Settlement Slush Funds Cost Taxpayers and Consumers

This op-ed was originally published in The Well News.

It’s 1998 all over again. Decades after the nation’s largest tobacco companies agreed to pay states an estimated $246 billion in the Master Settlement Agreement, the allocation of those funds remains a prime example of government spending gone awry. 

Instead of directing these massive payouts to smoking cessation or direct taxpayer relief, state lawmakers have consistently abused their spending discretion, using the windfall to plug general budget holes while double-dipping into taxpayers’ pockets with aggressive consumer excise taxes. 

Now, with Meta set to pay up to $17.1 billion in its legal settlement with state attorneys general, the largest since the MSA, the stage is once again set for wasteful spending and boondoggles. To break the continuous cycle of government waste, states must shift away from punitive tax hikes and litigation and prove they can wisely spend the money they already have. 

In 1998, the nation’s largest tobacco companies entered into an agreement requiring them to make annual payments to 48 states in perpetuity as reimbursement for past tobacco-related costs. Florida, Minnesota, Mississippi and Texas reached earlier individual settlements with the tobacco companies.

Despite extracting a massive amount of money from tobacco companies after taking them to court in the 1990s, states often spend only a small fraction of tobacco settlement and tax revenue on tobacco control, prevention or cessation programs. 

As Ball State University economist Todd Nesbit and Mackinac Center scholar Mike LaFaive noted in 2020, “In fiscal year 2019, tobacco settlement revenues for Michigan totaled nearly $291 million. Exactly $0 of these revenues were spent on tobacco prevention and cessation programs. So where did the biggest single chunk of the money go? Corporate handouts. Each year since 2008, Lansing politicians have showered state agencies, like the Michigan Strategic Fund and Michigan Economic Development Corp., with $75 million in MSA funds in the name of economic development.” 

Even the Campaign for Tobacco-Free Kids admits things have not gotten better since then. The infamously pro-prohibition group admits, “This year (fiscal year 2026), total state funding for [cessation] programs amounts to just 3.4% of the $21.7 billion in revenue the states will collect from tobacco settlement payments and tobacco taxes.” Meanwhile, states like New Jersey have used the money to pay down deficits — which only sends the message to lawmakers that it’s okay to spend even more taxpayer dollars. 

The Taxpayers Protection Alliance has long criticized state governments’ mismanagement of billions of dollars collected from the MSA and onerous tobacco taxes enacted across the country. If the government has already collected the money, it should go toward helping smokers quit cigarettes using tobacco harm reduction products such as vapes, nicotine pouches and heat-not-burn products — not squandered on budget gimmicks or corporate welfare. 

The core issue stems from the complete discretion given to state lawmakers over how to spend their annual settlement shares. One of the biggest threats to taxpayers is this budgetary diversion, which becomes even more problematic when considered alongside the parallel push for aggressive tobacco excise taxes. 

States justify driving up consumer costs with cigarette taxes climbing as high as $5.35 per pack in places like New York under the guise of protecting public health. Yet governments are essentially double-dipping when they hike taxes on consumers while mismanaging the massive settlement funds already designated to handle tobacco-related societal impacts.

Meta is now preparing to pay up to $17.1 billion in settlement funds over the next decade; the funds will support “youth mental health programming,” “funding outdoor activities,” “public health advertising credits,” and “investigation, litigation, and related efforts to improve teen safety on social media.” 

These broadly worded categories essentially turn the settlement into an MSA-style slush fund, and the “investigation” and “litigation” components ensure a never-ending crusade against tech companies — which consumers and taxpayers will ultimately pay for. 

To break this cycle of government waste, already-disbursed settlement funds should have strict guardrails attached to them, and payments should be regularly audited.