State Attorneys Generals to Guard Tobacco Funds

State attorneys general are vowing to fight a new ruling that could whittle down the $6.5 billion yearly payments shared by 46 states from their 1998 settlement with the nation’s four major tobacco companies.

An independent arbiter sided with tobacco companies Tuesday (March 28) in a dispute over whether the cigarette makers are losing market share and should be allowed to reduce their payments to states this year under the so-called ” Master Settlement Agreement.” The decision could ignite a new round of legal battles between individual states and Big Tobacco.

Under the landmark 1998 agreement, tobacco companies must make annual payments to 46 states — about $41.6 billion so far — and the states are barred from suing the manufacturers to recover the public health care costs of treating smoking-related illnesses.

The arbiter found that terms of the legal settlement contributed significantly to a recent decline in the major cigarette makers’ market share, which has dropped from 99.6 percent in 1997 to 92 percent in 2003.

The nation’s largest cigarette makers, including Phillip Morris USA and Reynolds American, subsequently have grounds to argue they should be able to withhold about $1.2 billion of this year’s $6.5 billion payment, which is due April 17.

Before a state’s payment could be pared, the companies still would have to prove that an individual state failed to adequately enforce a provision of the settlement agreement that requires smaller cigarette makers that weren’t part of the settlement to make annual payments to a state escrow account.

State officials, who have come to rely on tobacco settlement cash to fund anti-smoking campaigns as well as to help plug an array of budgetary shortfalls, aren’t planning to let even a portion of the money go without a fight. If the tobacco companies seek to get their payments reduced, state attorneys general are vowing to challenge the effort and predict they will win.

In a statement, the National Association of Attorneys General said that courts would find that states have properly enforced the escrow payment requirement of the settlement agreement. It said states already are in discussions with tobacco companies to ensure that the April 17 payments are made in full.

Idaho Attorney General Lawrence Wasden, one of the co-chairmen of the association’s tobacco committee, told Stateline.org a legal dispute over the payments could take years to settle.

Connecticut Attorney General Richard Blumenthal said in a statement that he hopes to lead an effort to make sure states are paid in full. Connecticut is slated to receive about $100 million this year, bringing to $800 million the total amount the state has received since 1998.

“I am determined to fight as relentlessly as ever against tobacco addiction and disease by using resources from Big Tobacco that we won through our lawsuit. I will stop Big Tobacco from shamelessly shirking its obligations under the settlement agreement,” Blumenthal said.

Ken Wise, a spokesman for The Brattle Group, the independent consulting firm hired by states and tobacco companies to mediate the matter, could not be reached for comment March 28.

States have faced criticism from anti-smoking groups for putting the tobacco settlement funds to uses other than smoking prevention, especially during the fiscal crisis that states faced during the early part of the decade.