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Hospital districts and counties reported spending more than $1.1 billion last year, combined. The Texas Department of Health divided Big Tobacco’s $100 million lump sum payment this year on a pro rata schedule based on reported spending for fiscal 1999, thus returning almost nine cents on dollars spent. Next year TDH will distribute $50 million and the interest earnings from the Tobacco Settlement Permanent Trust Account in the same manner, or about five to seven cents per dollar spent this year.
After that, only annual earnings on the permanent account will be distributed. That account was negotiated to reach $1.8 billion in 2003. The Legislature wanted to know what counties spend on health care, and for the first time, counties will have a detailed accounting of what Chapter 61 of Texas Health and Safety Code costs local taxpayers.
The shock led to statements by hospital administrators to the effect that they hoped counties were spending their tobacco reimbursements on health care, even though there are no legal restrictions on how counties spend the money.
"If it’s used for health care in rural counties, that’s great. If it’s going to roads and bridges, that’s not so good," a Dallas hospital administrator told the Dallas Morning News in April.
But the people who actually negotiated the tobacco settlement counter that the annual tobacco settlement distributions, now and in the future, are compensation for the millions spent on tobacco-related illnesses in the past.
"The settlement is not designed to take over the cost of health care," said Jim Allison of Allison, Bass and Associates in Austin. "It is designed as a compromise settlement to meet the costs that we incur for tobacco-related illnesses. Some folks out there don’t like and don’t think that’s equitable."
"But the settlement is money they’re receiving as payment for what they already spent on health care, and if they spend that money on things they had to give up in years past because of their indigent health care burden, that’s their right," he said at the County Management Institute in May.
Allison, who is general counsel for the County Judges and Commissioners Association of Texas, was a signatory on an intercession to the settlement between big tobacco companies and the State of Texas. The additional agreement ensured that local political subdivisions, where the rubber meets the road in terms of health care for Texas’ poor, would be compensated regardless of what Texas chose to do with its larger settlement.
Some counties established trust funds of their own to fund health care endeavors. Others initiated construction projects or updated their fleet of police cars. In those cases, the counties said the expenditures were long overdue.
There is an incentive to spend the tobacco dollars on health care. Counties that put their rebates into health care get to report it as a health care expenditure in the next year’s distribution. And because Texas is the only state in which local government is participating in the settlement, in large part because Texas funds indigent health care at the local level without accessing Medicaid, Allison believes the Legislature will be happy to see that counties are taking care of business.
In fact, so they can bring home every cent of the tobacco settlement money they’re entitled to, the counties without hospital districts must capture and report their costs in far greater detail than they’re accustomed to. Their initial runs at it this year netted counties a lot of rewards, but it wasn’t painless.
"I must say, we negotiated probably about the broadest definition of a health care expenditure you’ve ever seen, and that was on purpose," Allison said.
"Counties had to go back, in a retroactive way, and pull out those numbers that aren’t normally broken down in their accounting. We thought three months was plenty of time for them to do that in, but we found out it wasn’t as much time as we thought," he said.
A couple of hospital districts even missed out on the distribution when they failed to report by the March 31 deadline. The $100 million was carved up like a pie and was paid out. Once it’s gone, there’s simply no more.
Counties are entitled not only to the costs of mileage, but also the officer’s time spent transporting the inmate to the doctor or the hospital. Deputies may need to log their time doing that.
In the final week of March, into the last couple of days, even, counties were still calling up with questions about what was reportable and what wasn’t. The rules had only been released three months prior, and that of course couldn’t make it much better for auditors, who’d never needed to track things like how much money the county spent transporting inmates to hospitals or how much printer paper was used in health care services.
Medical transportation, for example, is an accountable expense, but it’s never typically been a budget item until auditors and sheriffs began discussing it this year. Counties are entitled not only to the costs of mileage, but also the officer’s time spent transporting the inmate to the doctor or the hospital. Deputies may need to log their time doing that.
Guarding the inmates while at the hospital is not recoverable, however, because the inmate would have to be guarded if he was in jail, anyway. "We want people to call us with their questions. We have answers, and we can put officials in touch with others who’ve had the same problems,"ยบ said TDH project director Joe Walton.
He said audits this summer by his staff might also uncover unreported, eligible expenses, or mistakenly reported items that aren’t allowed in the rules. The audits, he hopes, will be helpful in clarifying the reporting requirements for the next year and give his staff the chance to answer questions out there in the courthouses.
Nine cents on the dollar—those were the days
Local taxpayers spent more than $1.1 billion last year on health care for the indigent and the incarcerated, and the nine cents on the dollar they got back from the tobacco settlement’s $100 million payment this January was the largest cost recovery they should ever expect. Next year, when the last, $50 million lump sum payment is divided, counties are expected to recover five to seven cents per dollar.
(The initial $300 million payment was distributed in 1999 based on population.)
After the lump sums payments scheduled from 1999 to 2001 are divided and spent, counties will receive smaller annual payments from earnings on the negotiated Tobacco Settlement Permanent Trust Account, expected to reach $1.8 billion by 2003. Meanwhile, an advisory committee of county officials is considering investment policies to protect the corpus of the permanent trust fund and how best to distribute annual earnings.
"We’re going to keep it fairly conservative to protect the fund. We’ve set a goal to earn four to seven percent annually after we adjust things for inflation," said Houston County Judge Chris Von Doenhoff, who sits on the investment committee.
"What we determine to be income on the fund, and what we distribute, will come after we account for inflation," he said. By plowing some of the annual earnings back into the fund and increasing the fund’s actual dollar amount, future earnings will be strengthened against inflation and a weaker dollar’s buying power.
The permanent trust fund was negotiated in 1998 to reach at about $1.8 billion by the time it is fully funded by the tobacco companies in 2003, but three factors in the settlement will affect the tobacco companies’ actual contributions to the permanent trust fund: inflation, sales volume and profit margins. Inflation, judged by the Consumer Price Index, could raise their contributions by three percent or more annually; a decrease in the volume of cigarettes shipped in the US could decrease Big Tobacco’s obligation; and if their profits increase, their payments would increase.
In January 2000, tobacco companies were due to deposit their first installment of $560 million into the permanent fund, but they sent only about $450 million with the explanation that their sales volume declined in 1999. Attorneys for the counties have requested an audit of their claims through SEC filings and other public documents.
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