Cigarette Makers Could See Lower Payments to States
A WALL STREET JOURNAL ONLINE NEWS ROUNDUP
March 28, 2006 12:15 p.m.
An independent arbiter has affirmed a decision that could allow large cigarette companies to reduce their annual multibillion-dollar payment to state governments next month, the National Association of Attorneys General said Tuesday.
The money is part of an obligation that major cigarette manufacturers agreed to in a 1998 legal settlement with states that ended state health lawsuits against the industry.
So far, the large companies have paid $41.6 billion to the 46 state governments that participated in the Master Settlement Agreement, but they now claim they have lost significant market share to smaller companies because of the agreement. Under an "adjustment" provision, such a loss of market share would allow the companies to cut their payments.
The Brattle Group, a consulting firm chosen by both sides to be the arbiter, had made a preliminary ruling on March 1, finding that the burdens of the settlement agreement were a significant factor in the market-share loss. States had until March 13 to submit comments and arguments to the arbiter.
The companies, including the likes of Altria Group Inc.'s Philip Morris USA, inserted the adjustment provision into the agreement out of concern that they would lose market share to smaller upstart cigarette makers that would come into the market. The big companies have argued that, because smaller rivals -- such as S&M Brands, Inc., which makes Bailey's Cigarettes -- aren't subject to the marketing limits and cost burdens of the settlement, the small players can sell cigarettes at lower prices.
The companies were expected to turn over $6.5 billion on April 17, but they now might withhold about $1.2 billion of that under terms of the agreement.
Philip Morris declined Tuesday to comment on whether it will seek to have its payments reduced. But Iowa Attorney General Tom Miller and Idaho Attorney General Lawrence Wasden released a joint statement Tuesday saying the finding the consulting firm should not lead to a reduction in payments. The two head the tobacco committee for the National Association of Attorneys General.
Messrs. Miller and Wasden said the reduction could only occur if states have failed to enforce statutes that require cigarette makers that aren't part of the settlement to put money in escrow accounts to meet any future legal obligations. The attorneys general say states are enforcing those statutes.
"As a result, the settling states believe that it would not be appropriate to withhold any portion of the April 17 payment," the statement said.
The 1998 agreement -- which requires big tobacco companies to pay $206 billion into state treasuries and banned cigarette advertising on billboards and various kinds of marketing -- has been seen as a success by the states, especially those facing budgetary pressures. |
