The House budget chairman says he will give the trust time to improve its collaboration with lawmakers before deciding whether to renew his effort to overhaul how its earnings are spent.
OKLAHOMA CITY — Oklahoma’s Tobacco Settlement Endowment Trust was designed around a central idea: The Legislature would not control the money.
Former Attorney General Drew Edmondson led Oklahoma’s lawsuit against the tobacco industry. Then-State Treasurer Robert Butkin led a task force that considered how Oklahoma should manage the resulting settlement payments.
“The message was protect it from the Legislature,” Edmondson said in an interview with OK Politics Today.
More than a quarter-century later, House Appropriations and Budget Chairman Trey Caldwell, R-Faxon, remains interested in changing how TSET’s investment earnings are used. But after his proposed constitutional overhaul stalled during the 2026 session, he is giving the current board time to work more closely with lawmakers.
“I am cautiously optimistic,” Caldwell told OK Politics Today. “I think TSET is going to make some changes in how they operate.”
The dispute involves a substantial state asset. TSET’s latest audited financial statements placed its total fund balance at $2.09 billion as of June 30, 2025, including $1.72 billion in protected principal.
The fund generated about $143 million in earnings available for certification for fiscal year 2025. TSET budgeted $82.1 million for programs and operations that year.
Caldwell says the principal should remain protected. The argument is over who decides how the earnings are spent and whether TSET is responsive enough to elected officials and communities across the state.
Why Caldwell pushed for change
Caldwell said his concerns grew after TSET approved 14 Legacy Grants totaling just under $150 million. He said no recipient was based west of Interstate 35 and questioned whether the money was reaching every part of Oklahoma.
“At the end of the day, while it is not a legislatively appropriated fund, it is a constitutionally protected fund,” Caldwell said. “It is still an asset of the state of Oklahoma. It’s owned by the people of Oklahoma.”
TSET says the locations of grant recipients do not show the full reach of their projects.
Thomas Larson, TSET’s director of public information and government affairs, said Legacy Grants support work in communities including Altus, Harmon, Lawton, Cheyenne, Shattuck, Boise City, Guymon and Newcastle.
“Other grants have a statewide reach regardless of where the grantee is headquartered,” Larson said.
Larson said programs including physician loan repayment, the Oklahoma Tobacco Helpline, Healthy Incentive Grants and Built Environment Grants also reach rural communities. TSET publishes impact information for every county and legislative district.
Caldwell said he wants TSET to work more closely with lawmakers and institutions including OU Health and the Oklahoma State University medical school.
“I applaud the people that set it up the way they set it up,” Caldwell said. “I just, more than anything, was wanting to look at how we’re spending that off-kick money.”
Why independence was built in
Oklahoma joined other states in reaching the 1998 Master Settlement Agreement with major tobacco companies. The companies agreed to make annual payments to participating states while cigarettes continue to be sold nationally.
Rather than spend Oklahoma’s share as it arrived, state leaders proposed an endowment. Voters approved State Question 692 in 2000.
Under current constitutional language, at least 75% of each annual payment goes into TSET. A five-member Board of Investors manages the principal. A separate seven-member Board of Directors decides how to spend the earnings.
The constitution allows those earnings to support cancer research and treatment, tobacco prevention and cessation, health programs, services for children and senior adults, and certain education programs benefiting children.
Edmondson said Oklahoma had watched other states use their settlement money for immediate budget needs, tax reductions and projects unrelated to the lawsuit.
“We took the attitude at that time that the money should be spent on what the lawsuit was all about, and that was the health of our citizens,” he said.
He warned against treating TSET as “a substitute for the taxes that you ought to be raising to meet the needs of the state.”
A law struck down, a vote that never happened
The Legislature tested TSET’s independence in 2025 by passing House Bill 2783. The law said directors would serve at the pleasure of the officials who appointed them, rather than for the fixed, staggered seven-year terms established under the Constitution.
The Oklahoma Supreme Court struck down the law in January. The court said the change conflicted with the Constitution and undermined the board’s independence.
“The Legislature can’t direct how that money is going to be spent,” Edmondson said. “They can make recommendations. They can make applications.”
Caldwell then pursued the route Edmondson says is required for a fundamental change: asking voters to amend the Constitution.
The House-engrossed version of House Joint Resolution 1076 proposed a constitutional amendment that would have redirected TSET’s investment earnings away from health-related programs and into education. After 20% was returned to the principal, the remaining earnings would have gone first to Oklahoma’s Promise scholarships and then to the Education Reform Revolving Fund, commonly called the 1017 Fund.
The House-passed version also would have eliminated TSET’s Board of Directors and transferred responsibility for distributing the earnings to the Board of Investors.
Both education programs already receive tax and other state revenue. TSET earnings would have provided an additional revenue source.
Using the fiscal year 2025 earnings as a benchmark, about $28.6 million would have been added to the principal and as much as $114.4 million would have been available for the two education programs. The actual amounts would have changed from year to year with investment performance and Oklahoma’s Promise funding needs.
A companion bill would have used a new fund receiving 37.5% of future tobacco-settlement payments for health-related grants administered by the State Department of Health. Even so, the investment earnings now supporting cancer research, tobacco prevention and other health programs would have been redirected under the House version.
Caldwell said negotiations continued with senators after the House vote and could have changed parts of the plan. One proposal would have divided the annual earnings, preserving a share for smoking prevention and tobacco-related harm reduction while directing another share to education.
“That was one of the negotiations at the end to try to get it heard on the Senate floor,” Caldwell said.
He said the additional education funding could eventually allow the state to expand Oklahoma’s Promise eligibility to more students.
“We were never talking about spending any of the corpus of that money,” Caldwell said. “The crux of the entire question was: Is there a better way to spend that resource?”
The House approved the proposal 69-25 and voted 71-23 to schedule a special election. The Senate did not take it up, so the question never reached voters.
A pause, not an end
Caldwell said conversations with board members since then have left him willing to wait before pursuing another proposal.
“I’ve committed to them to give them time,” he said. “They’ve committed to myself and the Legislature writ large that they are going to try to do a better job.”
Larson said TSET is responding to that concern.
“The TSET Board of Directors and TSET staff are focused on increased communication with the Legislature and fostering a greater understanding of TSET’s work to improve health in Oklahoma,” he said.
Edmondson said he hopes lawmakers do not attempt another statutory change. If they want to alter who controls TSET or how its earnings are directed, he said, they must ask voters to amend the Constitution.
Caldwell has not ruled out doing that again.
“At the end of the day, I still have four years left in the Legislature,” he said. “There’s a lot of time left.”
