Kane seeks restoration of tobacco settlement payments

Posted: November 09, 2013

HARRISBURG - Pennsylvania Attorney General Kathleen G. Kane has asked a court in Philadelphia to overturn a decision stripping the state of a significant portion of its share of the tobacco settlement payments.

In a motion filed in Philadelphia Court of Common Pleas Thursday, Kane is seeking to overturn an arbitration panel's ruling last month that the state had not met its obligations under the 1998 agreement with major tobacco companies and therefore must forfeit a percentage of its annual payment.

As a result the state stands to lose roughly $170 million - or 60 percent - of the $320 million in funding that supports smoking cessation, medical research and other health programs.

"Tobacco settlement funds assist with promoting and sustaining a large variety of health initiatives for the benefit of all Pennsylvanians," said Kane in a statement. "We will aggressively pursue all avenues - both in court and through legislation - to avoid the unjust reduction of [Master Settlement Agreement] funding so that the Commonwealth can continue to deliver these essential programs."

The arbitration panel found that in 2003 Pennsylvania did not "diligently enforce" certain laws requiring the collection of taxes and other payments from certain tobacco companies that did not participate in the agreement.

The Commonwealth's motion contends that the panel did not treat all states equally.

For instance, it said, Pennsylvania had an identical tax collection rate to Ohio, which the panel found was diligent. In another instance, the panel penalized the Commonwealth for not taxing roll-your-own tobacco, while at the same time finding that Oregon had no obligation to do so.

"The arbitration panel's decision penalizes Pennsylvania for factors the panel clearly allowed for other states," said Kane. "Whether the panel failed to follow a common set of standards, or exhibited bias against the Commonwealth, it was wrong and we cannot permit this unjust decision to stand."

The settlement with four of the largest tobacco manufacturers signed 15 years ago, stipulated that 46 states and the District of Columbia were to receive an estimated $206 billion over the next 25 years.

Like other states, Pennsylvania gets payments based on tobacco sales. While other states have used the funds for a wide array of programs and budget items, legislation here mandated that the funds be used exclusively for health care.

The panel's recent ruling on settlement payment disputes involved 15 states. Nine won favorable decisions over the money, while the panel found six - including Pennsylvania - failed to properly enforce escrow settlement provisions involving "nonparticipating manufacturers."

The Commonwealth will be represented by the law firm Orrick, Herrington & Sutcliffe, LLP, the statement said.

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