Thursday, March 23, 2006

Colorado Admits MSA a Disaster that has Created Partnership with Big Tobacco and Incentive to Promote Tobacco Use

According to an article in The Daily Sentinel (Grand Junction, CO), Colorado's acting treasurer -Mark Hillman - has acknowledged that the Master Settlement Agreement (MSA) has created a partnership between the states and Big Tobacco and has essentially destroyed the incentive of the states to take any action to substantially reduce tobacco sales:

"Colorado'’s share of the master settlement was initially estimated at almost $2.9 billion. In light of recent events, Hillman said, there'’s no assurance those annual payouts will remain high. It'’s time to end the partnership, he said. 'Colorado government should no longer send the mixed message to citizens that '‘we want you to stop smoking'’ because it'’s terrible for your health but '‘we need you to keep smoking'’ to pay for government programs,' Hillman wrote."

Hillman is urging the state to securitize its MSA proceeds, accepting a smaller one-time lump sum payment in lieu of annual payments, to eliminate its dependence on cigarette revenues for its financial stability:

"'If we don'’t securitize now, while the market is near its peak, our fiscal fate will remain linked to that of Big Tobacco,' Hillman wrote. He explained that tobacco companies that signed the 1998 settlement were scheduled to pay $8 billion to states this year, but inflation, declining sales volume and other factors reduced that payout by $1.4 billion. And now two of the original signatories, Philip Morris and R.J. Reynolds, propose an additional $1.1 billion cut. Colorado'’s annual tobacco payment should bring in $90 million in 2006, but tobacco companies'’ proposed cut could drop that payment to $75 million, Hillman said."

However, accepting a lump sum payment would place in jeopardy a number of important state programs and services:

"Programs that give schoolchildren extra help with reading and young moms-to-be emotional and medical support before and after their pregnancy are among the state services that get a cut of the state'’s annual tobacco-settlement payments. That'’s why opponents of a lump-sum tobacco payment warn a one-time windfall would jeopardize such programs and force lawmakers to find another source of funding."

The Rest of the Story

This story is significant, because this is now the 4th state that in recent days has revealed a fiscal mess due to the MSA and which has admitted that the MSA has created a partnership with Big Tobacco in which the states are addicted to tobacco money and have a strong incentive not to do anything that would substantially reduce cigarette sales and therefore threaten their MSA payments and financial stability (Nevada; South Carolina; Utah).

This appears to be a Catch-22 situation, as settling for a lump sum payment might help reduce the dependence on tobacco revenues but it severely threatens programs that have already been funded using MSA revenues. It is difficult to argue against programs that provide medical and emotional support for young moms before and after their pregnancy. Yet these are the precise programs that are now dependent on cigarette sales (i.e., on smokers continuing to puff away) for their survival.

It took some time, but the states are one-by-one realizing and admitting that they are indeed partners with Big Tobacco, hopelessly addicted to tobacco revenues, and in the odd position of telling people not to smoke but at the same time, being dependent on those people smoking to avoid fiscal collapse.

For all of this, we can thank our Attorneys General, who are still pretending that this was all about protecting the public's health. No - it's all about the money. But you won't hear the rest of the story from them.

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