Tobacco.org

• Tobacco payment to states in limbo 

As Americans kick the habit or smoke cheaper cigarettes, the reaction by major tobacco firms is proving hazardous to the financial health of 46 states, including Arizona.

For the first time since cigarette-makers agreed in 1998 to distribute billions of dollars a year to the states to compensate for the costly effects of tobacco use, Big Tobacco balked last week at paying the full amounts. The dispute puts in limbo at least $755 million the states expected to receive this year.

It also portends what could be protracted resistance by tobacco companies to paying huge compensation at a time when their sales and market share are eroding. The tobacco companies contend the states are allowing their competitors an unfair advantage.

Sixteen states have filed lawsuits in quick succession so far, seeking their full shares, and Arizona is moving toward filing its own, lawyers in the state Attorney General's Office said.

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• Big Tobacco wins payment dispute 

An arbitrator ruled that cigarette makers lost market share as a result of a settlement reached with U.S. states, boosting the chances they can reduce the $6.5 billion payment they owe next month, according to a copy of the decision obtained by Reuters on Tuesday.

U.S. states who signed the accord have said they would fight in court if they lost. New York state this month has already won one such court battle, according to The Brattle Group, the arbitrator who wrote the decision.

But the states now are trying to negotiate a settlement, according to the National Association of Attorneys General.

The states argue they met another requirement under the pact because they collected funds from tobacco companies that did not sign it.

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• Big Tobacco wins first bid to cut state payments 

An arbitrator ruled that cigarette makers lost market share as a result of a settlement reached with U.S. states, boosting the chance of them reducing the $6.5 billion payment owed next month, according to a copy of the decision obtained by Reuters on Tuesday.

However, U.S. states involved in the settlement have said they would fight in court if they lost. The states argue another requirement under the settlement was met because they collected funds from tobacco companies that did not sign it.

Big Tobacco in 1998 agreed to pay states $206 billion to help pay for the costs of treating ailing smokers. Their next payment is due in mid-April, and several cigarette makers want to withhold about $1.2 billion because sales have dropped.

In a statement on Tuesday, Connecticut Attorney General Richard Blumenthal, vowed to force the cigarette makers to pay in full.

"I will stop Big Tobacco from shamelessly shirking its obligations under the settlement agreement," he said.

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• Big Tobacco Sees A Windfall 

Now $1.2 billion they expect from this year's tobacco payout--and possibly more in future years--may be in peril. The major tobacco companies, including Altria Group's (nyse: MO - news - people ) Philip Morris USA and Loews' Lorillard, which were the original signatories to the deal, known as the Master Settlement Agreement (MSA), complain that their collective market share has fallen from 99.6% in 1997 to 92% in 2003.

An independent arbiter is expected to agree with the companies that competition from upstarts that don't pay into the MSA is to blame. Per the MSA, this is the first step before they can get their payments trimmed.

But Big Tobacco still faces a second hurdle: It has to be shown that the states have been negligent in cracking down on the upstarts. This will be trickier to prove. Under the MSA--which most fair-minded economists regard as a state-sponsored cartel--the signatories negotiated for protection against competition . . .

"Overall, we're not convinced that the major manufacturers will succeed in getting the $1 billion ... but this battle could lead to another settlement [and] an ironclad partnership between the states and tobacco manufacturers," wrote Bonnie Herzog, a tobacco analyst for Citigroup, in a report.

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• Arbitrator ruling may prompt tobacco payment cuts 

Tobacco companies could move a step closer to reducing their settlement payments to 46 states by billions of dollars when an arbitrator late on Monday determines what caused them to lose market share.

The next annual payment from Big Tobacco in the landmark 1998 settlement -- about $6.5 billion -- is due April 15. But several cigarette makers are seeking to reduce that payment by about $1.2 billion due to declining sales.

Much is at stake in the decision, because it could set a precedent for payment reduction demands in subsequent years by the tobacco companies, which through 2005 saw a steady decline in cigarette sales to their lowest level since 1951.

The decision, which may not be announced until Tuesday, could have negative implications for $31.5 billion in bonds backed by tobacco payments sold by states, cities and counties. . . .

The Brattle Group, the arbitrator hired by the state attorneys general and the tobacco companies, is expected to decide whether to affirm an earlier determination that the costs associated with the "Master Settlement Agreement" were a "significant factor" that caused a 2 percent market share loss in 2003 for tobacco firms that participated in it.

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• Huge Settlement Could Get Smaller ($$) 

On Monday comes a decision that could fray the relationship.

That's when an arbiter is to issue a decision that could allow cigarette companies to reduce a multibillion-dollar payment due this spring by $1.2 billion -- and potentially similar amounts in future years. A decision in favor of the industry would be a significant blow to the states, which have come to rely on the annual payments to prop up their budgets. That the issue is even being discussed highlights a new bravado exhibited by the major cigarette companies after a string of legal victories.

The money in question is part of Big Tobacco's obligation to 46 states under a landmark 1998 legal settlement that ended a raft of state-government lawsuits against the industry. The agreement requires Altria Group Inc.'s Philip Morris USA, maker of Marlboro, and other major cigarette companies such as Reynolds American Inc.'s RJR and Loews Corp.'s Lorillard to reimburse the states for their costs to care for sick smokers, in yearly installments. So far the companies have paid $41.6 billion and about $6.5 billion more is due April 17.

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• Lawrence Wasden: George Will is wrong about tobacco settlement agreement 

A recent column by George Will published in this newspaper (Jan. 2), ignores or misrepresents important facts about the 1998 tobacco Master Settlement Agreement (MSA). First, the MSA is primarily a public health agreement. It contains the strongest and most effective array of tobacco advertising and promotion restrictions ever implemented in this country. Second, the MSA has dramatically reduced youth smoking rates. Third, the MSA forced the tobacco companies to fund a highly successful program of counter-advertising to reduce youth smoking. Fourth, MSA payments, although substantial, do not begin to compensate the states for the costs imposed on taxpayers for treatment of tobacco-related diseases. Fifth, the MSA's constitutionality has been upheld against numerous legal challenges.

The U.S. Supreme Court has characterized the MSA as a "landmark public health agreement." Before the MSA, cigarette companies denied that nicotine was addictive. They denied that cigarettes caused death and disease. . . .

Mr. Will erroneously asserts that the states have a financial interest in maintaining cigarette smoking because they earn more from MSA payments than they spend to pay for the costs of treating tobacco-related disease. In fact, the federal Centers for Disease Control and Prevention reports that the true cost of treating tobacco-related disease far exceeds these payments. The states would be much better off financially if no one smoked. . . .

Finally, in suggesting that the MSA may be unconstitutional, Mr. Will appears to be unaware that numerous courts have already rejected constitutional challenges to the MSA, and no court has upheld any such challenge. The MSA is sound and beneficial public policy, and it is fully consistent with the Constitution of the United States.

--Lawrence Wasden is the Idaho attorney general.

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• REED: What Happened To The Billions Due Blacks From Tobacco Settlement?  

Black neighborhoods continue to be shortchanged billions of dollars from the tobacco settlement. The question now is: How long will local and elected Black leaders allow this injustice against our communities to continue? Although much of the Master Agreement Settlement (MSA) monies gained from the tobacco industry were based on factual reports of African Americans having higher incidences of smoking and greater needs for group-specific health provisions, Black-oriented groups and programs are not in the loop. . .

Not enough of MSA monies are coming to our neighborhoods. The issue of how tobacco settlement funds should, and can, be helping us is one we should be pursuing with vigor at every level of our communities. Local leaders should contact groups, such as the National African American Tobacco Prevention Network - naatpn.org (919.233.7733) and South Carolina African American Tobacco Control Network - scaatcn.org (843.871.9439), which are dedicated to facilitating development and implementation of comprehensive and culturally competent tobacco prevention and control initiatives to benefit African American communities.

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• VISCUSI: Smoked out: In the end, the massive 1998 civil settlement penalized those who light up, not the offending tobacco firms 

But smokers, not tobacco companies, on several levels bear the brunt of the deal, which established penalties equivalent to an additional tax on cigarettes. In most years this tax will be about 40 cents. Whether the states get paid off at all hinges on whether people continue to smoke and how much. . .

The three leading tobacco-producing states all were losers. Kentucky accounts for 2.8 percent of the medical costs, but got only 1.8 percent of the settlement. North Carolina accounts for 3.5 percent of cigarette-related medical costs, but received only 2.4 percent. Virginia, which bears 2.8 percent of the medical costs, received only 2.1 percent.

The attorney general most responsible for brokering the deal was Christine Gregoire of Washington state. Her state, which accounts for 1.5 percent of the medical costs, received 2.1 percent of the settlement. In fairness, perhaps the state should have gotten a bonus given Gregoire's central role in brokering the deal. But did the other state attorneys general realize that compensation to Washington for Gregoire's coordination efforts increased the state's piece of the action from $3.1 billion to $4.3 billion? . .

But let's look at the logic. The existence of economic costs is not a sufficient basis for giving the states a valid claim. Cars are also dangerous . . .

The basic elements of the financial accounting added to the improbable prospects of the litigation. To be sure, smokers do incur higher medical costs - about five cents per pack in Massachusetts in the mid-1990s. Yet, because smokers have a shorter life expectancy than nonsmokers, smokers incur a cost of 11 cents per pack less in nursing home costs and nine cents per pack less in pension costs. . .

The settlement established a new tax on cigarettes without going through the usual legislative procedures that enable all segments of society to have political input. And the agreement included numerous regulatory provisions, such as restrictions on cigarette advertising. None of these policies underwent the usual scrutiny accorded governmental regulations.

Rather than settle the litigation, both sides should have pursued the case to its legal resolution. Doing so would have taken tax and regulatory policy out of the legal arena and established guidelines for similar litigation against other controversial products, ranging from guns to lead paint.

While most states remain enthusiastic about the incoming tobacco revenues, higher cigarette taxes, such as those being considered now by legislatures in Massachusetts and elsewhere, could have achieved the same effect without sidestepping conventional political processes.

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• Tobacco tax plan prompts questions 

A key legislator and the Kentucky Farm Bureau want to know whether a cigarette tax increase would jeopardize millions of dollars tobacco companies are putting up to compensate growers for drastic cuts in leaf purchases.

House Agriculture and Small Business Chairman Roger Thomas, D-Smiths Grove, said yesterday he is seeking an attorney general's opinion on what effect, if any, raising the tax would have on payments to farmers.

The Farm Bureau also plans to ask Attorney General Ben Chandler the same question, said Pat Jennings, the organization's director of public affairs.

The money in question is to be paid over 12 years to farmers. It is known among farmers as Phase Two of a larger settlement tobacco companies have with the states -- a $246 billion reimbursement for treating smoking-related illnesses. The Phase Two fund has $5.1 billion, and Kentucky's share is $1.5 billion.

"I want to be clear exactly how legislation to raise the excise tax on tobacco product would affect the settlement payments," said Thomas, a farmer.

He said he thinks it would "negatively impact" the payments. If the attorney general agrees, the lawmaker said, "that would give us more ammunition in fighting any tax increase."

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• EDITORIAL: Smoke and ire  

How can we put this gently? Senate Bill 2002-008 is a deal with the devil that puts the interests of the tobacco lobby ahead of those of the people of Colorado. The state Senate Judiciary Committee should kill it and then dance on its grave when it is reconsidered by that panel Feb. 11.

Okay, maybe that's too gentle.

In any event, we agree with state Treasurer Mike Coffman that this misbegotten bill - which would limit appeals bonds that tobacco companies would have to post to just $25 million, even if they lost a billion dollar lawsuit - "is special-interest legislation designed specifically and exclusively to protect the tobacco companies that are parties to the Master Tobacco Settlement Agreement."

Why should Colorado make such a deal with the devil? Well, in the unctuous logic of the tobacco lobbyists, to protect the revenue stream from our original deal with the devil, the tobacco settlement itself, of course. . .

Coffman warned about just such a conflict of interest when he endorsed "securitizing" the tobacco settlement . . .

If you don't trust the conclusions of Republican Coffman, consider the words of Colorado Attorney General Ken Salazar, a Democrat. Salazar believes SB 008, by capping the appeal bonds for specific tobacco companies who lose lawsuits in Colorado but imposing no such limit for any other businesses operating in this state, may violate the equal-protection clause of the U.S. Constitution.

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• EDITORIAL: The tobacco settlement: Saved by smokers  

Arizona is providing health care for the poor. Others—like deluded grannies trying to cash in their pension—are seeking to swap all their future payments for one cash sum.

Indeed, you can almost say that states are spending their tobacco winnings in every way except one: trying to stop their citizens from smoking. In fiscal 2002, only one dollar in 20 of the settlement money will be used for that purpose, according to the National Conference of State Legislatures.

That modest figure adds fuel to the notion that the 1998 settlement was a case of legalised extortion. In theory, the states were suing the tobacco companies to recoup the “extra” costs tobacco imposed on state health systems. They chose to ignore the fact that, by killing people off early, tobacco was also saving them a lot of money. But the tobacco industry was an easy target. . .

The politicians try to argue that they are just making up lost ground: in the past, tobacco-related health spending prevented money going on other things, says Scott Pattison, director of the National Association of State Budget Officers. The better explanation is that politicians cannot resist lavishing “found money” on their favourite projects. . .

And when today's smokers fall sick, where will the money come from?

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• In Our Orbit: Smoke in Their Eyes: Lessons in Movement Leadership From the Tobacco Wars 

In his introduction to Smoke in Their Eyes : Lessons in Movement Leadership from the Tobacco Wars , Michael Pertschuk quotes from chemistry Nobelist M.F. Perutz writing on the threat of biological weapons (well before anthrax appeared in the mail): "In 1995, the last year for which official statistics are available, the number of people killed by tobacco in the United States was 502,000, of whom 214,000 were aged between thirty-five and sixty-nine.... It seems to me that the still-prospering tobacco industry poses a proven threat to health and life that is many thousand times greater than the potential threat of bioterrorism." And it's the lessons Pertschuk (a Nation editorial board member) has learned in decades of fighting this pernicious threat--he headed the FTC under President Carter--that form the basis of the book.

Pertschuk parses the story into four phases. First is the approach to settlement of state suits- . .

While acknowledging significant gains, Pertschuk also notes that "as of this writing, only six states have met or come close to the Centers for Disease Control guidelines for a minimally adequate state [tobacco control] program, and only fifteen states have allocated more than half of what CDC has set at a minimum." He concludes that "the collective leadership of the tobacco control movement, heroes all, nonetheless blew the opportunity of a lifetime."

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• LETTER: MERLO: Tobacco critic left out important facts 

Edward Sweda's commentary omits the steps Philip Morris USA is taking to limit kids' exposure to its cigarette advertisements and misrepresents the critical distinction -- recognized by the U.S. Supreme Court -- between reasonable regulation and advertising restrictions that violate the First Amendment and federal law.

He also fails to acknowledge the tobacco settlement agreements, which, among other things, prohibit billboard advertisements and many other types of advertising -- not just near schools and playgrounds, but everywhere.

Voluntarily, we have gone considerably beyond the settlement's requirements, including the suspension of advertising in more than 50 magazines not meeting Philip Morris USA's standards for its print certification process, which are the same as those used in the tobacco rule proposed by the Food and Drug Administration.

Moreover, we support congressional legislation that would give FDA effective authority to regulate tobacco products and would further reduce kids' exposure to tobacco marketing.

Sweda also didn't say the Supreme Court found that the restrictions he supports violate the First Amendment . . .

While we oppose bans on our ability to communicate responsibly with adult smokers, we remain committed to working to reduce the incidence of youth smoking, and we will continue to work constructively to support a national tobacco policy that makes sense.

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• BRODY: Tobacco-Pact Money Is Misdirected 

HOW DID the payout in a multibillion-dollar tobacco health settlement end up in road repairs and pork barrel? The simple answer is that public-health groups mostly boycotted it. And that explains why, of the $250 billion settlement between tobacco companies and the states, only 3.2 percent goes to youth programs - supposedly one of the key reasons for having a settlement in the first place. . .

The conundrum for the public-health groups is how do they deal with the tobacco companies without giving up their principles - and define a policy of accommodation so that the public-health interest is guarded. The first step is to accept that the tobacco companies do fulfill a need - however distasteful - and the health groups must develop a long-term approach to deal with it.

That need, which keeps bringing generations back to smoking, is more than a "climate of public acceptance." Young people have a distinct need to undergo some type of ritual of adulthood, and cigarettes continue to fill that role. That would mean the public-health groups would also have to spend time and money on devising solutions to the "coming-of-age" problem that the tobacco companies exploit in order to harvest new customers. . .

We need to bring the public-health groups back to the table because, without them, the settlement could turn nasty. The tobacco companies could lead the public to believe the issue is resolved when in fact it isn't. Smoking numbers will increase because the underlying initiation issues have not been resolved. New and more effective marketing programs will emerge to induct new generations of smokers.

The worst part is that, without a public conscience, states become silent conspirators in the promulgation of smoking because of the amount of money they receive from tobacco. That is what happened before the settlement. Now, with the settlement proceeds, the states have even more money at their disposal.

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