Governor Ernie Fletcher’s Communications Office
Governor Fletcher Announces Full Funding for All Programs Supported by Tobacco Settlement Money

Press Release Date:  Friday, May 19, 2006  
Contact Information:  Brett Hall
Jodi Whitaker
Troy Body

Michael Goins

Revenue shortfall for settlement money in FY04-06 smaller than anticipated

FRANKFORT, Ky. – Governor Ernie Fletcher today announced no reduction in funding in the current fiscal year (FY06) for all programs that receive funding from Kentucky’s share of the Phase I revenue from the Master Settlement Agreement (MSA).

“A variety of programs, from improving the health and education levels of Kentucky’s children through immunizations and early development programs and scholarships, to screenings for early detection of ovarian cancer, smoking cessation and combating the drug trade in our commonwealth, depend on money from the tobacco settlement to keep these important services going,” said Governor Fletcher.  “By making this decision we have put to rest any chance of cutbacks in the current year due to a drop in Phase I receipts from the MSA.”

Forecasts by the Consensus Forecasting Group (CFG) in January 2006 originally predicted a $17.3 million shortfall in Phase I payments for the Master Settlement Agreement, prompting a budget reduction plan for FY06 in the recently passed FY06-08 Executive Budget.  However the Phase I settlement payments are only $5.56 million less than the $108 million that was appropriated in the final budget passed in the 2005 session.

Programs that receive funding from tobacco settlement money include:

Kentucky Agricultural Development Fund, which pay for agricultural development initiatives (50 percent of MSA payment funds).
Early Childhood Development Initiatives, which includes hearing and vision screening for newborns, immunizations and scholarships (25 percent of MSA payment funds).
Health Care Improvement Fund, which includes funding for insurance through the Kentucky Access Program, ovarian cancer screening at the University of Kentucky, smoking cessation programs and money for the Office of Drug Control Policy (25 percent of MSA payment funds).

With the smaller shortfall, Governor Fletcher will direct the Phase I revenue shortfall to be applied toward unneeded debt service instead of cutting funding for tobacco money supported programs. 

“This budgeted debt service has been determined to be in the excess of the amounts needed,” State Budget Director Brad Cowgill wrote in a letter to the co-chairmen of the Interim Joint Committee on Appropriations and Revenue.  “This decision also results in no budget reductions to any programmatic area; those original appropriations remain intact.”

The unneeded debt service originated from $27 million in bond funds for supplemental Phase II payments budgeted by the General Assembly.  However the debt service is no longer needed on the bonds due to a ruling by the North Carolina Supreme Court that tobacco companies had to pay the remaining Phase II payments.


The Office of State Budget Director, created by KRS 11.068, includes the Governor’s Office for Policy and Management, the Governor’s Office for Policy Research and the Governor’s Office for Economic Analysis.  The mission of the Office of State Budget Director is to provide the Governor and the commonwealth high quality analysis, sound advice, objective research and management assistance in regard to the policy, budget and economic issues facing the commonwealth, and to ensure the fiscal integrity and continuity of Kentucky state government.