A dispute involving state compliance with a tobacco settlement agreement could cost the state $140 million in the next budget year, including some funding that goes to TOPS, the state’s free college tuition program, state Attorney General Buddy Caldwell’s top assistant said Wednesday.
“The tobacco companies claim that the state failed to meet obligations under the settlement agreement. This is the first time the issue has been pursued,” First Assistant Trey Phillips said. “It’s possible the state would have to give up our April 15, 2014, payment up to $140 million. We could possibly lose the entire payment that year and likely what’s due the next year.”
“That has our full attention right now,” Phillips told the Louisiana House and Governmental Affairs Committee.
The issue goes before an arbitration panel of three retired federal judges in March, Phillips said. The panel will meet in Fort Myers, Fla., he said.
In 1998, the major tobacco companies agreed to pay states more than $200 billion to settle lawsuits over the health-care costs related to smoking. The money was to be paid over 25 years.
The state sold 60 percent of the future settlement in 2001.
Louisiana’s annual tobacco settlement proceeds today are allotted 60 percent to tobacco bondholders. Of the remainder, most of the proceeds go to support the funding of the state’s free college tuition program known as the Taylor Opportunity Program for Students, or TOPS.
The dispute involves whether state officials have done enough to regulate off-brand cigarette companies.
In a 1998 master settlement agreement tobacco companies agreed to make billions in compensatory payments to states as long as they remain in business.
As part of that agreement, states were required to be “diligent” in making sure that cigarette companies that were not part of the settlement pay a $6-per-carton fee to an escrow fund. The idea was to stop nonparticipating companies from undercutting companies making the settlement payments.
Since 2006, the participating companies — R.J. Reynolds, Philip Morris Inc., Brown & Williamson, Lorillard and 16 smaller companies — have alleged that states have not been living up to their part of the bargain. The agreement allows participating companies to retrieve some payments if they can prove it.
“There’s a couple of billion dollars at risk across the country,” Phillips said. “It’s not just Louisiana. There’s a lot of other states.”
Phillips said the Attorney General’s Office will beef up its tobacco unit to be even more aggressive in the future when it comes to tobacco payments. The agency needs a forensic accountant to help with that effort, he said.
Phillips said the agency also wants to make sure the state Department of Revenue is doing what it is required to do.
“There’s a lot of money at stake and some very important programs at stake with TOPS and the state’s bond holders. It’s a front-burner item for us right now,” Phillips said.
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