Years ago I drove a little, yellow VW Beatle because it was the lowest-priced new car I could find: $3,600. Little did I know that I was killing our children while enriching the State of Texas. No, this has nothing to do with our state legislature, but rather with the millions or billions of dollars headed to Austin, well, maybe, if those funds don’t disappear along the way. It seems that Volkswagen got caught, over a long period of time, deliberately cheating on fuel emissions, smog, mpg and polluting the air we and our children breathe. As punishment, the German auto company agreed to pay vast amounts of money to various governments including many of the U.S. states. Under Texas law, any money VW hands over to the state, the county governments get half. But Atty. Gen. Ken Paxton claims the state should receive 100 percent of the money, and is attempting to toss out all but two of the counties from the case.
In a filing earlier this year, Paxton argued that it was his office’s right to uphold Texas’ environmental laws. This is laughable, since Paxton and his predecessor in the atty gen’s office, some guy named Greg Abbott, have wasted tens of millions of taxpayer dollars fighting federal anti-pollution laws as Washington’s interference in our God-given right to pollute the air, water and anything else we wish. Now all of a sudden, those very laws Paxton is trying to abolish are our best friends. And we thought hypocrisy was dead in Austin. The potential payouts are enormous. According to press reports, earlier this year, VW agreed to pay $4.3 billion in civil penalties to the Justice Department, part of $22 billion in settlements in the United States alone. In Texas, the company settled anti-fraud violations for $50 million in November. I have no idea what happened to all that money, but look for the Longhorns and the Aggies to have winning records next season. Volkswagen still faces far more costly violations of Paxton’s hated anti-air pollution laws, maybe fines of up to $25,000 per day for all 32,000 of its clean diesel vehicles registered in Texas.
For guidance as to who gets those billions and what is done with them, we turn to the Master Settlement Agreement (MSA). That was the tobacco industries’ deal in 1998 to pay out $246 billion over 25 years to treat tobacco-related health issues and to prevent young people from taking up the cancer sticks. (I think cigars are exempt.) Wait. It’s sort of like winning the Texas Lotto for $1 million. That’s if the $1 million is paid out over 20 years. However, if you choose to take the entire pot at once, it shrinks by one third. The IRS gets about a third, and don’t forget your student loan. The money you ultimately receive isn’t bad, but it is in no way $1 million. Likewise the $246 billion will finally be paid out by the cigarette makers when the U.S. budget is balanced, or hell freezes over, whichever comes first. Now the kicker: the litigants arranged to shift the entire cost of the settlement — not onto the tobacco companies, but onto smokers through price increases.
Where is this tobacco money going? The settlement made no mention of how the states would spend it, so Michigan is spending 75 percent of its settlement funds on scholarships for high school students who pass a state-wide test. New York allocated $250 million for debt reduction. Forty-five percent of North Dakota’s money financed a Water Resources Trust Fund. South Dakota’s People’s Trust Fund will generate interest income that can be spent on whatever the legislature wishes. Georgia dedicated $63 million to rural economic development. While only spending $5 million on youth smoking prevention, Illinois dropped $22.1 million to improve state buildings. I like this one: Two Nevada PBS stations received $2 million to develop high-definition TV capabilities in exchange for airing some anti-tobacco ads. The Centers for Disease Control and Prevention recommended that states should spend approximately $3.3 billion per year on tobacco prevention and education, but the states have budgeted a little less than 2 percent of that money, or less than $500 million. That means that for every dollar the states got from the tobacco settlement, two cents was spent on preventive programs.
Here in Texas, the tobacco fortune was a scandal. Long story short, in October 2003, former Atty. Gen. Dan Morales admitted to having falsified documents in an attempt to give another lawyer a chunk of the state’s tobacco settlement. Morales, who once ran for governor, ended up in a federal pen. OK, Texas got $17.3 billion, but where did the money go? I mean, have you seen any anti-smoking TV ads? I haven’t. Have school students been aware of the evils of cigarettes? I hope so. The Texas Dept. of State Health Services has a detailed explanation of where the money went (“Miscellaneous: $17.2 billion”), so we have no need to worry. However, remember that little box you could check on your electric bill that would add one dollar – a single buck – to help cover the electric bills of poor souls who couldn’t pay for their a/c in August? The Legislature took those millions, and funneled them into the general treasury.
This brings us to the lawyers. The national tobacco settlement was and remains by far the largest money transfer in the history of plaintiff litigation, and attorney fees just kept mounting. The Massachusetts lawyers in that state’s tobacco case had already been awarded $775 million, an average of more than $7,700 an hour, but they sued for another $1.3 billion. In Texas, five lawyers took on the tobacco industry, which until then had won every single court battle, on a contingence fee — if they lost, they got zero. The Tobacco Five, as they were known, won and received $3.3 billion, another record.
Maybe I should have driven an ox cart.
Ashby is suspicious at email@example.com