SMOKING BONDAGE

It’s hard to feel sorry for a company like Philip Morris, which has made huge profits by encouraging people to smoke its cigarettes. But a court case in Illinois has brought many states to the defense of the corporation behind the Marlboro Man. Late last month, a state court judge ordered the world’s largest cigarette maker to pay $12 billion for misleading people into thinking that “light” cigarettes were less harmful than regular bands. In order to appeal this ruling, Philip Morris must first post a $12 billion bond. Paying such a huge sum will bankrupt the company, corporate executives warn.

Putting a cigarette maker out of business may or may not be a bad thing, but in this case it would jeopardize state programs that provide affordable, quality child care, substance abuse prevention and treatment, parenting education and support, as well as tobacco cessation programs in Maine. Without Philip Morris’ share of the settlement money, funding for these programs would necessarily be cut in half. The state would be in a much worse position if it had given in to pressure to use some of the tobacco settlement money to plug the state budget gap as was done elsewhere in the country.

As part of the settlement of a 1998 lawsuit, the tobacco industry agreed to pay more than $206 billion annually to 46 states through 2025. Philip Morris owes more than half the total. The company’s next payment – $2.6 billion – is due next week. This is why states are rushing to support the company.

Maine is not among the most aggressive Philip Morris supporters and that’s a good thing. While Maine certainly wants its $20 million check on April 15, it is not convinced that the company will be driven to financial ruin by the Illinois damage award. Last year, the company had more than $47.6 billion in sales and its parent, Altria, recorded revenues of nearly $81 billion. Altria’s net earnings last year were more than $11 billion.

So, as Maine Attorney General Steven Rowe points out, it is hard to know whether Philip Morris can put up the $12 billion bond and also fulfill its commitment under the tobacco settlement. Maine wisely did not sign on to an amicus brief supporting Philip Morris filed by 37 states earlier this week. This is because the brief simply took the company at its word that it would not be able make its April 15 payments if it has to also pay the Illinois bond. Philip Morris could just be blowing smoke.

Maine doesn’t want to take that chance. Instead, Mr. Rowe has put the company on notice that it will go to court on April 16 if the state’s check doesn’t arrive as promised. In the meantime, it has urged the Illinois judge to fully investigate the company’s claims of imminent financial peril. The judge has already said he is considering alternatives to the $12 billion bond that will allow it to meet its obligation to the states.

Continuing to pay its share of the settlement is important because the programs it funds have shown results. Maine is ranked first in the country for its per-capita spending on tobacco prevention. Since 1996, smoking rates for eighth-graders have been cut in half. The decline among 10th graders is almost as large and smoking among high school seniors has declined by more than one-quarter. Maine still has one of the highest rates of smoking among 18- to 30-year-olds. That’s why making sure Philip Morris continues to cough up its share of settlement money is so important.