Enrolled Bill Summary

            In January 1998 the State of Texas reached a $15 billion settlement in its federal lawsuit against the tobacco industry. That agreement contained a "most-favored nation" clause, providing that if the industry reached a settlement with another nonfederal governmental plaintiff on terms more favorable to that plaintiff than to the State of Texas in the Texas settlement, the Texas settlement would be upgraded to mirror those more favorable terms. A later settlement in Minnesota triggered the clause and consequently an additional payment of more than $2.2 billion.

            House Bill 1161 codifies elements of a related July 1998 agreement, whereby the entirety of the most-favored nation proceeds go to hospital districts, other political subdivisions that operate hospitals, and counties responsible for indigent care to compensate them for unreimbursed expenditures incurred as a result of their treatment of tobacco-related illnesses. The State of Texas acts only as a trustee for those proceeds, although the money is held in the state treasury. Under the agreement, $450 million is distributed to eligible entities according to a three-year lump sum payment schedule. The first of those lump sum payments was made to hospital districts, counties, and other political subdivisions in January 1999 on a per capita basis using 1990 census populations.

            The other $1.8 billion from the agreement goes into a permanent trust. The act amends the Government Code to establish a tobacco settlement permanent trust account and to assign to the comptroller associated investment and reporting duties. The account's corpus remains intact, and annual net earnings are distributed to the eligible entities. The act contains a prohibition on the use of distributions for lobbying expenditures. Amendments to the Health and Safety Code assign to the Texas Department of Health the collection of future data on unreimbursed local health care expenses and the certification of the proportionate share of earnings, based on relative expenses, to go to each entity. The act creates an advisory committee representing such entities to assist the comptroller with account investment and a similar advisory committee to assist the department with account administration. A temporary section, expiring in 2002, applies to the 2000 and 2001 lump sum payments. It uses the department's permanent trust certifications to distribute those lump sum payments proportionately based on relative unreimbursed expenses rather than on relative population as was the case in 1999.