State Tobacco Payment Dip Exaggerated, Experts Say

When reports surfaced last week that tobacco settlement payments for 16 states had been cut by nearly $200 million collectively, it appeared to be big news. But payments have been going up and down since the Master Settlement Agreement (MSA) between 46 states and the tobacco industry was reached in November 1998, so some experts say it’s difficult to get too worked up about the recently-released figures.

From the get-go, public health and state officials said they expected payments from the $206 billion pot of money set aside for payout to the 46 states over 25 years (four other states settled separately) to decrease. The payment formula factors in smoking rates, so as rates decline, the amount a state receives goes down because there are fewer smokers and smoking-related illnesses.

“That’s what we want to have happen,” says Sean Connolly, spokesman for Pennsylvania Attorney General Mike Fisher, one of the lead negotiators of the historic MSA.

Pennsylvania has received $576 million in settlement payments to date. Illustrating the ups and downs, monies have ranged from an initial $123.6 million payment in December 1999 to a high of $196.1 million in April 2000.

Last month’s payment was $111.3 million, but should have been $130.3 million, Connolly says. Tobacco industry officials withheld $19 million, penalizing the state for failing to enact legislation known as the “model statute” by a deadline specified by the MSA.

What is the “model statute”? When industry officials agreed to the MSA’s terms two years ago, tobacco companies that signed on said they wanted a way to stop smaller companies that weren’t part of the agreement from picking up a greater share of the tobacco market as a result of it. Enter the statute. If big companies could show that they lost market share to the smaller companies, states would then assess fees to the smaller companies.

The deadline for states to pass the measure was June 1999, a mere six months after the MSA was signed. Pennsylvania lawmakers, like counterparts in other states, “weren’t able to pass it given the timeframe,” Connolly says.

“The good news is that Pennsylvania received $111.3 million and the bad news is that the industry withheld $19 million, but we’re going after it,” he adds. Money that is held back is put in an escrow account until a dispute is resolved.

Pennsylvania is banding together with 15 other states –Alabama, Arizona, California, Connecticut, Delaware, Hawaii, Kentucky, Massachusetts, Michigan, New York, North Carolina, Oregon, Vermont, Wisconsin and Wyoming — to challenge the reduction in arbitration.

“The Attorneys General who negotiated the original deal expected that there would be disputes [like this] over payments, so it’s not news to them. That’s why they created an arbitration panel,” Connolly says.

The basis for the states’ legal challenge, which is in the early planning stages, will be to contest the premise that tobacco companies have lost market share. “This (penalization for missing an MSA deadline) is a one-time occurrence, though there could be another issue that comes up” down the road, Connolly says.

Aside from the one-time deduction issue, tobacco foes are concerned about a recent wave of announced cutbacks in anti-smoking programs across the country. Maine, Virginia and Montana have announced they’ll cut back on various prevention efforts, given tight budgets.

“In times of plenty over the last two years, less than half of the states lived up to the promise to spend money on prevention,” says Matthew Myers, president of the Campaign for Tobacco-Free Kids. “I’m deeply concerned [given current budget woes] that even more states will divert funds away from the way the monies were originally intended to be spent. Unfortunately in this case, a cutback on prevention efforts will truly cost lives.”

Industry officials say they support state efforts to keep children from smoking. The tobacco settlement provides “a significant amount of money, and the payments will continue,” says Philip Morris U.S.A. spokesman Tom Ryan. “We understand that states have very difficult decisions to make on [budgets], but states should first and foremost fund comprehensive tobacco prevention efforts aimed at kids,” he says.