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Michigan Relocation of Tobacco Revenue Amendment, Proposal 4 (2002)

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Michigan Relocation of Tobacco Revenue Amendment, Proposal 4 (2002), was on the November 5, 2002 election ballot in Michigan as an initiated constitutional amendment, where it was defeated.

Election results

Proposal 3 (Relocation of Tobacco Revenue Amendment)
Defeatedd No2,011,10566.4%
Yes 1,018,644 33.6%

Official results via: The Michigan Secretary of the State

Text of measure

The language that appeared on the ballot

The proposed constitutional amendment would:

1. Annually allocate on a permanent basis 90% (approximately $297 million) of tobacco settlement revenue received by state from cigarette manufacturers as follows: $151.8 million to nonprofit hospitals, licensed nursing homes, licensed hospices, nurse practitioners, school-linked health centers and Healthy Michigan Foundation; $102.3 million to fund programs to reduce tobacco use, Health and Aging Research Development Initiative, Tobacco-Free Futures Fund, Council of Michigan Foundations and Nurses Scholarship Program; and $42.9 million to the Elder Prescription Drug Program.

2. Guarantee recipients funding at 2001 appropriation levels plus additional state funds on an escalating basis for nonprofit hospitals, licensed nursing homes, licensed hospices and nurse practitioners.[1]

House Fiscal Agency Analysis

Proposal 02-4, the tobacco settlement revenue ballot proposal, would amend Article IX, section 36 of the Michigan Constitution to specify how tobacco settlement revenue received by the state is allocated. If passed, it would permanently require that 90% of the tobacco settlement revenue received by Michigan each year be allocated for certain health care-related purposes. In the FY 2002-03 state budget, $215.7 million in tobacco settlement revenue is appropriated for various programs and initiatives, including the Merit Award Scholarship program, that do not meet the requirements of the ballot proposal. If additional revenue is not available, expenditure reductions of this amount would be required.

Proposal 02-4 creates several health-related funds in the Department of Treasury and designates that 90% of all tobacco settlement revenue received in 2003 and subsequent years be deposited in the various funds. The remaining 10% of tobacco settlement revenue is to be deposited in the state's general fund for other purposes as appropriated by the Legislature. The percentage of tobacco settlement revenue allocated to the three newly created funds and the distribution within each fund is summarized below:

Tobacco Illness Care Fund: 46% Nonprofit Hospitals: 28% Licensed Hospices: 2% School-linked Health Centers: 1% Licensed Nursing Homes: 13% Nurse Practitioners: 1% Healthy Michigan Foundation: 1% Tobacco Settlement Research and Education Fund: 31% Tobacco-Free Futures Fund: 15% Council of Michigan Foundations: 2% Health and Aging Research/Development: 13% Michigan Nurses Scholarship Program: 1% Senior Citizen Prescription Drug Assistance Fund: 13% Elder Prescription Drug Program: 13% General Fund: 10%

In addition to the specific allocations of tobacco settlement revenue in Proposal 02-4, there are several significant conditions and requirements related to these and other state funds included in the petition language.

Unspent Funds The proposal specifies that any tobacco settlement revenue (including investment earnings) that remains in any of the three newly-created funds at the close of the state's fiscal year shall not revert to the general fund. This means that the unspent monies could not be appropriated by the Legislature for any other purpose. In addition, any funds that cannot be provided to an eligible recipient organization because it ceases to exist or otherwise is unable to accept tobacco settlement revenue will be distributed proportionately to the other designated recipients.

Annual Report Each recipient of tobacco settlement revenue must file an annual report itemizing expenditures. The Auditor General is required to prepare an annual Tobacco Settlement Revenue Accountability report itemizing how the funds are appropriated and expended based on annual reports from all fund recipients.

Hold Harmless Provision Proposal 02-4 clarifies that the tobacco settlement allocations are considered separate, distinct, and in addition to the annual amounts appropriated for the Medicaid program. It further states that Medicaid program expenditures for hospitals and other health care services may not be reduced as a result of the allocation of tobacco settlement revenue in the proposed constitutional amendment.

Proposal 02-4 would also require that the ratio of total state expenditures distributed to hospitals, nursing homes, hospices, and nurse practitioners be equal to or greater than the ratio in FY 2000-01. The ratio is also to be adjusted to reflect changes in the federal Medicaid matching rate, and changes in the number and type of Medicaid enrollees. Other state health care program expenditures are also required to be continued at not less than the amount appropriated in FY 2000-01.


The annual amount of tobacco settlement revenue that each state receives varies from year to year based on a variety of factors. It is estimated that Michigan's FY 2002-03 allocation of tobacco settlement revenue will total $328.6 million. If Proposal 02-4 is adopted, $215.7 million in additional revenue would be required to maintain the current appropriations for Merit Award scholarships, respite care for seniors, Medicaid services and a variety of other initiatives. Without additional or alternative revenues, reductions in funding to these programs would be required. In subsequent years, further funding reductions would be required because $39.0 million in unspent tobacco settlement revenue carried forward from the prior fiscal year and appropriated in FY 2002-03 would no longer be available.

The hold harmless provisions that prohibit cuts in Medicaid and other health care program funding from FY 2000-01 levels and the maintenance of Medicaid spending for hospitals, nursing homes, hospices, and nurse practitioners at the same percentage of total state spending in FY 2000-01 would adversely affect funding for other state priorities. In FY 2000-01 the total Medicaid expenditures for the provider groups identified in Proposal 02-4 exceed $1.8 billion. This represents over 5% of the entire state budget for that year, and spending for these items would have to be maintained at the same percentage of the total state expenditures in the future. Any increases in state revenues in subsequent years, regardless of the fund source or purpose, could also potentially result in automatic adjustments in Medicaid funding for the above-mentioned provider groups.

Currently, Medicaid costs consume over 25% of state GF/GP revenues. The proposal provisions that maintain current funding levels and require increases to accommodate anticipated Medicaid caseload growth at a time when federal Medicaid revenues are expected to decline by $120.0 million per year will undoubtedly increase Medicaid state GF/GP funding. As a result of the proposal, anticipated demographic and caseload changes, and reductions in federal funds available to Michigan, Medicaid's share of the state GF/GP budget could grow to more than 30% within several years.

Scheduled declines in state revenues due to reductions in the state's income tax and single business tax rates along with recent federal tax changes will prevent Michigan from meeting the mandates of Proposal 02-4 without substantial cuts in other parts of the state budget. Projected decreases in future tobacco settlement revenues tied to lowered volume of cigarette sales will further erode the funds available to finance the programs and projects supported with these dollars by 3 to 5% per year according to some estimates.

It has also been argued that there may be offsetting savings to Michigan's budget from increased funding for smoking prevention programs. A recent report from the American Legacy Foundation asserts that implementation of comprehensive tobacco control programs that reduce smoking also lower state Medicaid spending attributable to smoking. At this time, it is not possible to quantify the potential impact of particular expenditures in the ballot proposal on overall Medicaid costs in Michigan.

However, any potential savings would likely occur in the future and would not affect the FY 2002-03 budget. Because of requirements in the tobacco settlement revenue proposal that maintain Medicaid spending a 2001 levels, any savings from lowered smoking related-Medicaid costs would not be available for spending elsewhere.[1]

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