The Tobacco Settlement Permanent Trust Account Investment Advisory Committee (the Committee) approved $46.8 million for the year 2016 tobacco settlement distribution. According to the distribution report published by the Department of State Health Services (DSHS), 157 counties received approximately $5.3 million in reimbursements during the month of April. Last year, 160 counties received $6.3 million.
Under the terms of a historic settlement negotiated in the summer of 1998, tobacco companies agreed to create a $2.275 billion fund for the benefit of “all hospital districts, other local political subdivisions owning and maintaining public hospitals, and counties of the State of Texas responsible for providing indigent care to the general public.”
At the outset, $450 million of the nearly $2.3 billion was deposited into a “lump sum trust account” and distributed to local entities over a three-year period. The remainder, approximately $1.8 billion, was deposited into a “permanent trust account” with local entities receiving yearly disbursements each spring from investment earnings.
In response to the economic challenges faced in 2009, the Committee recommended updates to rules related to the Tobacco Settlement Permanent Trust Account. The revised rules, Texas Administrative Code, 34 TAC §18.2, were effective on March 24, 2011, regarding trust account distributions.
“These measures taken by the Committee serve to safeguard the trust during economic downturns such as the one experienced in 2009,” said Elaine McHard, manager of the DSHS Funds Coordination and Management Branch.
The DSHS has certified the 2015 expenditure statements submitted by the eligible political subdivisions. According to the report identifying 2015 unreimbursed health care expenditures, hospital districts reported $2,621,813,695.64; eligible cities reported $1,421,058.00; and counties reported $336,437,262.58. Total expenditures reported by all eligible political subdivisions for 2015 were $2,959,672,016.22. The total 2016 distribution was $46.8 million.
On April 7 of this year, political subdivisions eligible to receive annual distributions from the Tobacco Settlement Permanent Trust Account received correspondence regarding the distribution for next year.
“As a result of particularly poor market conditions in 2015, the return on the Tobacco Trust did not allow us to match last year’s distribution,” wrote Stuart Ford, chairman of the Committee. “The rules governing distributions from the Tobacco Trust limit this year’s distribution to $46.8 million, which is roughly in line with guidance we provided in last year’s memorandum. The Trust is a permanent endowment. The distribution rules are designed with an eye toward maintaining the intergenerational equity of the Trust. In other words, future generations of Texans should benefit from the Trust in terms of real purchasing power to the same extent as the current generation.
“In the interest of conservative planning, we would suggest that you plan that the Tobacco Trust’s distribution in 2017 will be no greater than what is being made this year.
“Last year we were able to add to the Trust’s ‘rainy day fund.’ That fund served its purpose by providing approximately 70 percent of the funds for this year’s distribution, which was the maximum allowed by rule. We remain committed to keeping the balance of the Trust’s ‘rainy day fund’ sufficient to be able to supplement distributions in years like we witnessed in 2015.
“The Trust remains on good footing. I am pleased to report that since its inception, investment returns on the Trust have produced a total of $774 million in distributions (exclusive of this year) and the initial $1.7 billion contributed to the Trust has grown to $2.3 billion as of December 31, 2015. The Trust investment portfolio continues to be positioned conservatively, with a focus on downside protection and preservation of capital…”
For more information on the tobacco settlement, including the full text of the April 7 correspondence, go to http://www.dshs.state.tx.us/tobaccosettlement/default.shtm.