Law Suits: MSA Is Costing IA and ID Money

State using up cash from tobacco lawsuit

By TONY LEYS • REGISTER STAFF WRITER
April 24, 2008

Iowa has spent nearly all of the bonanza it gained from suing tobacco companies in the 1990s.

The cigarette makers agreed in 1998 to pay up to $2 billion to Iowa over 25 years. In 2002, the state sold off the rights to most of those payments for about $500 million in immediate cash.

The plan then was to funnel the money into a standing fund whose earnings would pay for anti-smoking campaigns, cancer treatment and other tobacco-related expenses. But the state hit hard budget times, and legislators dipped into the fund for other needs, critics say. After scraping along for several years, the account now is all but dry. State representatives gave final legislative approval Wednesday to a bill that would allow the state to sell off remaining future income from the settlement and place the money in the general fund.

Sen. David Johnson said both parties share responsibility for what happened to the money. “When we established it, legislators from both sides of the aisle saw it as a source of funding for many years,” the Ocheyedan Republican said. This year’s Legislature is using what’s left to finance anti-smoking efforts and related activities, he said.

“Now, we’re staring down the barrel of a $30 million problem next session,” he said.

Senate Majority Leader Mike Gronstal said the tobacco settlement money was spent on health-care needs, as intended. “Some people expected it to last longer. Some didn’t. Some people knew it would run out,” he said. He expressed optimism that anti-smoking programs would be fully financed from the general fund starting next year.
Attorney General Tom Miller, a Democrat who helped win the original settlement, said he now wishes the state hadn’t sold off rights to the 25 years of payments. Miller said he didn’t oppose the sale at the time, because it decreased risk. But he now thinks that if the money had come in more gradually, it would have lasted longer and been more carefully targeted.

Miller said Iowa has done a fairly good job of fighting smoking. In the past 10 years, he said, the adult smoking rate has dropped from 24 percent to 18 percent, partly because of measures financed by the settlement money. “It would be incredibly foolhardy to pull back now,” he said.

An anti-smoking activist said many other states also have depleted their tobacco-settlement money. Cathy Callaway, a lobbyist for the American Cancer Society, said her group opposed the 2002 sale of future payments to Iowa. She said she worries about the future of the state’s anti-smoking programs now that they will have to compete for general-fund money.

“We’re going to be pitting good programs against good programs,” she said.

Reporter Tony Leys can be reached at (515) 284-8449 or tleys@dmreg.com

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For immediate release – Tuesday, March 28, 2006.
Contact Bob Brammer – 515-281-6699.

Statement by Iowa Attorney General Tom Miller
and Idaho Attorney General Lawrence Wasden,
Tobacco Committee Co-Chairs,
National Association of Attorneys General.

Statement of Attorney General Miller and Attorney General Wasden:

On March 27, the Brattle Group, the economic firm designated by the Parties, determined that the MSA was a significant factor contributing to the Market Share Loss of the Participating Manufacturers.

On April 17, 2006, the Participating Manufacturers are obligated to make payments totaling approximately $6.5 billion based on their sales in 2005. The Settling States believe that the Participating Manufacturers should make the April 17 payments in full.

Although the MSA does contain a mechanism, known as a Non-Participating Manufacturer (NPM) adjustment, that could reduce these payments, the requirements of that mechanism have not been met. As a result, the Settling States believe that it would not be appropriate to withhold any portion of the April 17 payment.

In order to obtain the NPM Adjustment, the Participating Manufacturers must still prove to a court that the states have not diligently enforced their statutes providing for NPM escrow payments. The Settling States believe that every State will be found to have diligently enforced its Model Statute in 2003 and thus that no NPM Adjustment should be applied.

The Settling States are engaged in discussions with the major manufacturers to ensure that the Participating Manufacturers make full payment of the amounts due on April 17, and we expect those negotiations to be successful.