Lawmakers may close ‘loophole’ in tobacco settlement
NASHVILLE (AP) — Tennessee lawmakers soon may join 23 other states in stopping smaller cigarette manufacturers from getting back most of the money they put into a state fund each year in lieu of participating in a national tobacco settlement.
The state is losing about $10 million each year to those companies, which also are picking up a larger share of the market from tobacco manufacturers that signed the 1998 settlement agreement, according to Rep. Gene Davidson, D-Adams.
Nationally, the loss is estimated in the hundreds of millions of dollars.
The state House approved a bill 75-10 Monday night that Davidson said would “level the playing field” among all tobacco manufacturers in Tennessee and close the loophole that nonparticipating companies have exploited. The bill is pushed by Tennessee Attorney General Paul Summers and the National Association of Attorneys General.
Rep. Mark Maddox claims it is an effort by “Big Tobacco” to put small competitors like R.B.J. Sales in his hometown of Dresden out of business.
“Jobs are on the line and free competition will be damaged,” the Democrat said.
He also says the provision in question “was intentionally and knowingly included to ensure the settlement was not declared unconstitutional or violate antitrust provisions.”
Six years ago, Tennessee was among 46 states that agreed to drop all claims for current and future health care costs from the “Big Four” tobacco companies — and about 45 others — in exchange for an estimated $200 billion through 2025.
State laws enacted to enforce the settlement required nonparticipating cigarette companies to pay money into escrow accounts. Those payments — about $3.90 per carton this year — would be used to pay any future claims made against other manufacturers.
Those escrow funds were to be paid back after 25 years. But the way the laws were written, companies that didn’t join the settlement and only do business in one or two states could get back most of that money almost immediately.
The bill now being considered would change the formula to prevent those manufacturers from avoiding their escrow obligation by concentrating sales in a few states. Some are getting back 95 percent of what they’re putting in each year, according to the attorneys general organization.
Doing away with that provision will raise payments to about $5.46 a carton, the nonparticipating companies claim. Proponents disagree, saying they’ll be providing only what the participating manufacturers are paying states.
Last year, market share growth by the nonparticipating manufacturers cost the 46 states an estimated $700 million nationally — and a large part of that is because of the provision in question, according to the attorneys general. They say that between 1997 and 2003, the market share of such companies has grown from less than 1 percent to 8 percent.
The bill was scheduled last week for debate on the Senate floor but was sent back to the Finance Committee for further consideration at the request of Sen. Roy Herron, D-Dresden.
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On the Net:
Read House Bill 2900/Senate Bill 2670: http://www.legislature.state.tn.us