The Master Settlement Agreement and state budgeting choices
Hepburn, Valerie A.
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Public budgeting reflects the policy process through which governments and stakeholders make decisions about the allocation of scare resources. Much of the literature focuses on the political and rational processes by which these allocation choices are made within the confines of current resources. The landmark Master Settlement Agreement (MSA) of 1998, which was negotiated between the states and the four major tobacco manufacturers, created a new revenue stream estimated to exceed more than $200 billion for states over twenty-five years. The MSA affords theorists the rare opportunity to analyze budgeting behavior and decision-making in a situation when a common, new revenue source becomes available across nearly all of the states. This research explores the budgeting behavior of states with the found money that is the MSA and considers the theoretical and practical tussle between rational, comprehensive budgeting approaches and incrementalism. The research surmises that states will be influenced by economic forces, political and procedural factors, health status, and financing needs in determining uses of the MSA proceeds. The hypotheses are tested using correlation and regression analyses with variables representing these anticipated budgeting cues and annual data on MSA allocations. The unique policy opportunities and concerns posed by the MSA also arerepresenting key interests in the MSA. In considering discrete categories of expenditure, analysis of the MSA uncovers interesting perspectives related to state budgeting behavior. Economic variables, tobacco production, political culture, and state expenditures for the Medicaid program have an observable influence on investment choices. The research finds that budgeting behavior with respect to the MSA tends toward incrementalism but that extreme economic and environmental forces may disrupt that behavior, possibly resulting in the phenomenon described as “punctuated equilibrium.” The nuances of the MSA combined with the unrestricted nature of its revenue stream provide an exceptional domain for policy analysis and budgeting research over the next two decades.