Smoke, and State Mirrors

Forty-six states have begun to receive $246 billion - to be paid over 25 years - from a legal settlement with US tobacco companies. While the settlements didn't specify how the money should be spent, the states had planned to use it for health expenses and smoking-prevention programs. Instead, many are using the money to balance budgets.

But now there's a new twist: This financial dependence has forced the states to ensure the health of the very companies they charged with producing an unhealthy product.

Illinois's attorney general is trying to rescue Altria (which owns Philip Morris) from a judge's order that the company post a $12 billion bond while it appeals a negative court decision in a class-action lawsuit. Philip Morris, which pays about half the cigarette companies' annual payment to states, said that judge's requirement could force it into bankruptcy.

Illinois claims the bond "could ... deal a significant, unnecessary financial blow to the states." In other words, the tobacco cash could stop! This would pose particular problems for states that plan to issue state bonds backed by the anticipation of receiving tobacco-settlement money.

States need to learn not to become addicted to potentially fickle sources of cash - be it the tobacco settlement, cigarette taxes, state lotteries, or even an abundance of federal grants.