KHI News Service

Settlement reached in tobacco industry dispute with Kansas, 16 other states

By Dave Ranney, Jim McLean | December 20, 2012

Seventeen states, including Kansas, have agreed to settle a long-simmering dispute over how much tobacco companies have to pay the states to be in compliance with the 1998 Master Settlement Agreement.

Kansas officials were unable Thursday to estimate how much money the state would receive as a result of the settlement.

Kansas Attorney General Derek Schmidt.

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But on Friday, Gov. Sam Brownback and Kansas Attorney General Derek Schmidt issued a joint statement, confirming that a settlement was "anticipated" and, if enacted, would "substantially" reduce the state's potential losses.

The proposed settlement, according to the statement, "...would not eliminate all risk of payment interruption," but "would significantly reduce that risk and increase the likelihood that funding for critical children’s programs can continue as anticipated.”

The statement did not indicate how much the state expects to receive.

Six states’ attorneys general offices, not including Kansas,’ announced the settlement on their websites Wednesday. Most of the announcements noted that the tobacco companies had agreed to pay the states more than $200 billion over a 25-year period.

The tobacco companies also issued statements, calling attention to their receiving credits against future payments.

In North Carolina, where many of the tobacco companies are headquartered, The Winston-Salem Journal reported that the agreement calls for the credits to be calculated on a sliding scale depending on the number of states that sign on.

The newspaper reported that the R.J. Reynolds Tobacco Co. expects to receive more than $1 billion in credits over the next five years. Two other tobacco companies, Phillip Morris and Lorillard, expect to receive credits worth $450 million and $198 million, respectively.

The majority of the credits are expected to be taken in 2013, the newspaper reported.

In Kansas, most of the state’s master settlement revenues are on spent on programs and services for children and at-risk families. Since 1999, the tobacco companies’ payments to Kansas have totaled $761 million.

But in recent months, state officials have been telling child advocates to expect major reductions in funding in anticipation of a federal arbitration panel allowing the tobacco companies to recoup tens of millions of dollars.

Among the many things that are not clear at this point is how much of the reduction that Kansas officials anticipated will be avoided once the value of the credits are calculated.

The dispute is driven by tobacco company concerns that states had been less than diligent in collecting a $6-per-carton fee from cigarette manufactures that were not part of the settlement agreement.

Kansas is one of 32 states accused of not doing enough to collect the fee. The arbitration hearings, which began in July, were expected to last a year.

Jim Redmon, executive director at the Kansas Children’s Cabinet, said he had not been made aware of the settlement. The cabinet administers the state’s Children’s Initiative Fund, which is underwritten with tobacco payments.

Advocates on the state and national level said they didn’t know what to make of the settlement.

“In the spirit of transparency, I hope more details will immediately be made available to the public,” said Shannon Cotsoradis, chief executive of the nonprofit advocacy group Kansas Action for Children.

Danny McGoldrick, vice president for research with the Campaign for Tobacco Free Kids also was reluctant to pass judgment on the settlement.

“Until the terms of the agreement become more clear, we are reluctant to comment because at this point there’s a lot that we don’t know,” McGoldrick said.

The 17 states taking part in the agreement: Alabama, Arizona, Arkansas, California, Georgia, Kansas, Louisiana, Michigan, Nebraska, Nevada, New Hampshire, New Jersey, North Carolina, Tennessee, Virginia, West Virginia and Wyoming. Also joining were Puerto Rico and the District of Columbia.

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