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Commonwealth of Pennsylvania House of Representatives Appropriations Committee Hearing Budget Hearing

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Commonwealth of Pennsylvania House of Representatives Appropriations Committee Hearing Budget Hearing COMMONWEALTH OF PENNSYLVANIA HOUSE OF REPRESENTATIVES APPROPRIATIONS COMMITTEE HEARING BUDGET HEARING STATE CAPITOL MAJORITY CAUCUS ROOM HARRISBURG, PENNSYLVANIA THURSDAY, MARCH 9, 2006, 10:55 A.M. VOLUME II OF III PRESENTATION OF TOBACCO SETTLEMENT PROGRAMS AND ISSUES BEFORE: HONORABLE DWIGHT EVANS, CHAIRMAN HONORABLE GIBSON ARMSTRONG HONORABLE MATTHEW BAKER HONORABLE STEPHEN BARRAR HONORABLE STEVEN CAPPELLI HONORABLE GENE DiGIROLAMO HONORABLE PATRICK FLEAGLE HONORABLE DAN FRANKEL HONORABLE HAROLD JAMES HONORABLE JOHN MAHER HONORABLE EUGENE McGILL HONORABLE FRED McILHATTAN HONORABLE ANTHONY MELIO HONORABLE PHYLLIS MUNDY HONORABLE JOHN MYERS HONORABLE SAMUEL ROHRER HONORABLE CURT SCHRODER HONORABLE JOSH SHAPIRO HONORABLE JERRY STERN HONORABLE THOMAS TANGRETTI 2 1 BEFORE: (cont'd.) HONORABLE DON WALKO 2 HONORABLE JAKE WHEATLEY HONORABLE PETER ZUG 3 ALSO PRESENT: 4 MIRIAM FOX EDWARD NOLAN 5 6 JEAN M. DAVIS, REPORTER NOTARY PUBLIC 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 3 1 I N D E X 2 WITNESSES 3 NAME PAGE 4 MICHAEL MASCH 5 5 DENNIS YABLONSKY 15 6 CALVIN JOHNSON 18 7 NORA DOWD EISENHOWER 21 8 ESTELLE RICHMAN 22 9 DIANE KOKEN 24 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 4 1 REPRESENTATIVE FLEAGLE: The hour of recess 2 having expired, the House Appropriations Committee 3 will come to order. Before us is the Tobacco 4 Settlement Program Multi-Tasking Committee here. We 5 have numerous secretaries here. We welcome all of you 6 and look forward to your testimony. As has been the 7 program, we would ask that each one of you introduce 8 yourself and then stand and be sworn in by the 9 stenographer. 10 You could start, Secretary Johnson. 11 SECRETARY JOHNSON: Calvin Johnson, Health 12 Secretary. 13 SECRETARY MASCH: Mike Masch, Secretary of 14 the Budget. 15 SECRETARY YABLONSKY: Dennis Yablonsky, 16 Secretary, DCEC. 17 SECRETARY RICHMAN: Estelle Richman, 18 Secretary of the Department of Public Welfare. 19 SECRETARY DOWD EISENHOWER: Nora Dowd 20 Eisenhower, Secretary of the Department of Aging. 21 REPRESENTATIVE FLEAGLE: If you folks would 22 all rise and be sworn in, please. 23 (Witnesses sworn en masse.) 24 REPRESENTATIVE FLEAGLE: I realize this might 25 be a logistical nightmare. 5 1 Secretary Masch, would you start? 2 SECRETARY MASCH: Let me note that 3 Commissioner Koken has rejoined us. 4 Do you want to swear her in as well? 5 REPRESENTATIVE FLEAGLE: Yes, let's do that. 6 I know she did the last time. 7 Commissioner Koken, would you stand to be 8 sworn in again? 9 COMMISSIONER KOKEN: Yes. 10 (Witness sworn in.) 11 REPRESENTATIVE FLEAGLE: Secretary Masch, I'm 12 sure not all of you have an opening statement. 13 Hopefully none of you do. 14 SECRETARY MASCH: Shall we take that as a 15 hint, Mr. Chairman? 16 REPRESENTATIVE FLEAGLE: We have a lot of 17 questions. If you would just like to preface this 18 hearing with a statement, I would certainly take that. 19 SECRETARY MASCH: Let me kick this off. On 20 December 17th, 1999, 46 of the 50 states entered into 21 an agreement which is known as the Master Settlement 22 Agreement with the five major manufacturers of 23 cigarettes in the United States. There are many 24 provisions to that agreement. 25 And although we will undoubtedly focus here 6 1 primarily on that component of the Master Settlement 2 Agreement which calls for annual payments to be made 3 to each of the 46 participating states in the 4 agreement, I should note that the Attorney General of 5 the state negotiated a very comprehensive agreement, 6 which is intended to do two things. It is intended to 7 increase the awareness of the public to the potential 8 health risks of smoking and reduce, ideally, the 9 amount of tobacco consumption in the United States as 10 a result of the agreement. 11 It is also intended to provide the states 12 with funds in recognition, and those funds are 13 provided in perpetuity. There are numerous times that 14 I have noticed in articles, even in the past couple of 15 months, that talk about the 25 year earnings because 16 there have been many statements as to how much the 17 value of 25-years' worth of payments could be. 18 But I want to make it clear, the Master 19 Settlement Agreement is an agreement in perpetuity. 20 It provides compensatory funding to the states for the 21 purpose of recognizing that the states have incurred 22 significant healthcare costs because of the 23 consumption and use of tobacco products by their 24 citizens. 25 Here in the state of Pennsylvania, the 7 1 General Assembly enacted, in 2001, Act 77, which is a 2 portion of the tobacco settlement funds. Some funds 3 were used for a one-time purpose to establish the 4 major programs like the Life Sciences Greenhouses. 5 The other funds are allocated on an annual basis. 6 Each year Act 77 requires the Governor to 7 propose -- to, first of all, estimate the amount of 8 funding that will be available in the coming year and 9 then to propose a plan for the use of those funds 10 consistent with Act 77. 11 Last year the General Assembly agreed with 12 the Administration to make some revisions to the Act 13 77 allocation formula. We are recommending that the 14 General Assembly and the Administration make revisions 15 to the Act 77 formula this year as well. And we'll be 16 happy to speak to that during this hearing. And I'm 17 sure that you have questions about it. 18 I would note that our projection is that in 19 new money, we will receive $379 million in new tobacco 20 settlement funds this year. We also will earn 21 interest on the tobacco settlement fund and on the 22 tobacco settlement endowment. It is our proposal that 23 we use those funds, interest and earnings, on the 24 endowment account, which would come to thirty-seven 25 and a half million in interest and earnings on the 8 1 tobacco fund itself, which are estimated at 8.7. 2 We also project that we will have a 3 carryforward in adultBasic. Funding for the 4 adultBasic adult health program lapses into the 5 program and not into the fund or into the General 6 Fund. That would give us total resources of $434.7 7 million. And we have proposed an allocation of those 8 funds and we would be happy to answer questions. 9 The members of the cabinet who are here 10 represent the departments that are responsible for the 11 administration of those various programs. We would be 12 happy to answer your questions about how we have used 13 those funds to date, our proposal for the use of those 14 funds in the coming year, and also general questions 15 you may have about the administration of the Master 16 Settlement Agreement and how it affects the 17 Commonwealth. 18 Thank you. 19 REPRESENTATIVE FLEAGLE: Thank you, 20 Mr. Secretary. 21 Just one more logistical thing. I would ask 22 that members, as we ask questions, try to focus in on 23 the particular member of that cabinet that they think 24 would be best suited to answer that. I realize we may 25 stray from that, because you are a very opinionated 9 1 group, as we are. There's a lot of knowledge out 2 there. 3 I understand, Mr. Secretary, you are before 4 the Senate at 2 o'clock, right? 5 SECRETARY YABLONSKY: I have a Senate 6 hearing, Mr. Chairman, at 1:15. 7 REPRESENTATIVE FLEAGLE: The rest can stay 8 the rest of the day, right? 9 SECRETARY MASCH: If it is your pleasure. 10 REPRESENTATIVE FLEAGLE: I will now recognize 11 Representative Cappelli, who was gracious enough to 12 cut his questions off the last time. 13 Representative Cappelli. 14 REPRESENTATIVE CAPPELLI: Thank you, 15 Mr. Chairman. 16 I appreciate the priority given to me this 17 round. First, I have a comment for Secretary 18 Yablonsky. Unfortunately, I was unable to attend the 19 DCED budget hearing. And I just want to commend you, 20 sir, and your staff for the excellent job you're doing 21 relative to the economic development. 22 SECRETARY YABLONSKY: Thank you very much. 23 REPRESENTATIVE CAPPELLI: You are a man of 24 your word. I certainly mean that. I want to thank 25 you for that. 10 1 I guess my question would be for Secretary 2 Masch. I'm wondering what percent decline, what 3 percentage of revenue decline, have we or are we or 4 are we not factoring into estimated tobacco settlement 5 revenues for the upcoming fiscal year? 6 SECRETARY MASCH: Representative, in fiscal 7 year '04-'05, new payments under the Master Settlement 8 Agreement were $371 million. In this current fiscal 9 year, we originally anticipated a decline. That is 10 for '05-'06. We originally anticipated a decline in 11 revenues of three and a half percent. That would have 12 given us a $358 million payment under the agreement in 13 this current year. 14 We have now revised those projections. And 15 in the submitted budget for '06-'07, we start with a 16 projection that this year's payment under the Master 17 Settlement Agreement to the Commonwealth will be 18 $366 million. That is a decline of 1.3 percent.
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