Legislative panel reviews tobacco settlement reforms and the 4.7% distribution to program funding

The Legislative Finance Committee held a briefing on the state's tobacco settlement funds and the 2024 reforms that moved all settlement receipts into a permanent fund and set an annual distribution of 4.7% of the fund's year-end balance to a program fund.

"The change was intended to improve investing flexibility and provide a more predictable distribution," said Eric Chignier, the committee's Legislative Finance Committee analyst for the Health Care Authority, summarizing the reforms and recent fund performance. He told members FY24 beginning balance figures and a projection that the permanent fund could grow from roughly $330,000,000 in FY24 to about $450,000,000 by FY27, noting those figures came from data pulled earlier in the fiscal year and may not reflect later gains.

Committee members pushed back on whether the 4.7% distribution will provide adequate program funding. "If we want to increase that arbitrary number of 4.7, we have to go back and legislate it," said Vice Chair Joanne Ferrari (State Representative, District 37), asking who set the distribution and urging more investment in cessation, prevention and youth programs.

Chignier confirmed the distribution formula was set in 2024 legislation and explained it is calculated as a five-year average of the fund balance, which makes distributions grow as the fund grows. He said recent reforms removed the permanent fund from the state's reserves so the State Investment Council could invest the funds more freely.

Committee members also reviewed recent program appropriations: Chignier cited a FY27 appropriation of about $21,000,000 from the program fund and noted the Health Care Authority and Department of Health continue to receive allocations (the Health Care Authority figure was cited at about $15,400,000 and Department of Health tobacco cessation and prevention at about $5,400,000). The transcript contained one ambiguous line about an "Indian Affairs" amount (stated as "249,000,000 or 249,000"); the committee acknowledged that figure is unclear and said staff will confirm the correct amount before publication.

The chair directed staff to invite the Department of Health director, the Health Care Authority's Medicaid division, and the Attorney General's office to the committee's next meeting to provide more detailed program and enforcement information. The committee also discussed that several programs previously funded with settlement revenue have since been backfilled with recurring general fund dollars.

What's next: the committee scheduled a deeper follow-up session in August to review updated fund balances, address membership questions about altering the distribution percentage, and hear the Department of Health and Attorney General's offices on funding and enforcement.

(Provenance: topicintro SEG 017; topfinish SEG 198)