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The Truth About American Legacy

The American Legacy Foundation is a rare example of a public charity being born with a silver spoon. Even before it began operating in 1999, the foundation was bequeathed more than $1 billion from the settlement of a massive lawsuit brought by the attorneys general of 46 states against the country’s major tobacco companies. That money is part of billions of dollars that the tobacco companies paid, basically as reparations, for the damage their products wreaked on the public.

The foundation was conceived as an antidote to that past. Tasked to target teen smoking, its mandated anti-tobacco campaigns were seen as the best way to prevent a heavy tobacco-related health toll in the future.

For the first few years, it seemed a great success. The foundation rolled out hard-hitting and ubiquitous advertising, known as “the truth” campaign. Perhaps the most famous ad, broadcast repeatedly during the 2000 Olympics, had an urban guerilla bent, with workers emptying trucks of 1,200 body bags and dumping them outside the headquarters of Philip Morris in New York, representing the number of Americans who die each day because of tobacco use.

On the heels of this and other anti-tobacco efforts, teen smoking dropped from 36 percent in 1997, a year before the tobacco case settlement, to below 22 percent in 2003. American Legacy was given much of the credit – and continues to cite the statistic – although the smoking rate overall had been going downhill since the first U.S. surgeon general’s warning about smoking in the 1960s. There were heady predictions of a tobacco-free generation resulting from the foundation’s efforts.

Then the magic stopped working so well. Since 2003, teen smoking rates have hovered around 22 percent, even as adult smoking has continued to dwindle (to under 20 percent now). After the final really big tobacco payment of $307.9 million came that year (under the Master Settlement), “the truth” campaign continued on a much smaller scale.

But despite spending less on those ads, awarding fewer grants for anti-smoking programs and seeing all the tobacco company contributions end last year, the foundation itself grew wealthier. As expenditures for its primary missions fell, two budget items kept growing: investment fees and salary costs, especially for top executives.

President and CEO Cheryl Healton came on board in 2000 from Columbia University’s School of Public Health at an annual salary of about $246,700. By 2008, her pay had more than doubled, to $570,000 in base salary and more than $137,000 in benefit contributions, according to the organization’s federal tax returns. The foundation’s total salary costs consumed more than 10 percent of its annual budget in fiscal 2007 and 2008. (Fiscal 2008 ended June 30, 2008, and is the latest period for which financial documents are available.)

As for investments, foundation leaders decided at its inception that rather than spend all the money as it came in, they would spend about half and invest the rest as a way to lengthen the foundation’s life. “We have saved each year into a reserve fund,” Healton told Youth Today, “and we plan to use that to continue to help youths make the right decision about smoking.”

While most nonprofits invest to protect their funds, the Legacy Foundation has pursued an aggressive investment strategy that includes hedge funds, foreign stocks (sometimes accompanied by currency exchange losses), interest rate swaps, two office buildings in downtown Washington and other investments.

Some observers say Legacy is trying too hard to perpetuate itself and the cause would be better served if it spent more of its endowment, which stood at $1.156 billion at the end of fiscal 2008.

“When they were formed, nobody said they had to be here in perpetuity,” said a former anti-tobacco activist, who asked not to be named. “But that’s what they’ve done. They’re a public charity, but they’re using something similar to the 5-percent-payout model, like a [private] foundation.”

Legacy’s defenders counter that spending all the money wouldn’t be the best way to fulfill the organization’s mission. “Smoking has been around for over 100 years. It won’t go away in 10,” said Gregory Connolly, professor of public health practice at Harvard University, and formerly the director of tobacco control programs in Massachusetts.

“Going against the tobacco industry is a marathon and not a sprint,” Healton said. Legacy’s Mandate

The idea for the American Legacy Foundation sprang from a program called Truth that the state of Florida ran as part of its anti-smoking program, which was financed by its own tobacco suit settlement in 1997. Headed by Chuck Wolfe, Truth ran a $65 million media campaign and spent the same amount on peer-to-peer programs.

Wolfe believed that youth activists had to be involved in the design of government programs to discourage smoking, rather than be preached at from a lofty perch. It was the youth in Florida’s program who turned facts that had emerged during various tobacco lawsuit trials back on the tobacco companies.

An early ad featured youths who taped their phone calls to an official of a fictitious tobacco company called “Lucky Strike,” asking what was lucky about it. “Is it that you might live?”

The 1998 Master Settlement spelled out the work to be done by what was then known as the MSA National Foundation. First among its charges: “carrying out a nationwide sustained advertising and education program to (A) counter the use by Youth of Tobacco Products, and (B) educate consumers about the cause and prevention of diseases associated with the use of Tobacco Products.”

The MSA went on to dictate 10 other duties of the foundation. Two concern how the tobacco company payments were to be handled. Six prominently specify that the foundation’s work was to be dedicated to “Youth.” Another refers to parents, and the other concerns cessation programs.

In response to questions, Julia Cartwright, senior vice president for communications, said via e-mail, “The language of the Master Settlement Agreement (MSA) that created Legacy not only does not mandate that the organization focus on youth, it requires us to have a broader focus.” Then in bold type, the e-mail stated, “We ask that Youth Today compare us with other nonprofits of the same size and scope, and not identify us as a solely youth-focused organization.”

Wolfe, who relied heavily on youth in the Florida campaign, was hired as the executive vice president and chief operating officer of the new foundation, and was directed to develop a similar national truth campaign. But he left the foundation not long after the arrival in 2000 of Healton, who quickly seemed to steer the foundation down a path more cerebral than merely putting out clever, gutsy ads aimed at getting youth not to smoke. The foundation began contributing to more social events.