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Missouri's Use of Lawsuit Settlements
Commentary by: Tom Schlafly
Aired April 17, 2012


Missouri, like many other states, is facing serious fiscal challenges, and our elected officials have responded with some pretty creative solutions. One proposal in the general assembly would reduce the payout from the state lottery. Like lots of other states Missouri already depends on games of chance in which the odds are rigged in its favor. The proposal in the legislature would enhance general revenue by shifting the odds even more in favor of the state. As long as lower payouts donít deter people from buying lottery tickets, Missouri would profit by changing the rules of the games it controls.

Government lotteries, it should be noted, have been around for thousands of years. Americaís founding fathers relied on lotteries to fund the war for independence from Britain. Our founding fathers would not, however, have been familiar with one of the other techniques Missouri uses to raise money: strategic lawsuits that produce gigantic settlements the proceeds of which can be used to fund programs totally unrelated to the underlying lawsuits.

The most lucrative use of this technique was the tobacco settlement of 1998, estimated to be worth 246 billion dollars over 25 years, of which Missouriís share was 4.5 billion. The stated purpose of the settlement was to compensate states for the public health problems caused by smoking. The logical expectation was that these funds would be spent on programs to help people stop smoking or to prevent them from starting. Logic, however, had little to do with what actually happened. When state officials got their hands on money from the tobacco settlement they found other uses for almost all of it. According to the Campaign for Tobacco Free Kids, in fiscal year 2012 Missouri received 244 million dollars from tobacco taxes and funds from the tobacco settlement. The Centers for Disease Control recommended spending 30 percent of this money, or 73.2 million dollars, on tobacco prevention. Missouri actually spent 60,000 dollars on tobacco prevention, less than one tenth of one percent of the CDC recommendation.

In light of how Missouri chose to spend the tobacco settlement, itís not surprising that the state found other uses for funds from the 25 billion dollar mortgage settlement reached by several large banks and most state governments, The settlement was supposed to be used to compensate victims of the foreclosure crisis. Shaun Donovan, the Secretary of Housing and Urban Development, called on states to use the funds for precisely this purpose. Missouri Governor Jay Nixon, however, chose to divert 40 million dollars of Missouriís portion of the settlement to higher education.

While lotteries and litigation windfalls are both ways of generating state revenue without raising taxes, there is a significant difference between the two techniques. People who buy lottery tickets are making a voluntary choice to gamble, knowing that the odds are rigged in favor of the state. People with health problems related to smoking and victims of fraudulent lending practices on the part of big banks were never given a choice about using the proceeds of their settlements for purposes for which they were not intended.


(The opinions expressed are not necessarily those of St. Louis Public Radio.)

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Tom Schlafly

Tom Schlafly

Commentator

Tom Schlafly is an attorney in St. Louis.

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