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Kentucky officials seek share of tobacco funds
By TIM THORNBERRY
Kentucky Correspondent

FRANKFORT, Ky. — Government officials are voicing concerns regarding Kentucky’s portion of Tobacco Master Settlement funds, indicating the state may not have gotten its fair share of the money. That share may be even smaller come April 17 if the major tobacco companies have their way.

Those companies are contending that their market share has lessened and states involved in the original agreement have not lived up to their word to require escrow payments by non-participating tobacco manufacturers.

The companies, which include R.J. Reynolds, Phillip Morris Co., Inc. and Lorillard Tobacco Co., want to decrease this year’s increment by $1.2 billion from the expected $6.5 billion.

The payment due this year actually reflects 2003 market share information from the tobacco companies. That figure dropped by seven percent from the 99 percent market share just before the settlement.

Kentucky Attorney General Greg Stumbo, whose predecessor, now U.S. Rep. Ben Chandler (D-6th Dist.) brokered the original deal for the state, said he would “vigorously oppose” an attempt by tobacco companies to lower their payments.

“What you’re seeing is a laying of groundwork by some of the participating manufacturers to ask for some relief from their payments,” said Stumbo.

In January, Gov. Ernie Fletcher called for an end to the Kentucky’s participation in the MSA replacing it with a $4-per carton fee on cigarettes sold in the state to be paid by the cigarette manufacturers.

“Kentucky received a bad deal in the MSA,” said Fletcher. “I suggest we take a serious look at improving Kentucky’s return on our tobacco sales. If we got our fair share, (the state) would get over $150 million more each year. And if we got our fair share, we could dedicate more funds to support secondary education, agricultural diversification and our other pressing needs rather than subsidizing governments in other states.”

Fletcher also said the new assessment should be made due to declining payments of the MSA and would not risk future payments and it would not be a tax increase.

Keith Rogers, executive director of the Governor’s Office of Agricultural Policy said, “The decrease in the large tobacco companies’ market share in 2003 was due in part to the MSA. Based on this determination the states and the large tobacco companies are currently in negotiations.”

Roger’s agency oversees Ag Development Funds which get about half of the annual payments to be used for agricultural diversification projects.

According to the MSA, contributing companies could reduce yearly increments if states did not enforce laws requiring manufacturers outside the agreement to make payments into an escrow account in exchange for protection from lawsuits similar to the protection the larger manufacturers received by way of the agreement.

In the last fiscal year, Kentucky received $112.2 million from the MSA. This year that figure could drop to $91.3 million with projections for next year (2006-07) to be even less at $88 million. Those projections don’t show an increase until fiscal year 2007-08 with an estimated $94 million in the state’s allotment.

The Attorney General’s office said that the decrease in funds could be avoided if the state shows it has enforced the laws requiring the non-participating cigarette manufacturers to make escrow payments. With both sides currently in discussions, a possible solution is hopeful by the middle of the month.

To date, the tobacco companies have paid a total of $41 billion to the states under the settlement agreement.

Many of those states have used MSA funds for public health and educational needs. Some have had budgetary problems and have issued billions in bonds backed by the impending settlement payments.

This farm news was published in the April 5, 2006 issue of Farm World.

4/5/2006