Tobacco Patch Corruption


ohn W. Forbes II, state secretary of finance under former Virginia Gov. Jim Gilmore, has been sentenced to 10 years in prison after pleading guilty to federal wire fraud charges. It is by far the biggest scandal involving a state cabinet-level official in years.

The case also raises questions about a state entity that is supposed to use money obtained in a massive 1998 lawsuit settlement against four major tobacco companies for the public good.

That entity with the long-winded title of the Virginia Tobacco Indemnification and Community Revitalization Commission has so far distributed $728.7 million for do-good projects in the tobacco belt stretching from the economically hard-hit counties in Southside and Southwest Virginia. It also has paid out $288.3 million to state tobacco growers on the theory that they need help to weather the decrease in tobacco sales following a slew of health-related lawsuits and the end of a 1938 federal program that artificially propped up tobacco prices.

Forbes, who was the state’s top financial official from May 2001 until January 2002, also served on the tobacco commission’s board. In June 2001, he won a $5 million grant from the commission to set up the Literary Foundation of Virginia. Designed to promote adult literacy, the program apparently did little other than provide $1 million in salaries for Forbes and his spouse and help them buy a million-dollar house.

“You not only betrayed the citizens of the commonwealth, but also the governor that appointed you,” U.S. District Judge Henry E. Hudson told Forbes as he passed down the 10-year sentence in Richmond on Nov. 23.

But one has to ask what the real purpose of the tobacco commission is. It has done some useful work in helping small businesses grow and narrowing the digital divide in poor counties dealing with declines in the tobacco, textile and furniture sectors.

But why do tobacco farmers need nearly $300 million in aid? They had been living off federal largess for decades, namely, from a Depression-era program that kept tobacco prices artificially high by having the federal government restrict tobacco growing and sales.

After years of protection by a Congress controlled in part by Southern Democrats, the program created “allotments” allowing tobacco growing in areas of only about four acres. These units could be bequeathed to survivors and kept tobacco prices at levels perhaps several times higher than that of far more useful crops such as corn and soybeans.

I reported on the program for BusinessWeek back in the 1990s in my home area of Beaufort County, N.C. where I started reporting on tobacco in the early 1970s. One farmer had ammassed allotments of 30 acres and he paid more than a milllion dollars on the crop, thanks to the system. It was far more than what he got from other crops. The support program has since come to an end.

Virginia officials thought that tobacco farmers, who grow a deadly product, deserved more. So, one of the tobacco commission’s first activities was sending allotment holders checks for simply having an allotment. Some got up to $12,000.

A check of the allotment holders’ addresses that we did some years back at Virginia Business magazine showed that in some counties many holders didn’t even live in Virginia. In Brunswick County, about 28 percent didn’t live in Virginia, but in cities such as Philadelphia, Baltimore and Las Vegas. On Halifax County’s list, one holder lived on the Gold Coast of downtown Chicago.

All got checks from the commission’s $2.1 billion war chest. Another $1.7 billion went to the state’s general fund to be spent as the state saw fit. Although the tobacco settlement — Virginia’s share was $4.2 billion — was intended to be used to convince people not to smoke, only a tiny portion of Virginia’s payout has been used for this purpose.

This shows, once again, how much tobacco reigns as King of Virginia, despite the corruption it seems to generate.

Peter Galuszka

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6 responses to “Tobacco Patch Corruption”

  1. I think that any money that derives from tobacco – should go directly into MedicAID specifically to pay for illnesses that arise from the use of tobacco.

    When we create "funds", we inevitably invite corruption whether it's tobacco or transportation money that "can" be used for economic development.

    but tobacco – we know is directly responsible for a lot of the costs of MedicAid which is eating the state alive.

    the problem is, as always, if there is a fund, the ethically-challenged folks in the GA usually will find a way to get their hands on the money.

    and then we blame the Federal govt for requiring the states to pay their share of MedicAid while the state, like Va diverts money that should go to MedicAid to other purposes.

  2. Anonymous Avatar

    Government in America, at all levels, is too big. Too much of it is tied to supporting special interests and not the general good. I'm not arguing against any social programs, safety net or reasonable regulations.

    The tobacco industry is but one example of the problem. This week I read about Level 3, a big defense/security contractor, and its heavy lobbying for the TSA full-body screening equipment. The Washington Post today has an editorial about Loudoun County's school board and administration using Stimulus money to pay teachers for the pay that they would have lost in a two-day furlough. However, the Schools were unable to adjust their calendar so the teachers did not teach those days anyway. School was not held.

    How much other defense spending is not geared to national defense. How much transportation spending is geared to enrich developers and construction contractors? We bailed out Wall Street and it's still engaged in arbitrage instead of financing business growth and jobs.

    Etc. Etc. Etc.


  3. James A. Bacon Avatar
    James A. Bacon

    I have to agree with Peter on this one. The story is much bigger than Forbes — and that's saying something because Forbes' behavior is unforgivable.

    I would like to know this: How did Forbes get his little piece of boodle? What was the process for approving the grant? Who had to sign off on it? What mechanisms existed to see if Forbes would deliver what he promised to deliver? Was any follow-up ever conducted? How was Forbes' misappropriation caught?

    Someone associated with the Tobacco Commission ought to be wearing egg on their face.

    Here's a larger question: What has $700 million worth of Tobacco Commission grants bought Southside and Southwest Virginia in terms of economic transformation? It has helped create and/or maintain a few jobs, but I don't see much in the way of transformation. Has the fund become anything more than a source of patronage for the region's legislators who control the purse strings?

  4. Geezus

    The guy was top financial officer in charge of safeguarding our funds and he was on a board designated to spend said funds.

    That would be a conflict of interest in itself and a practice no business would allow.

    Then he is also an "entrepreneur" in the vaunted free market generating new jobs by sucking down government money. At loeast there were some construction jobs on his house.

    they should have made it 20 years and confiscated the house. And what punishment did his wife get?


  5. The allotments may have been and probably were a mistake, but, given that they existed I don't see any problem with buying and sling them. It is no diiferent from buying and selling allotments of the fish harvest or allotments of sulfur emissions or allotments of spectrum.

    The difference is there was no shortage of land to grow tobacco on. What might the price of tobacco been in a free market and how many more would be addicted at a lower price?

    The allotments were supposed to be the withdrawal plan for tobacco farmers, only the economics of tobacco ate as addictive as the weed.

    Anyway, I didn't think that buying or selling or accumulating allotments, or where the owners live was germaine to the argument. There are many landowners who get farm subsidies, who don't live on or operate the farm. But they transfer to the actual farmer in lower land rent.

  6. From the New York Post:

    "The underground tobacco market is spreading like a fast-growing cancer in the wake of tax hikes that make New York cigarettes the most expensive in the nation — and it's costing the state tens of millions a month in lost tax revenue.

    Illegal cigarettes are pouring into neighborhood bodegas by the truckload from neighboring Indian reservations, lower-tax states in the South and even as far away as China.

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