Office of the Attorney General
Tobacco Agreement Will Restore 2014 Agriculture, Early Childhood, Health Care Budget Cuts
Governor Steve Beshear and Attorney General Jack Conway today announced a victory not only for Kentucky farmers, but also for critical health care and early childhood services funded by the 1998 tobacco Master Settlement Agreement (MSA).
As a result of the agreement between Kentucky and tobacco manufacturers prompted by an adverse ruling in the 2003 MSA arbitration proceeding, the state has settled 10 years of disputed claims and litigation, starting with 2003 payments and running through 2012.
The settlement relieves the state from the financial and administrative burden of litigating disputes over events that occurred a decade ago, and provides a framework for evaluating the parties’ obligations going forward. It also ensures that Kentucky will continue receiving its MSA payments. With this agreement, Kentucky joins 22 other states that have elected to settle Non-Participating Manufacturer MSA disputes.
Under the agreement announced today, Kentucky receives $110.4 million in disputed and related payments and will avoid a long and expensive legal battle. Combined with the $48.3 million in payments already received this fiscal year, the total MSA payments for FY14 total is $158.7 million, which is $67.9 million more than budgeted for FY14.
However, estimated receipts for FY15 are $26.6 million less than budgeted, and FY16 are $15.9 million more. Overall, Kentucky stands to receive $57.2 million more in MSA payments over the next three years than budgeted.
"Our first priority with this money is to fully restore $42.5 million in 2014 budget cuts in areas like lung cancer research, county agriculture funds, and early childhood oral and mental health assistance, while maintaining this level of funding in 2015," Gov. Beshear said. "This agreement will ensure funding availability for future investments in these programs that continue to have a positive impact on the Commonwealth."
"The settlement ends a long-running dispute and restores certainty to Kentucky’s annual payments from the 1998 Master Settlement Agreement," Attorney General Conway said. "Under the terms of the settlement, we avoid the possibility of costly litigation and the potential loss of the entire annual MSA payment."
Through the Kentucky Agricultural Development Fund or KADF, Kentucky has invested more than $400 million in MSA funds for an array of county, regional and state projects designed to increase net farm income and create sustainable new farm-based business enterprises. Since the inception of KADF in January 2001, Kentucky has funded more than 4,800 projects.
The MSA is the result of an agreement between 52 states and territories and the major tobacco companies worth approximately $229 billion.
Under the terms of the parties’ agreement, the participating tobacco manufacturers make annual payments to the state. States have monitoring obligations to ensure that any manufacturers that are not signatories to the agreement do not circumvent the laws requiring escrow payments to the states.
If a state fails to adequately fulfill its monitoring obligations, then its payment from the participating manufacturers is reduced. The states and the participating manufacturers must arbitrate their disputes under the MSA for each year covered by the MSA.
Arbitrations for 2003 only concluded in 2013. The arbitration panel found that Kentucky had not met its enforcement obligations in 2003 under the MSA, resulting in the lower 2014 MSA payment that led to the $42.5 million budget reduction.
"The MSA has been an important part of Kentucky’s agricultural growth over the last several years; farmers and farm advocates across this state can testify to the importance of the MSA and the KADF programs it supports," said Roger Thomas, executive director of the Governor’s Office of Agricultural Policy. "While Kentucky strongly believes that we made a good case for our diligence in 2003, the arbitration panel ruled otherwise. The decision highlights the unpredictable nature of the arbitration process, which will be conducted by a different panel and under different procedures for each succeeding year. This settlement provides Kentucky with certainty and fiscal stability in these vital areas for the foreseeable future."
For more information on the Kentucky Master Settlement Agreement, click here.
You can follow Attorney General Conway on Twitter @kyoag, visit the Attorney General’s Facebook page or view videos on our YouTube channel.