Vermont Just Got Another $22 Million From Big Tobacco. Almost None of It Goes to Help Vermonters Quit Smoking

The American Lung Association gives Vermont an "F" for tobacco prevention funding. The Legislature has received $840 million from Big Tobacco and spent 86 cents of every dollar on Medicaid instead.

Every year, Vermont gets a check from the cigarette industry. Attorney General Charity Clark’s office announced this week that the amount was $22,103,714.56 — the latest in a series of annual payments under a landmark 1998 settlement with the tobacco industry.

The press release called it a legacy of leadership. It did not say where the money goes.

That question has a specific, documented answer. And the answer is not what most Vermonters would expect.

The Deal That Keeps Paying

In November 1998, Vermont joined the Master Settlement Agreement along with dozens of other states and jurisdictions. The deal settled lawsuits the states had brought to recover Medicaid costs from smoking-related illness and hold the tobacco industry accountable for deceptive marketing practices targeting youth. In exchange, the companies — including Philip Morris and R.J. Reynolds — agreed to make ongoing annual payments to the settling states, with payment amounts tied in part to cigarette sales.

Vermont has now collected more than $840 million since the settlement began, based on prior AG reporting and this year’s announced payment — roughly $30 million a year on average across nearly three decades. This year’s payment continues a gradual decline as smoking rates fall and cigarette sales shrink.

Here’s the catch: the settlement did not require Vermont to spend the money on tobacco prevention or cessation.

Unlike Vermont’s opioid settlement structure — which under state law includes a dedicated Opioid Abatement Special Fund, a public advisory committee, published spending recommendations, and required annual reporting to the Legislature — tobacco settlement spending is handled through the standard annual budget process, with the Legislature free to direct the money wherever it chooses.

What the Legislature has chosen, year after year, tells the real story.

86 Cents on the Dollar

Budget documents reviewed by Compass Vermont show Vermont’s Tobacco Fund has been appropriated the same way for at least three consecutive fiscal years. The Senate version of H.951 — the state budget bill currently before the Legislature — allocates $24,529,816 from the Tobacco Fund across seven line items.

Here is where it goes:

$21,049,373 — Global Commitment/Medicaid This is 85.8 cents of every Tobacco Fund dollar — unchanged from the prior fiscal year shown in the same budget document. This redirect has deep roots. Vermont law created the Tobacco Litigation Settlement Fund with language permitting spending on “other health care purposes” — a phrase that provided the legal basis for directing the majority of payments toward Medicaid obligations. That decision, made under budget pressure in the early 2000s, has never been unwound. Today, a quarter-century later, Big Tobacco is effectively helping to fund Vermont’s health care safety net.

$949,917 — Substance Use Programs (Vermont Department of Health) About 4 cents on the dollar. This funds substance use programming broadly — not tobacco-specific cessation or prevention.

$1,022,514 — VDH Public Health About 4 cents on the dollar, and declining from $1,088,918 in the prior two fiscal years.

$750,388 — Education About 3 cents on the dollar. Unchanged from prior years.

$434,660 — Attorney General’s Office Less than 2 cents on the dollar. Budget documents identify the AG’s office as the recipient; the appropriation supports the office’s ongoing work related to the settlement.

$252,863 — Liquor & Lottery Commission About 1 cent on the dollar. Supports the agency’s tobacco-related licensing and compliance functions.

$70,101 — VDH Administration Less than 1 cent. A new line in FY2027, reflecting salary and benefits adjustments for health department staff.

The total annual Tobacco Fund appropriation of $24.5 million slightly exceeds this year’s $22.1 million payment — a gap covered by the fund’s existing balance. If payments continue their gradual decline, the Legislature will eventually need to make adjustments.

What About Tobacco Prevention?

Vermont runs a dedicated Tobacco Control Program through the Department of Health — the program most directly aimed at helping Vermonters quit smoking and keeping kids from starting. According to the Department of Health, its total FY2027 budget is $3,542,737.

That budget draws from three sources: $1,092,615 from the Tobacco Litigation Settlement Fund, $1,450,122 from Medicaid investment funds, and $1,000,000 in federal grants. In plain terms: about 31 cents of every Tobacco Control Program dollar comes from tobacco settlement money. The rest comes from Medicaid investment funds and Washington.

That federal $1 million is worth watching. Compass Vermont asked the Department of Health whether that federal funding is secure given the current federal funding environment. The department did not answer the question.

The stakes are significant. The Centers for Disease Control and Prevention recommends that Vermont spend $8.4 million annually on tobacco control based on its population and health profile. Vermont’s current $3.5 million total represents roughly 44 percent of that benchmark — a shortfall that has earned the state an “F” grade from the American Lung Association for tobacco prevention funding. If the federal grant disappears, the program loses nearly 30 percent of its budget overnight.

The Tobacco Control Program funds cessation services, youth prevention work, and grants to community partners — detailed in the department’s FY2025 Annual Review.

Two Funds, One Unresolved Question

Vermont maintains two separate tobacco funds — a distinction that matters as the Legislature considers what to do with a new wave of vape and nicotine enforcement revenue.

The Vermont Tobacco Litigation Settlement Fund, established under 32 V.S.A. § 435a, receives the primary MSA payments and certain enforcement recoveries. The Tobacco Trust Fund was established separately for tobacco cessation and prevention purposes. They are distinct legal accounts with different intended purposes.

There is also a subtler distinction. Not all vape or nicotine enforcement actions flow to the tobacco funds. Cases built around consumer protection theories — deceptive marketing practices, for example — are typically handled by the AG’s Consumer Protection Unit, with recoveries flowing to a separate fund and largely into the general state budget. Cases built around tobacco-law violations flow differently. The legal theory used in any given enforcement action determines where the money ends up — a distinction that will matter as vape enforcement grows.

Attorney General Clark is supporting S.198, a bill that would ban vapes shaped like toys, school supplies, or gaming devices; update Vermont’s laws to cover nicotine pouches and tobacco substitutes; expand business licensing requirements; and impose a tiered excise tax on tobacco substitutes based on nicotine concentration.

The Senate-passed version of S.198 retains language directing certain penalties, tobacco-law settlement money, and excess licensing-fee revenue into the Tobacco Trust Fund for tobacco cessation and prevention. Whether that language survives the House process and how it interacts with final budget decisions remains to be determined. Vermont’s standard legislative practice separates policy decisions from appropriation decisions until the budget is resolved — meaning the money question, even where policy language exists, is not fully settled until the session ends.

What is clear is that without the oversight protections built into the opioid settlement framework — a dedicated advisory committee, public reporting requirements, and a prohibition on using settlement funds to replace existing program funding — any new nicotine revenue faces the same structural risk as the original $840 million: absorption into the broader state budget rather than dedication to the public health crisis that generated it.

What $840 Million Bought

Vermont joined the tobacco settlement as a leader in holding Big Tobacco accountable. The money that followed was supposed to address the damage cigarettes had caused — to public health, to Medicaid rolls, to a generation of addicted Vermonters.

What happened in Vermont is what happened in most states. The money became a budget tool. Medicaid absorbed 86 cents of every dollar. Tobacco prevention received a fraction — and even that fraction depends in part on federal grants whose future is uncertain.

AG Clark’s announcement this week is accurate: Vermont received $22 million from tobacco manufacturers. What it leaves out is that 86 cents of every Tobacco Fund dollar goes to Medicaid, that the program specifically designed to help Vermonters quit smoking runs on roughly 31 cents of tobacco money per dollar and operates at 44 percent of the CDC’s recommended funding level, and that Vermont has never built the kind of public accountability structure around tobacco settlement spending that it built — twenty-five years later — for the opioid settlement.

As MSA payments continue their gradual decline and state health care costs continue to rise, the Legislature will eventually face a structural choice it has deferred for a quarter century.

The next generation of nicotine money is being shaped right now in the State House. Whether it follows the same path as the last $840 million is still being decided.