Monday, March 27, 2006

Colorado Treasurer Calls Master Settlement Agreement a Protection Racket Between States and Big Tobacco

In a Sunday op-ed column in the Pueblo Chieftain, Colorado's acting state treasurer Mark Hillman called the Master Settlement Agreement (MSA) "a protection racket between Big Tobacco and state governments."

According to Hillman: "When Colorado and 45 other states settled a lawsuit with the four largest cigarette manufacturers in 1998, many people believed that the tobacco companies were finally paying the price for their ill-gotten gains. What hardly anyone noticed was that the Master Settlement Agreement (MSA) really amounted to a protection racket between Big Tobacco and state governments. Participating states agreed to adopt model legislation that obligated them to protect Big Tobacco'’s market share against competition from small cigarette makers and others that didn'’t exist when the deal was struck. In exchange, the 46 states were promised $206 billion in 'protection' money through 2025."

Hillman also pointed out the hypocrisy created by the MSA: states are telling their citizens to quit smoking while at the same time relying upon smokers to balance their budgets and to fund critical state programs and services. He highlighted the dependence of the states on continued cigarette consumption to fund vital programs and the partnership that the MSA has created between the states and the major tobacco companies:

"Payments fluctuate each year to reflect increasing or decreasing cigarette sales - putting states, like Colorado, in the awkward position of telling citizens to stop smoking while relying on smokers to fund more than a dozen government programs. ... Now is the time for the Colorado Legislature to end our partnership with Big Tobacco by voting to securitize our state'’s share of MSA payments for the next 30 or 40 years. ... 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."

The Rest of the Story

Not only do I agree with Hillman and think that he has portrayed the MSA quite accurately, I actually think the problem may be worse than he suggests.

Why? Because although he argues that securitizing MSA payments will end the partnership with Big Tobacco, I think there is reason to believe that the incentive for the states to protect the financial well-being of the major cigarette companies will still exist. This is because the states' ability to pay off the securitization bonds does depend, in part, on the success of cigarette sales.

As Hillman admits: "if consumers keep puffing away and cigarette manufacturers do make their payments, Colorado could pay off those 40-year bonds in just over 20 years." In other words, there is a strong economic incentive for the states to do what they can to protect Big Tobacco profits, even if they securitize their MSA payments.

The bottom line is that the tobacco companies have the states coming and going. The MSA scheme was brilliantly concocted by the companies: no matter what the states do, their financial well-being is inextricably tied to that of the major cigarette companies. The partnership between the two is strong and irrevocable, and the risk of states taking any major action to threaten tobacco profits is nil.

This is the ultimate reason why I think that the MSA was such a disaster from a public health perspective. Contrary to what the Attorneys General have boasted, the MSA was about money, not public health. It is a public health disaster by virtue of it providing the states with 100% security - security against the states having any incentive to enact tobacco policies that would threaten their profits.

The MSA is a huge security contract for the tobacco companies. By paying off the politically and economically greedy Attorneys General, the major tobacco companies have succeeded in achieving not only protection of their profits from competition from smaller manufacturers, but also strong partners in protecting their profits from any other threats - including litigation (a.k.a. the Price and Engle bond payments) and substantially declining cigarette consumption.

The major cigarette companies deserve this protection - they earned it by outsmarting the Attorneys General and enticing them by dangling $206 billion in front of them. They are effectively protecting the best interests of their shareholders.

But the American people deserve far better from their elected officials. The Attorneys General are not protecting the best interests of their citizens; far from it - they have sacrificed the public's interest for political and financial gain.

No comments: