| April 9, 2003
States fear tobacco money
could go up in smoke
By REBECCA COOK
Associated Press Writer
OLYMPIA, Wash. (AP) _ State leaders from Vermont to California, hooked
on annual payments from their landmark settlement with the tobacco
industry, are worried a multibillion-dollar court order against Philip
Morris might keep them from getting their next check.
Some cash-strapped states have already spent their share of the $2.6
billion that Philip Morris is supposed to distribute April 15 as part of
the settlement.
But
an Illinois judge's demand for a $12 billion appeal bond from Philip
Morris may interrupt payments states rely on for everything from
children's health to basic government services.
The tobacco maker is appealing, and the same judge said Tuesday that he
thinks the plaintiffs and the company can come up with a compromise.
Judge Nicholas Byron did not issue a ruling, but the two sides are
scheduled to return to court Thursday, said plaintiffs' lawyer Stephen Tillery.
In
1998, four tobacco companies agreed to settle states' claims for
smoking-related health care costs by paying them $206 billion over 25
years. Philip Morris, the largest in the group, pays about half the
settlement, which covers 46 states.
Recently, a Madison County, Ill. judge awarded $10.1 billion in a
class-action lawsuit alleging that Philip Morris misled smokers into
believing "light" cigarettes are less harmful. Philip Morris must post a
$12 billion bond before it can appeal the judgment _ equal to the amount
of the award plus $2 billion in legal fees.
That has some states worried.
"This is a worst-case scenario," Ohio Budget Director Tom Johnson said.
Company officials say they won't be able to make the April 15 payments
unless the bond is reduced.
"Philip Morris USA's net worth is south of $12 billion," said William Ohlemeyer, Philip Morris vice president and general counsel. "We only
have so much money. If the judge requires us to put it all in Madison
County, we wouldn't have enough to make the master settlement agreement
payment."
Philip Morris has asked the judge to lower the bond to between $1.2 and
$1.5 billion, an appeal supported by the attorneys general of 37 states
and territories.
On
Tuesday, another judge issued a 10-day restraining order barring
Illinois from collecting its share of the $10.1 billion judgment _ $3.6
billion in punitive damages _ because it is already getting billions
from the national settlement. A hearing is planned.
Wall Street analysts say Philip Morris isn't blowing smoke about its
inability to pay.
"I
do not believe Philip Morris USA has the ability to post the bond of $12
billion," said Martin Feldman of Merrill Lynch. He suggested bankruptcy
was a "real option" unless the bond is reduced.
The
uncertainty is already disrupting state budgets. New York, Virginia and
California, for example, have postponed plans to sell bonds backed by
money from the tobacco settlement.
California State Controller Steve Westly even warned the state will run
low on money by August without money from Philip Morris.
Dozens of smaller programs across the country will be in trouble, too.
Kentucky uses settlement money to diversify its tobacco-based
agricultural economy, while Kansas puts the money into an education
trust fund. Indiana earmarks the money for children's health insurance,
prescription drugs for poor seniors and anti-smoking programs.
Vermont has already spent the $13 million it expects from Philip Morris
on Medicaid services and tobacco and substance abuse programs. And
Washington has spent its anticipated $53 million on health insurance for
children, immunization programs and other public health needs.
If
Philip Morris falls short, states may have to cut those programs deeply,
cut other programs or raise taxes _ not a popular option during an
economic downturn.
"The impact is pretty critical," said Lee Dixon, director of health
policy for the National Conference of State Legislatures. "It's kind of
like a paycheck you were expecting that you don't get from an employer.
You're expecting that money, and you have bills to pay."
Anti-smoking activists scoff at the notion that Philip Morris can't
afford to pay the states and the appeal bond.
"What Philip Morris wants the states to do is to panic because of their
current budget situation," said Bill Corr, executive director of the
Campaign for Tobacco-Free Kids. "Philip Morris has attempted to
manufacture a crisis with its claims of bankruptcy."
But Washington Attorney General Christine Gregoire, who negotiated the
settlement, is convinced the crisis is real. With no end in sight to
tobacco companies' legal woes, Gregoire said states should get used to
fighting for their tobacco payments.
"I don't think this is by any stretch of the imagination the end," Gregoire said. |
