MSA Update
USA: MSA being challenged by Competitive Enterprise Institute.
USA: MSA Is Costing States Money.
USA: How States Spend The MSA Money.
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Tobacco firms dispute some payments to U.S. states
Apr 17, 2006
WASHINGTON, R.J. Reynolds Tobacco Co. and Lorillard Tobacco Co. on Monday disputed part of their settlement obligations to U.S. states, paying $755 million into special escrow accounts.
The actions, prompted by falling market share, effectively reduce the funds that are immediately available to the 46 states in the Master Settlement Agreement (MSA) for debt service, health care costs and other uses.
R.J. Reynolds, a unit of Reynolds American Inc. (RAI.N: Quote, Profile, Research), said it has satisfied its full $2.016 billion annual payment obligation, but diverted $647 million into a special dispute escrow account.
Lorillard, a unit of Loews Corp. (LTR.N: Quote, Profile, Research), made a similar move, paying the final $108 million of its $666 million annual payment obligation into an escrow account. It paid $558 million into the normal account for states on March 31.
The partially disputed payments follow an arbitrator’s late March ruling that the cost burdens of the landmark $206 billion Master Settlement Agreement caused participating cigarette makers to lose market share to firms outside of the pact.
Under terms of the 1998 agreement, some tobacco firms say the market share drop allows them to reduce their payments to the states, but state officials have disputed such claims.
“We are following the process that all parties understood and agreed to when they signed the MSA in 1998,” R.J. Reynolds general counsel Charles Blixt said in a statement. “We remain committed to the MSA and will continue to live up to both the letter and spirit of the agreement.”
A spokeswoman for the National Association of Attorneys General said she could not immediately comment on the announcements by R.J. Reynolds and Lorillard.
Philip Morris USA, a unit of Altria Group Inc. (MO.N: Quote, Profile, Research), made its $3.4 billion 2006 payment into the normal account, making it fully available for use by states.
Uncertainties over the future of tobacco payments have brought to a halt sales of bonds backed by future payments.
A study by the federal Government Accountability Office last week found that no states are planning tobacco bonds in fiscal 2006, bringing expected proceeds from bond sales and direct payments from tobacco companies down to $5.4 billion from $5.8 billion the previous year, when only Virginia sold a $390 million tobacco bond. (Additional reporting by Jessica Wohl)
NY state to sue tobacco cos for disputed funds
4/18/06
New York state plans to sue cigarette-makers that disputed $755 million of payments they owed under the $206 billion settlement with states, a spokesman for Attorney General Eliot Spitzer said.
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Smoking Buddies
04.24.06 Scott Woolley
Is it true, as upstart cigarette companies have been saying, that state attorneys general are conspiring with Big Tobacco to crush the little players? New evidence comes to light from an unlikely source.
04.24.06 Scott Woolley
Is it true, as upstart cigarette companies have been saying, that state attorneys general are conspiring with Big Tobacco to crush the little players? New evidence comes to light from an unlikely source.
Tobacco Companies Handed a Win; States May Face $1B Loss
04-07-2006 Daniel Wise
New York Law Journal
Employing broad language, New York’s Appellate Division, 1st Department, handed tobacco companies a victory Thursday by ruling that disputes over reductions in their payments to the states under a $206 billion nationwide settlement must go to arbitration.
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04-07-2006 Daniel Wise
New York Law Journal
Employing broad language, New York’s Appellate Division, 1st Department, handed tobacco companies a victory Thursday by ruling that disputes over reductions in their payments to the states under a $206 billion nationwide settlement must go to arbitration.
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Little tobacco’s growth could trigger settlement reduction
April 06, 2006 By Steve Korris
Cheap cigarettes from little tobacco companies have fouled up the $246 billion deal that big tobacco companies made with taxpayers.
Little companies grabbed eight percent of the market from 1997 to 2003, according to a March 27 report from the Brattle Group in San Francisco.
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April 06, 2006 By Steve Korris
Cheap cigarettes from little tobacco companies have fouled up the $246 billion deal that big tobacco companies made with taxpayers.
Little companies grabbed eight percent of the market from 1997 to 2003, according to a March 27 report from the Brattle Group in San Francisco.
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Tobacco may again withhold cash from states -study
Apr 9, 2008
By Joan Gralla
NEW YORK, April 9 (Reuters) – U.S. tobacco companies might withhold around $600 million of annual payments they agreed to make to states to help cover medical bills for ailing smokers, according to a new report.
U.S. states, counties and cities sold an estimated $32 billion of bonds that they repay with these payments, which usually are made in April. But smoking rates have fallen, partly because a number of states have hiked cigarette taxes.
The 1998 settlement between states and cigarette makers that ended the states’ law suits has a provision that helps protect the tobacco industry if cigarette sales fall.
“For the third year in a row, an independent research firm has ruled that the settlement was a ‘significant factor’ in a market share loss of 5.6 percent to nonparticipating manufacturers, which provides a basis for participating companies to request a 16.8 percent reduction of payments that were due for 2005,” said the report by Herbert J. Sims & Co, which is based in Iselin, New Jersey.
Reynolds American (RAI.N: Quote, Profile, Research), the parent of R.J. Reynolds Tobacco Company, in its 2007 annual report, said domestic cigarette shipments fell 5 percent, the Sims report said.
That could heighten the risks for investors who bought tobacco bonds, which are a big component of the high-yield muni sector. “Most tobacco bonds issued since 2005 have been structured to break even if consumption declines average 4.0 percent per year,” the report said.
David Howard, a spokesmen for R.J. Reynolds, the maker of Camel cigarettes, said the company will make its April 15 payment, but declined to say whether it will again put some of the cash in the “disputed funds” escrow account.
“Applying the adjustment is an option we have available to us and one we are considering,” Howard said. R.J. Reynolds last year paid just over $2 billion to the states, and put $561 million into the escrow account.
A spokesman for Philip Morris USA, which is part of the Altria Group Inc. (MO.N: Quote, Profile, Research) and the maker of Marlboro cigarettes, had no immediate comment.
Since 1997, cigarette shipments have fallen at an annual compounded rate of 3.82 percent, the report said.
“The tobacco companies are challenging their payments for the third year in a row under the Nonparticipating Manufacturer’s adjustment clause of the settlement, this time based on calendar year 2005,” it said.
Unlike other tobacco companies, Philip Morris USA has not withheld sums. But the company might be owed as much as $900 million if its competitors, which did make the full payments, win in arbitration, the report said.
Forty-seven of 48 state trial courts have determined conflicts over the master settlement agreement should be decided by binding arbitration, according to Howard. A number of states had wanted to fight the matter in state court. As a result, the arbitration panel, which would have three former federal judges, has to start work.
“We certainly would like to seek resolution of this difficult matter,” Howard said.
Apr 9, 2008
By Joan Gralla
NEW YORK, April 9 (Reuters) – U.S. tobacco companies might withhold around $600 million of annual payments they agreed to make to states to help cover medical bills for ailing smokers, according to a new report.
U.S. states, counties and cities sold an estimated $32 billion of bonds that they repay with these payments, which usually are made in April. But smoking rates have fallen, partly because a number of states have hiked cigarette taxes.
The 1998 settlement between states and cigarette makers that ended the states’ law suits has a provision that helps protect the tobacco industry if cigarette sales fall.
“For the third year in a row, an independent research firm has ruled that the settlement was a ‘significant factor’ in a market share loss of 5.6 percent to nonparticipating manufacturers, which provides a basis for participating companies to request a 16.8 percent reduction of payments that were due for 2005,” said the report by Herbert J. Sims & Co, which is based in Iselin, New Jersey.
Reynolds American (RAI.N: Quote, Profile, Research), the parent of R.J. Reynolds Tobacco Company, in its 2007 annual report, said domestic cigarette shipments fell 5 percent, the Sims report said.
That could heighten the risks for investors who bought tobacco bonds, which are a big component of the high-yield muni sector. “Most tobacco bonds issued since 2005 have been structured to break even if consumption declines average 4.0 percent per year,” the report said.
David Howard, a spokesmen for R.J. Reynolds, the maker of Camel cigarettes, said the company will make its April 15 payment, but declined to say whether it will again put some of the cash in the “disputed funds” escrow account.
“Applying the adjustment is an option we have available to us and one we are considering,” Howard said. R.J. Reynolds last year paid just over $2 billion to the states, and put $561 million into the escrow account.
A spokesman for Philip Morris USA, which is part of the Altria Group Inc. (MO.N: Quote, Profile, Research) and the maker of Marlboro cigarettes, had no immediate comment.
Since 1997, cigarette shipments have fallen at an annual compounded rate of 3.82 percent, the report said.
“The tobacco companies are challenging their payments for the third year in a row under the Nonparticipating Manufacturer’s adjustment clause of the settlement, this time based on calendar year 2005,” it said.
Unlike other tobacco companies, Philip Morris USA has not withheld sums. But the company might be owed as much as $900 million if its competitors, which did make the full payments, win in arbitration, the report said.
Forty-seven of 48 state trial courts have determined conflicts over the master settlement agreement should be decided by binding arbitration, according to Howard. A number of states had wanted to fight the matter in state court. As a result, the arbitration panel, which would have three former federal judges, has to start work.
“We certainly would like to seek resolution of this difficult matter,” Howard said.
Philip Morris makes full settlement payment to states; RJR doesn’t
By STEPHANIE STOUGHTON, AP Business Writer
March 31, 2006
March 31, 2006
RICHMOND, Va. — Philip Morris USA apparently has decided against playing hardball with the states over a hefty settlement payment due next month, but Reynolds American Inc.’s RJR is hanging tough.
On Friday, Philip Morris, the nation’s largest cigarette maker, made its $3.4 billion payment, even though it believes that sum eventually should be reduced to reflect market losses it suffered due to its participation in the 1998 Master Settlement Agreement.
RJR, based in Winston-Salem, N.C., also made its payment Friday but decided not to pay the full amount, company spokesman David Howard said. Howard declined to provide details about the company’s payment.
Philip Morris, RJR and Loews Corp.’s Lorillard have sought to cut $1.2 billion from the $6.5 billion due April 17. The companies say a provision in the settlement allows them to reduce payments to the 46 states if they collectively lose market share to so-called “nonparticipating manufacturers”–or players operating outside the pact.
But the big tobacco companies also must prove that the states did not adequately enforce statutes requiring the outsiders to place funds in escrow accounts in case of future state litigation.
Philip Morris, the company behind the No. 1 Marlboro brand, still could possibly get a reduction. But it has opted to meet the states’ demands while it negotiates. “We will continue to pursue our dialogue with the state attorneys general in order to come to a mutually agreeable resolution,” said Michael Neese, a spokesman for Philip Morris, owned by New York-based Altria Group Inc.
RJR’s hard-line approach may anger the states, which have been pressuring companies to make their full payments by the deadline. Several states are threatening legal action if the big manufacturers attempt to make reductions.
A spokesman for Lorillard, based in Greensboro, N.C., said Friday he had no immediate comment on the company’s payment plans.
“We believe it is very responsible of Philip Morris to make this full payment,” said Bob Brammer, a spokesman for Iowa Attorney General Tom Miller. Miller is also tobacco-committee co-chairman for the National Association of Attorneys General.
Monday, an independent economic consultant, the Brattle Group, found that the settlement was a “significant factor” contributing to the large companies’ market-share losses.
Because of the way the payments are structured, the money owed this year would take into account the companies’ market-share losses in 2003. That year, the companies saw their share of the market drop to about 92 percent, which compares to an estimated 99 percent of the market before the settlement.
State attorneys general say the settlement, which reimbursed states for smoking-related health care costs, has helped reduce smoking consumption. Today, many states now rely heavily on the tobacco companies’ payments. States and localities have issued billions in dollars in bonds backed by future settlement payments.
Philip Morris, Reynolds Win Arbiter’s Tobacco Ruling
March 28
March 28
Tobacco companies including Philip Morris USA and Reynolds American Inc. won an arbiter’s ruling that may allow them to reduce $1.2 billion in payments to states under a 1998 health care settlement.
The Brattle Group, a consulting firm hired by the states and cigarette makers, ruled advertising restrictions imposed by the accord have been a “significant factor” in reducing manufacturers’ market share, according to a statement today from the National Association of Attorneys General in Washington.
Cigarette makers may use the decision to withhold what they owe states under a provision that allows them to adjust payments based on market share. The companies may also negotiate changes in the settlement with state attorneys general, Citigroup Inc. analyst Bonnie Herzog wrote on March 27.
“We would not be surprised if this battle leads to some form of another settlement which could result in an even more ironclad partnership between the states and tobacco manufacturers,” Herzog said.
The states “believe it would not be appropriate” for manufacturers “to withhold any portion” of the $6.5 billion due to states April 17, the attorneys general statement said.
Enforcing Statues
Tobacco companies still must prove in court that the states “have not diligently enforced their statutes” requiring escrow payments from producers that aren’t covered by the settlement, the statement said. The states “believe that every state will be found to have diligently enforced” the statutes.
For the states, the decision could affect a flow of revenue that has been spent on health care programs and antismoking campaigns and to balance budgets. Some states have sold $20 billion of municipal bonds backed by the payments.
Altria shares rose 5 cents to $72.10 at 10:34 a.m. in New York Stock Exchange composite trading. Reynolds American rose 61 cents to $107.19. Loews Corp. shares increased 20 cents to $100.88.
The manufacturers didn’t have immediate comments, according to spokesmen Michael Neese at Philip Morris USA, David Howard at Reynolds American’s R.J. Reynolds Tobacco Co. and Jordan Bressler at Loews’ Lorillard Tobacco Co.
Greater Payments?
The Cambridge, Massachusetts-based arbiter’s decision affirmed its March 1 preliminary ruling. Ken Wise, a Brattle spokesman in San Francisco, said the company won’t release or comment on the findings.
Big tobacco companies may pay the $1.2 billion in exchange for state legislatures requiring greater payments from small manufacturers that aren’t part of the health-care settlement, said Eric Lindblom, director of policy research at the Washington-based Campaign for Tobacco-Free Kids.
Higher payments might spur these producers, including makers of discount cigarettes, to raise prices, helping big manufacturers win back smokers who switched to the cheaper brands, Lindblom said.
Under the settlement, states are required to collect sales results from tobacco companies that are not part of the pact and then force those producers to put payments in escrow. Those escrow payments are intended to replace declining payments by manufacturers participating in the settlement.
April 17 Deadline
Iowa Attorney General Tom Miller told reporters March 8 that state attorneys general notified major cigarette makers in letters they may sue the companies over the $1.2 billion in disputed payments.
The big companies may withhold that amount from the $6.5 billion they’re scheduled to pay states on April 17, citing a provision that allows them to adjust payments if their collective market share decreases by more than 2 percentage points, attorney generals said.
That occurred in 2003, starting a two-year waiting period that prevented the companies from seeking the adjustment until now.
Manufacturers have so far paid more than $41 billion in the settlement, Miller said. Other conditions also have to be met before the companies can reduce payments. These include proving that states failed to diligently enforce certain statutes passed after the agreement, he said.
Producers covered by the accord accounted for 91.6 percent of U.S. market share in 2003, down from 99.6 percent in 1997, Philip Morris USA’s Neese said on March 8, citing PricewaterhouseCoopers, the settlement fund’s auditor.
Advertising Restrictions
The settlement, signed by companies including Reynolds American’s R.J. Reynolds and Brown & Williamson Tobacco Corp. and Loews’s Lorillard, called for them to make payments to 46 states in perpetuity. Mississippi, Florida, Minnesota and Texas had already settled their claims for about $40 billion.
The tobacco makers agreed to restrict advertising and marketing, including a ban on billboards, buses and taxicabs, and merchandise logos. They’re also paying for anti-tobacco ads by the American Legacy Foundation, an organization that runs programs to reduce teen smoking.
South Carolina Attorney General Henry McMaster is planning to file a lawsuit April 17 if the state doesn’t get its full $77 million payment from the agreement.
The state is expecting the payment to be cut by $14 million if the tobacco companies follow through on threats to reduce payments. The attorney general has gotten approval for $1 million of legal fees to start the legal fight, according to Trey Walker, a spokesman for McMaster.
“The attorney general is preparing for a massive lawsuit fighting tobacco companies for full payment,” said Walker. South Carolina sold $912 million of bonds.
To contact the reporter on this story: Chris Burritt in Greensboro, North Carolina at cburritt@bloomberg.net .
Statement by Iowa Attorney General Tom Miller
and Idaho Attorney General Lawrence Wasden
March 28, 2006
and Idaho Attorney General Lawrence Wasden
March 28, 2006
Possible legal battle looming over tobacco settlement
March 28, 2006
A legal battle may be looming between states, including North Carolina, and tobacco companies over money owed from a landmark 1998 settlement agreement. What’s at stake could be more than $1 billion.
March 28, 2006
A legal battle may be looming between states, including North Carolina, and tobacco companies over money owed from a landmark 1998 settlement agreement. What’s at stake could be more than $1 billion.
Nicotine dependence
Mar 29, 2006 by Jacob Sullum
Colorado Treasurer Mark Hillman calls the deal under which the top cigarette manufacturers pay the states billions of dollars a year “a protection racket.” In truth, it’s worse than that.
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Arbitrator Rules that Big Tobacco Market Share Reductions are Due to MSA; Paves Way for Reduction in Payments to States
3/28/06 By Michael Siegel.
An independent economics firm hired under the terms of the Master Settlement Agreement (MSA) today released its conclusion that the reduction in market share of the participating manufacturers in the 1998 contract between 46 states and the major tobacco companies was attributable to requirements on those manufacturers imposed by the MSA.
3/28/06 By Michael Siegel.
An independent economics firm hired under the terms of the Master Settlement Agreement (MSA) today released its conclusion that the reduction in market share of the participating manufacturers in the 1998 contract between 46 states and the major tobacco companies was attributable to requirements on those manufacturers imposed by the MSA.
Huge Settlement Could Get Smaller
March 25, 2006 BY VANESSA O’CONNELL
For the past eight years, major cigarette makers and 46 state governments have enjoyed a beautiful partnership: The cigarette companies paid billions into state coffers in return for the states abandoning legal claims against the industry.
On Monday comes a decision that could fray the relationship.
March 25, 2006 BY VANESSA O’CONNELL
For the past eight years, major cigarette makers and 46 state governments have enjoyed a beautiful partnership: The cigarette companies paid billions into state coffers in return for the states abandoning legal claims against the industry.
On Monday comes a decision that could fray the relationship.
CA Tobacco payout isn’t combating smoking
S.D. uses settlement for everything but
March 26, 2006 By Alex Roth STAFF WRITER
“We feel like we’ve met with almost everyone in the entire city,” she said. “It’s like the city has been pouring buckets of water in a swimming pool. You just don’t know where it’s going.”
Analyst: New legal battle could be brewing for Big Tobacco
3-6-06 by Mark Tosczak The Business Journal
Another major legal battle between tobacco companies and the states could be brewing, according to a Wall Street tobacco analyst.
Citigroup tobacco analyst Bonnie Herzog said late Monday in a note to investors that she had learned that a firm hired by the states and tobacco companies to analyze the impact of the 1997 Master Settlement Agreement had found that the agreement was a significant factor in the big cigarette makers’ loss of marketing share between 1997 and 2003.
3-6-06 by Mark Tosczak The Business Journal
Another major legal battle between tobacco companies and the states could be brewing, according to a Wall Street tobacco analyst.
Citigroup tobacco analyst Bonnie Herzog said late Monday in a note to investors that she had learned that a firm hired by the states and tobacco companies to analyze the impact of the 1997 Master Settlement Agreement had found that the agreement was a significant factor in the big cigarette makers’ loss of marketing share between 1997 and 2003.
3-6-06 by Mark Tosczak The Business JournalAnother major legal battle between tobacco companies and the states could be brewing, according to a Wall Street tobacco analyst. Citigroup tobacco analyst Bonnie Herzog said late Monday in a note to investors that she had learned that a firm hired by the states and tobacco companies to analyze the impact of the 1997 Master Settlement Agreement had found that the agreement was a significant factor in the big cigarette makers’ loss of marketing share between 1997 and 2003.
States walk a fine line on tobacco
1/1/06 By George Will
There is one problem with the states’ plans to divvy up the money extorted from the tobacco industry: The MSA may be declared unconstitutional. The U.S. Constitution says (Article I, Section 10): “No state shall, without the consent of Congress, … enter into any agreement or compact with another state.” A federal district court is being asked to declare that 46 states have done just that.
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1/1/06 By George Will
There is one problem with the states’ plans to divvy up the money extorted from the tobacco industry: The MSA may be declared unconstitutional. The U.S. Constitution says (Article I, Section 10): “No state shall, without the consent of Congress, … enter into any agreement or compact with another state.” A federal district court is being asked to declare that 46 states have done just that.
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Where Has All the Tobacco Money Gone?
Money From Settlement With Big Tobacco Goes to Fund Auto Speedway, Golf Course Sprinklers
Nov. 4, 2005 — Less than three percent of the $250 billion settlement between the tobacco companies and the fifty states has been used to fund anti-smoking campaigns.
When the tobacco industry settled out of court with the 50 states seven years ago this month, state officials said the money would be used to prevent kids from starting to smoke.
Anti-Smoking Campaigns Forgotten
Yet, in Virginia, a large portion of the tobacco money has been used to improve an auto speedway while in New York, it was invested in a golf course sprinkler system.
New tobacco warehouses were built with the money in North Carolina, and in Lincoln, Neb., officials used the money to enforce the pooper-scooper law. In Kentucky, cattle farmers received the money through farm subsidies. “Everything except getting our kids not to smoke,” said Joseph Califano, former secretary of health, education, and welfare during the late 1970s. “And it’s a tragedy.” Despite what officials — including Connecticut Attorney General Richard Blumenthal — promised in 1998, 97 percent of the funds won by the states from the tobacco companies went for anything but anti-smoking campaigns.
“We need to use the tools and resources that this agreement will give us to enter a new phase in this campaign,” Blumenthal said in 1998.
Since then, his state has ranked the sixth lowest in spending on anti-smoking campaigns.
“I am embarrassed and outraged that our state has been virtually dead last in using the money as it was designed to do,” said Blumenthal.
In Buffalo, N.Y., county officials chose to take less than half what they were due so that they could receive all of the money up front. According to County Executive Joe Giambra, most of that money has since gone to fund civic improvements.
“Not a penny,” Giambra said of the tobacco money. “We have not spent any money specifically from this settlement agreement.”
Some States Have Limited Success
The few states that have used the money for aggressive anti-smoking campaigns have seen successful results.
Florida created anti-smoking commercials, including one in which smoking wins a mock award for causing the most deaths in a year.
“They showed a 38 percent drop in teenage smoking, the most dramatic drop in the country,” said former health secretary Califano.
After only a few years, however, the Florida legislature drastically cut the money for the campaign from $70 million a year to $1 million a year.
“We’ve lost over these years hundreds of thousands of kids who have become addicted to cigarettes, who we know we could have kept off if the governments of the states had invested that money in tough prevention programs,” said Califano.
ABC News’ David Scott and Avni Patel contributed to this report.
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