Tobacco suit money rolls in April sum to exceed $39.6 million

AUGUSTA – While some states are struggling with tobacco settlement payments below estimates, Maine got about $4 million more than expected last week. And more money is on the way later this week.

“In February I had projected we would get about $35.6 million in April,” said State Treasurer Dale McCormick on Friday.” We actually got about $39.6 million and we expect another wire transfer of something around $792,000.”

McCormick had told the State Revenue Forecasting Commission in February that a dispute with Brown & Williamson Tobacco Co. would lead to lower than originally projected payments under the settlement agreements for 2002. The dispute unexpectedly was settled late last month.

Brown & Williamson, along with Lorillard Tobacco, Philip Morris, and R.J. Reynolds Tobacco, settled lawsuits in 1998 brought by Maine and 45 other states to recover smoking-related Medicaid costs. They agreed to pay $206 billion to the 46 states, and in return those states have agreed to relinquish claims to further damages resulting from Medicaid costs.

Maine’s percentage of the total settlement payment is less than eight-tenths of a percent, but that translates to about $1.58 billion.

Payments are based on a complex formula that includes a volume adjustment based on tobacco sales and an inflation adjustment every year. There are also seven other factors that could affect an individual state’s payment in any year.

A study released last month by the Council of State Governments warned that many states had not adjusted their revenue estimates appropriately and would likely receive less revenue from the settlement than first predicted.

“A shift in tobacco consumption away from manufacturers participating in the MSA [Master Settlement Agreement], inadequate enforcement of the MSA, and even an increase in tobacco consumption ‘under the radar screen’ threaten this important revenue stream,” said CSG director of policy Bert Harberson.

But McCormick says Maine has not relied on the early projections and has updated its revenue estimates every year using a computer econometric modeling program.

“We have been pretty much on target,” she said, “and the model was what we used to reproject revenues in February when there was the dispute with Brown & Williamson.”

Melissa Daly, an assistant Maine attorney general who follows developments on the tobacco case, said the CSG study was flawed. She agreed with McCormick that Maine has been closely watching the revenue estimates and taking into account the complexities of the agreement.

“We take issue with a lot of things that were said in that report,” she said. “NAAG [the National Association of Attorneys General] wasn’t consulted and the states were not consulted either.”

Daly released a five-page letter from Vermont Attorney General William Sorrell, the chairman of the NAAG tobacco committee, which criticized the CSG report as misleading and accused the group of making unsupported conclusions in its estimates of revenues under the agreement.

“The thrust of the report is an assumption that revenues received by the states have been much lower than had been anticipated and an estimate that the alleged shortfall will increase in future years,” Sorrell wrote earlier this month. “The assumption that downward adjustments in payments resulting from declines in cigarette consumption were unanticipated is wrong.”

McCormick said Sorrell is certainly correct when it comes to Maine’s projections. She said the state takes into account all of the complex factors cited in the master settlement when projecting revenues under the agreement.

“We do this right,” she said,” we don’t take any shortcuts.”

McCormick now expects Maine to receive about $56 million in 2002 from the tobacco companies that signed onto the agreement. The first payment was in January.

Maine uses funds from the settlement for a wide array of health-related programs, including shoring up the state’s Medicaid program.

Lawmakers had kept $7.3 million of its tobacco money in reserve. That will now increase to more than $12 million.