By Ali Eaves,

Special to Stateline [Tuesday, July 20, 2010]

Americans are smoking less and less. That’s good news for public health, but it creates an ironically nasty side effect for many state budgets. They have grown dependent on an annual stream of money from tobacco companies, and that money is itself dependent on the number of people who consume cigarettes.

The payments to states come each year as dictated by the Master Settlement Agreement, a 1998 settlement between 46 states and most of the big tobacco companies, in exchange for states’ promises not to sue the cigarette manufacturers over health claims. States have received $73 billion to date from participating tobacco companies. The payments are calculated each year by a formula that partly relies on the smoking rates in each state. Predicting the payments is never an exact science, but this year’s unwelcome 16 percent drop in funds is thought by many experts as the beginning of a long-term downward trend. 

Smoking rates have been steadily declining since the 1980s, to the point where only 20.6 percent of adult Americans indulge, according to the most recent data. The average decline in federally-taxed sales during the past decade is around 3 percent per year, according to numbers from the federal Alcohol and Tobacco Tax and Trade Bureau — but a string of tax increases in 2009 was enough of a disincentive to move that number to more than 8 percent.