State Legislatures, where I serve as chairman of the assembly on Federal issues, which is the policy making arm of the conference. It is a pleasure for me to be here as part of this distinguished panel to discuss how the States have responded to the tobacco settlement.

I would like to take this opportunity to thank the Surgeon General and the Centers for Disease Control for their extraordinary assistance to the States as we go through this process. I would also like to acknowledge the work of the American Cancer Society and Tobacco-Free Kids. In Maryland we have worked very closely with them and with the rest of the advocacy community to try to make our initiative as strong as it possibly can be.

That being said, I know that I and my colleagues in the State legislatures and across the Nation are not always as receptive to my fellow panelists' recommendations as they might like us to be. However, I urge them to continue to participate in the process and to spend even more time in the Nation's State capitols working on these important issues, and I know that the National Conference of State Legislatures, and in my role as chairman of their assembly on Federal issues, will work to promote the best practices that we have going across the States in States like Ohio and Maryland, so that other States can adopt those practices.

I would like to submit the report the State Allocation of Tobacco Settlement Funds, published in August of this year by the Health Policy Tracking Service of NCSL, in its entirety for the record.

SEN. MCCAIN: Without objection.

MR. HURSON: This report provides a State-by-State breakdown of expenditures for fiscal years 2000 and 2001. 2 years after the signing of the agreement in November of 1998, the largest single expenditure category so far is health care in the States. If you include tobacco prevention and cessation and long-term care as part of the health care, it represents 55 percent of appropriated expenditures. Breaking down that, we have 43 percent of the expenditures, and this is combining all the States' expenditures, of the appropriated funds are dedicated to health care.

Much of that is in the States' match for SCHP and also for medicaid spending, 9 percent set aside for tobacco prevention and cessation, 3 percent for long-term care, 2.5 percent for research, 6.5 percent for services for children and adults -- adolescents, I am sorry -- 5.9 percent for education, many of that actually is to our academic health centers for research in tobacco areas, 6 percent for budget reserve, 6 percent for tobacco growers, and 17 percent miscellaneous.

Some States have not actually made their final decision on either how to manage the account or what programs to support for the funding. Some of these States are putting the question directly to the people of the State through the ballot initiative process, like Oregon. Last year, the people of Louisiana adopted a spending plan for their settlement dollars through the ballot initiative. This year, six States, Arkansas, Arizona, Montana, Oklahoma, Oregon, and Utah will take the tobacco settlement expenditure question directly to the voters via the ballot initiative.

The Maryland cigarette restitution program had a two-pronged approach, focusing on tobacco prevention and cessation, $18.1 million, and cancer reduction, $30.8 million. My written testimony includes the dollar amounts for specific components of these programs, but the numbers really fail to tell the story of what we are trying to do.

As part of the tobacco prevention and cessation initiative we have awarded a contract to conduct a baseline study of tobacco use by youth and adults in Maryland. We have actively engaged the assistance of our local governments to assist in the overall effort, and the State is providing technical assistance to local governments.

I might add here that one of the things we are hoping is that by giving some of this money to our local governments, they will in fact increase their own spending on some of these initiatives.

Maryland has obtained a grant from the MSA, established American Legacy Foundation to develop a State-wide youth movement against tobacco use. Our cancer prevention education screening and treatment program is well underway. We have already published a baseline cancer report. 15 local jurisdictions have already received cancer planning grants and are proceeding. We have also offered assistance to our tobacco growers, a small but important part of our economy.

What is ahead for the States? States are going to continue to make adjustments in their tobacco settlement spending plans and I need to emphasize, particularly after what I have heard here, States are going through the process of getting this thing going. It has been 2 years. Many of the States had to implement the model legislation first. The issue of recoupment had to be settled as well before States knew exactly where their budgets are going to be.

The tobacco settlement also leaves plenty of room for additional State legislative initiatives regarding youth access. The settlement establishes eight areas of State legislation and regulation that the industry is prohibited from lobbying against.

There is a provision in the MSA that prohibits the manufacture of cigarettes in packages of less than 20, and prohibits the sales of cigarettes in packages of less than 20. These provisions sunset December 31, 2001, unless the States enact legislation prohibiting these practices. Maryland will have that issue before us in the coming session.

This is likely to be priority legislation in many States across the Nation in our next legislative sessions, but we need help as well at the Federal level. Gray market cigarettes are a product that is manufactured for foreign sale but is diverted back to the United States by third parties for domestic sale.

The Balanced Budget Act of 1997 made the reimportation of tobacco products produced domestically for foreign sale illegal for everyone except product manufacturers, but failed to include for cigarettes manufactured overseas for sales overseas that is diverted to the United States market.

As a result, foreign-source product is becoming the dominant source for gray market cigarettes. These cigarettes are typically sold at below-market prices, making them much more attractive to young people. In addition, every pack of gray market cigarettes sold displaces the sale of domestic packs, lowering payments to States through the MSA, since payments are based on the sale of and the market share of domestic product.

44 States have enacted legislation in the area, but State legislation cannot fully resolve this problem. I would urge you to support legislation recently approved by the Senate Finance Committee that includes provisions that would address the growing problem of gray market cigarettes. This legislation will assist in our efforts to reduce youth access to tobacco and will also help States stabilize our tobacco settlement funding.

And again I repeat, in my leadership role at NCSL I will continue to help urge States to adopt models like Maryland and Ohio as their way of dealing with the tobacco settlement. I thank you and applaud your hearing here today to focus interest on this issue.

SEN. MCCAIN: Thank you, sir, and thank you for taking the time to be with us.

Attorney General Montgomery, I just want to quote from the letter from Christine Gregoire, the Attorney General of the State of Washington. She said, I recognize Washington is in the minority States who have used a significant portion of the money for tobacco prevention and public health. Keeping the money for these purposes has been a hard-fought battle. Many State legislators have erroneously considered the tobacco dollars a windfall and used it for a variety of purposes unrelated to public health. I believe this is a mistake, but it is also a mistake that can be rectified in each legislative session. I hope she is correct in the rectification.

Mr. Myers, do you share the concern that Majority Leader Hurson expresses about the gray market situation?

MR. MYERS: I think the gray market situation is a real problem. I think we need to put it in perspective as well. Your bill 2 years ago sought to look at the whole problem of cross-border sales, black market and gray market, and I think combined they pose a real problem.

In the 2 years since that time, what we have discovered is a virtual explosion of evidence about the potential for black market, and if you will remember about when you were working on the legislation, every time we talked about the cost and the number of steps we kept hearing threats there would be a black market.

What I would urge is, this Congress take a close look at both sets of problems and try to solve in a unifying manner the problem of cross-border sales. It is affecting our ability to reduce tobacco use in the States here, and as well we have an increasing problem because of the manufacturing plants in Mexico that many of our companies have actually purchased in the last 2 years, so I think it is a problem we need to approach very carefully but with really strong legislation.

SEN. MCCAIN: Mr. Coolidge, do you share that concern?

MR. COOLIDGE: I do, and I would reiterate something that is in our written testimony, and that is that there is presently underway an effort to draft a framework convention that I think has to be supported by Congress if we are to bring global perspective to this issue. It is something that cannot be limited to our Nation's borders. It is an international problem and requires international solutions, and I urge Congress to help identify and enact those solutions.

SEN. MCCAIN: Thank you.

Majority Leader Hurson, first I would like to say that without objection we will put the report entitled, Show us the Money, and Update on the State's Allocation of the Tobacco Settlement Dollars, which was compiled, as I mentioned earlier, by the Campaign for Tobacco-Free Kids, American Cancer Society, American Heart Association, and American Lung Association, and Majority Leader Hurson, I appreciate the fact that sometimes these things do take time, but let me just quote a couple of items from the report that these organizations have compiled.

Article, USA Today, January 15, 1999, Connecticut Attorney General Richard Blumenthal has teamed up with antismoking advocates to propose legislation for spending the State's $5.5 billion settlement with big tobacco. Under the plan, 45 percent go to education, prevention and cessation initiatives, 45 percent to health programs, and 10 percent would be invested in an endowment fund.

Connecticut legislature appropriated $5 million over 2 years for tobacco prevention, CDC minimum recommendation is 21.2 million a year. There's a long list of States here, Illinois Attorney General Jim Ryan wants half the State's $9.1 billion windfall from the national tobacco lawsuit to go to health and antismoking programs, and he wants the legislation now to keep Washington's hand out of Illinois' cookie jar.

Ryan's plan would earmark 50 percent of the money for uninsured children, smoking cessation, antismoking education programs, helping police enforce tobacco restrictions on minors. That was January 23, 1999. Illinois has allocated $28.5 million for tobacco prevention. The CDC minimum recommendation is $64.9 million.

The list goes on and on of the States who have had an opportunity already to take action, and unless that action is reversed, it is pretty clear that they will not comply with, again, the commitments that they made.

I did not make these commitments when this master settlement agreement was made. The States did, and I have got to say, Attorney General Montgomery, I do not know if the Attorneys General were able to speak for the States or not, but everyone understood that this money was not going to go for tax rebates. At least, that was the distinct impression that Americans were given.

So I do not expect you, Majority Leader Hurson, to be responsible for these other States, but you do wear another hat, and so I wonder if you could respond.

MR. HURSON: Well, it is difficult to respond. I would only just get onto the last point that you made. It really is somewhat of a structural issue. The Attorney Generals did settle this case, and there was great expectation that they could, in fact, lead their legislatures and their Governors to do those things. I am sure it is hard. I do not think the U.S. Attorney General could speak for Congress.

But it is a difficult structural issue, and I would only point out, and I cannot speak for my colleagues in Connecticut or Illinois. I can tell you that the operative word, when we looked at passing legislation on this issue, was feeding frenzy. When we finally got the Governor's bill in front of us -- in fact, it was not a bill. The Governor just wanted us to give him the money and he was going to spend it himself, and we decided to draft a bill, which I thought was a wise idea.

But the thing that most dominated the legislature at that point was many, many, many pressures from a lot of groups who saw this as their salvation, and we made a commitment as a legislature to use this money primarily for the things that the CDC has recommended. Other legislatures have not been able to I suppose withstand some of those pressures.

But the one thing I would point out is this is -- and the reason this hearing is so important and such a good idea is that this is an ongoing process. I think some of these legislatures will reverse themselves and take another look at the use of these funds. Maryland may, in fact, change its use. I mean, that is possible as well, so there has got to be vigilance on the part of all of the advocacy communities to be down there in the State capitols and making sure that the message that we are hearing here today is heard loud and clear in those State legislatures.

So again, I commit the NCSL, which has already committed itself to continue to provide guidance and work with the CDC, try to get our colleagues across the country to recognize the value of those recommendations, and to follow them when we use these funds.

SEN. MCCAIN: I thank you.

Attorney General Montgomery, I have a list in front of me that will be included in the record of the tobacco settlement attorney's fees. Some of them vary from 1.3 percent of the settlement to as high as 34.1 percent of the settlement. For example, Mississippi, the total settlement was $4 billion. Mississippi attorney's fees were $1.43 billion. In Florida, $13 billion settlement, $3.43 billion attorney's fees.

God bless the State of Maine. The State of Maine enacted a law that gave an hourly rate. An hourly rate. It seems that that has some logic associated with it. Some of the other percentages have not been settled.

I understand, and I would like for Majority Leader Hurson to comment on that, that there is an individual in Maryland that wants a billion-dollar settlement. It will be very interesting what that hourly rate might be.

Attorney General Montgomery, I am very concerned, because you will argue and Attorneys General will argue that's a separate pot of money. It all comes -- as Mr. Myers will testify, it all comes from the tobacco companies. It does not fall down from heaven. So when you -- you have got 25 percent, 34 percent, Connecticut $900 million estimated out of a $3.6 billion settlement, 25 percent South Carolina, $3 billion out of $12 billion, and those are in addition to the settlement, but they are that percentage of the settlement. It all comes from the same place.

Now, do you think that these attorney's fees are fair and equitable?

MS. MONTGOMERY: Mr. Chairman, I cannot stand here and say to you that these dollars are not anything but excessive. We have in Ohio, when we were slow to -- I was measured in getting to this lawsuit. We did a year's long study, and when we did get into it we did a lot to try to control those fees, so that the States would not be, as many of them are now, subject to lawsuit for the contingency fee percentage.

The fallout of this tobacco suit has been enormous, the whole sense of whether an Attorney General can hire at contingent fees, and whether there is any control over who makes those decisions, what percentages and that. I believe that the Attorneys General collectively have learned a great deal in this lawsuit. I do not think anyone, any Attorney General in the quiet of their own chambers is not now saying that we have learned a great deal from what has happened here.

I am not going to be here to say to you that I think that these dollars are defensible. They are a huge amount of dollars, and I believe that the legislatures, you see the NCSL and some of the legislative associations looking to open dialogue, sometimes with a bomb, sometimes with legislation.

I am fortunate. I talk to my legislature, or I am able to talk to my legislature and my Governor, but there is a huge public policy debate, a huge public policy issue that I think clearly we have to continue to debate here, and particularly in terms of the size of these settlements.

SEN. MCCAIN: Majority Leader Hurson.

MR. HURSON: I would agree with the Attorney General of Ohio. The fees that we are looking at in Maryland are excessive, and the legislature tried to address that issue.

The Attorney General had negotiated a 25-percent contingency fee, and they were about to lose their case in court and so they came to court -- or they came to the legislature to get the law changed, literally to help them, and in that process we cut that fee in half.

It is still a lot of money, and now the legislative leadership and the Attorney General are urging the attorney to go directly to the fund first and determine what kind of payment he will get from them before using up the State's money, or getting some of the tobacco settlement from the State. He has refused to do that, and we are in court as a result of that. It is very unfortunate.

We are in the process now where we are having to withhold some of the funds to escrow some of the funds. We have already appropriated for smoking cessation, and for cancer research, and we have to escrow those funds. We cannot start the programs that follow the CDC recommendations, some of those programs, because we have to escrow the funds until that lawsuit is settled, and it's very unfortunate.

SEN. MCCAIN: How long do you estimate that will be?

MR. HURSON: We hope we are going to settle it during the next year, but literally this year, in this fiscal year we are escrowing funds that could go to cancer research and smoking cessation because of this issue, and it is very, very unfortunate.

SEN. MCCAIN: Has Mr. Angelos shown a willingness to negotiate?

MR. HURSON: Mr. Angelos always negotiates.

[Laughter.]

MR. HURSON: We are continuing to talk with him, and the Attorney General is doing that.

SEN. MCCAIN: Mr. Myers, do you want to comment on the situation?

MR. MYERS: We have focused our energies on trying to make sure that the States spend the money to protect the public health, to be candid with you, and so we have not followed each State decision all that closely. Our real concern has been to make sure that the money the States actually got were used to maximize the effort to reduce tobacco use, particularly among our children.

SEN. MCCAIN: Mr. Coolidge.

MR. COOLIDGE: Again, we have not taken an official position. However, I must say, as you said and know better than anyone, this whole development proves yet again that when you dump a lot of money into the political scene it is like dumping a lot of blood in front of a shark. There is a feeding going on here, and personally I find that this is greed beyond your wildest dreams of avarice.

SEN. MCCAIN: Well, I am reminded, when I look at these attorney's fees, of the line that was used about the missionaries that went to Hawaii, they have done very well by doing good, and so I just think it is very harmful to the whole public perception of what was intended here, and Mr. Myers and Mr. Coolidge, your organization is made up of thousands and thousands of volunteers. That is what makes your organization work.

You would have thought that the legal community would have done some of this anyway in a voluntary fashion, particularly when we are talking about the goals that we are trying to achieve here, saving lives of children. That does not seem to be the case as far as some of the lawyers who were involved in the settlement.

I do not know what can be done, frankly, about it, because of the master settlement agreement, but I hope that we do not have -- well, I hope that the weight of public opinion will have some effect here. That usually is sometimes helpful.

I want to thank you all for being here. We will have another hearing, probably in January or February, after the next report is made available. I thank you very much for your participation, and I think this has been very helpful, and Mr. Myers, we will continue to make efforts and Majority Leader Hurson, we would like to work with you on this gray market issue as well, and the black market issue.

We anticipated that, by the way, when we talked about this issue that there would be a dramatic increase in gray market/black market activity, so we would like to have a look at that, and I will do whatever I can to see the legislation that is in the Finance Committee move forward. I do not know if that is possible this year or not.

I thank all of you for being here, and this hearing is adjourned.

END

LOAD-DATE: October 11, 2000

Document 2 of 528.


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