TOPEKA – (December 21, 2012) – Governor Sam Brownback and Attorney General Derek Schmidt today issued the following statement on the agreement in principle reached earlier this week to resolve a major dispute between Kansas and several tobacco companies:
“This anticipated settlement, if completed and approved, will protect Kansas children’s programs by substantially reducing the risk that Kansas could lose a significant portion of its annual tobacco settlement payment starting as soon as April 2014 and continuing for many years. The anticipated settlement would resolve the dispute between Kansas and participating tobacco manufacturers over implementation of the 1998 tobacco Master Settlement Agreement for all enforcement years from 2003 through 2012. That dispute, if not resolved, could cost Kansas children’s programs hundreds of millions of dollars. While the new settlement would not eliminate all risk of payment interruption, it would significantly reduce that risk and increase the likelihood that funding for critical children’s programs can continue as anticipated.”
Earlier this week, Attorney General Schmidt, after consultation with Governor Brownback, joined Kansas with 16 other states, Puerto Rico, the District of Columbia and major tobacco companies in an agreement in principle to settle payment disputes covering ten years. The agreement was reached after almost two years of negotiations among the parties. Kansas has been represented in the settlement discussions by the attorney general’s office. While the parties have agreed in principle to settle, final details remain to be agreed upon.
The underlying dispute involves Kansas’ efforts to comply with terms of the 1998 tobacco settlement in 2003 through 2007 and, to a lesser extent, from 2008 forward. The tobacco companies had accused Kansas (as well as a majority of MSA states) of failing to “diligently enforce” various requirements of the settlement, including a requirement that other tobacco manufacturers that did not participate in the 1998 Master Settlement Agreement pay money into escrow when they make sales in the state.
During the past year, Kansas has been involved in arbitration over the 2003 enforcement year dispute. The arbitration hearing for Kansas concluded in August, but the results will not be announced until all other states’ 2003 enforcement year arbitrations are concluded, likely sometime next summer. Absent settlement, it is likely that a new round of arbitration over the 2004 enforcement year would follow resolution of the 2003 dispute.
Under terms of the 1998 Master Settlement Agreement, Kansas receives an annual payment from the participating tobacco manufacturers. That payment typically has been about $55 million, and the Legislature has dedicated most of those funds to support various children’s programs in the state. The dispute over the 2003 enforcement year created the risk that the Kansas payment scheduled for April 2014 could be reduced by tens of millions of dollars. The new settlement is aimed at mitigating that risk.
Attorney General Schmidt said the anticipated settlement, if approved, not only would help protect Kansas’ annual tobacco settlement payment but could also save the state millions of dollars in legal costs that would be incurred through years of continued arbitration and litigation.
Before the anticipated settlement can enter into force, final details must be completed and the agreement must be approved by the arbitration panel. It also is possible that other states that have elected not to settle their disputes may object to the 19-jurisdiction settlement.