Office of the Attorney General
Attorney General Greg Stumbo Announces Commonwealth Receives $106 Million in Tobacco Settlement Money

Press Release Date:  Thursday, April 19, 2007  
Contact Information:  Vicki Glass, 502-696-5643 Office  

Attorney General Greg Stumbo today announced that Kentucky received an annual payment of more than $106 million in tobacco settlement money this week. Stumbo’s office enforces the 1998 Master Settlement Agreement (MSA) between tobacco manufacturers and states.

“This office is a leader among all states in demanding that tobacco companies meet their obligations,” said Attorney General Stumbo. “I will make sure that the Commonwealth receives its fair share of all tobacco settlement payments, which provide funding for important programs that benefit all Kentucky citizens. I would like to thank our lead enforcement attorney, Michael Plumley, for his hard work in protecting this important source of state income.”

Under the MSA, the tobacco companies agreed to make annual payments in perpetuity to the Settling States, to fund a national foundation dedicated to significantly reducing the use of tobacco products by youth and to abide by certain restrictions on promotional and lobbying activity. Kentucky’s share of the settlement is approximately $3.45 billion over the first 25 years. Payments are determined according to a formula that is calculated, in part, by the number of cigarettes sold by companies that have agreed to join the settlement.

The total received by Kentucky since the initial MSA payment in 1999 is more than $940 million for “Phase I.” An additional $600 million was received by Kentucky tobacco growers under “Phase II,” the Tobacco Growers Trust Agreement, which was created as a result of an MSA provision to address affected tobacco growing communities in 14 states. By statute, 50% of Phase I funds go into a rural development fund which supports grower diversification. The other 50% is split between an early childhood development fund and a health care improvement fund.

Most of the MSA payment was paid by the three largest cigarette manufacturers, Philip Morris, RJ Reynolds, and Lorillard. Philip Morris made its payment in full but RJ Reynolds and Lorillard put into a disputed account about $670 million from their payments based upon their claim that they are entitled to reduce their payments because of a provision in the MSA called the Non-Participating Manufacturer (“NPM”) Adjustment. If a state diligently enforces the escrow statute, however, it is not subject to this reduction in payment.

“My office is continuing to pursue an action to obtain a judgment that Kentucky properly enforced this law and therefore should receive its full share of the disputed amounts,” Stumbo added.

Cigarette sales nationally are down at least 25% since the agreement went into effect, and the public health provisions of the MSA that restrict cigarette advertising and promotion in numerous ways have changed the way cigarettes are marketed in the United States. The number of cigarettes sold in the United States in 2006 was the lowest since 1951 although the U.S. population has doubled and per capita cigarette consumption in the United States is at its lowest level since the 1930s. This decline will have significant long-term effects on the health care costs related to smoking in the future.

Although a portion of the payment was withheld, Participating Manufacturers still paid the States that are signatories to the Agreement over $6 billion this week, bringing the total payments made under the MSA thus far to all settling States to more than $53 billion.