Where Tobacco Settlement Funds Really Went

"That just doesn't make sense," said John Kirkwood, CEO of the American Lung Association. "Why would we want to subsidize tobacco farmers when we are trying to reduce smoking?"

Many states facing a budget crunch have gone to Wall Street, selling off their rights to future tobacco payments in exchange for a quick fix.

‘A Classic Bait and Switch’?

Fifteen states chose to take the money now instead of later by selling bonds to investors. The problem is for every dollar they would have gotten in the future they got just 40 cents today.

"It means that even as Medicaid costs from smoking rise, the states will no longer have the tobacco funds to pay for them," Myers said. "What they've done is mortgaged their future."

Even some tobacco companies say they feel burned.

"What they said they were going to use the money for and what they actually used it for is very different," said Tom Payne, of R.J. Reynolds Tobacco Company. "It's a classic bait and switch."

Short-Sighted Spending?

The state of California studied the issue, and found that for every dollar it spent on smoking prevention, it saved $3.62 on health care.

And yet the new report from the anti-tobacco groups says that California has committed just a "modest" amount of its money to anti-smoking programs.

These groups say only four states are doing enough with the money: Minnesota, Mississippi, Maine and Maryland. On the other end, the groups say that Michigan, Missouri and Tennessee have committed zero money from the settlement to fight smoking.

So what about the promises made by those attorneys general three years ago?

Gregoire, of Washington State, says she is disappointed, but that the attorneys general have no control over how states spend the money.

"We watched what's been happening around the nation with despair," Gregoire said. "The only thing more addictive than nicotine ... is money to the legislatures of this nation and that has been very disheartening to those of us who worked so hard to bring this money back to our respective states."

ABCNEWS' Bob Woodruff reported this story on ABCNEWS' Good Morning America.

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