The master settlement provided for the disbanding of the Council for Tobacco Research, the Tobacco Institute, and the Council for Indoor Air Research. In a side agreement to the national tobacco settlement, a $5.15 billion trust was established between tobacco-growing states and major cigarette makers. This trust creates a pool of money separate from the MSA to help tobacco farmers who will lose money as a result of the settlement.
Four states—Minnesota, Florida, Texas, and Mississippi—do not participate in the agreement because they had previously settled out of court. Nearly $40 million was paid to these states.
An overview of the provisions of the MSA are listed in Table 8.4. Although the MSA settles all the state and local government lawsuits, the tobacco industry is still liable for class-action and individual lawsuits.
Receiving the Money
To maintain participation in the settlement, states were required to gain State Specific Finality by December 31, 2001. State Specific Finality was achieved when a state court approved the Master Settlement Agreement along with the required consent decree containing many of the provisions of the agreement. The approval was required to be final, with no appeals pending and all outstanding suits against the tobacco industry settled.
To receive all their expected payments from the participating tobacco manufacturers, each state was required to have its legislature enact a Model Statute, which assessed a per-pack fee on nonparticipating cigarette manufacturers. This fee was designed to protect the market share of participating companies. If a state failed to enact such a statute, it would receive reductions of up to 65% of its allocation.
The settlement funds are allocated to the recipients according to a formula developed by the state attorneys general. The formula is based on estimated tobacco-related Medicaid expenditures and the number of smokers in each state. Table 8.5 shows the estimated total amounts to be paid to each state through 2025.
The funds are subject to a number of adjustments, reductions, and offsets, such as the volume-of-sales adjustment. If, as anticipated by public health officials, cigarette sales decline as a result of higher prices, the annual payments will be reduced proportionately.
TABLE 8.4
Basic provisions of the Master Settlement Agreement (MSA)
| Topic | MSA |
| Advertising, marketing, and promotion | Prohibits targeting youth. Bans use of cartoons. Perm its corporate sponsorship of sporting and cultural events. Limits companies to one brand-name sponsorship a year (may not include team sports, events with a significant youth audience, or events with underage contestants). Bans billboard advertising in arenas, stadiums, malls, and arcades. Allows billboard advertising for brand-name sponsored events. Limits advertising outside retail stores to signs no bigger than 14 sq. ft. Bans payments to promote tobacco products in various media. Bans non-tobacco merchandise with brand-name logos except at brand-name sponsored events. Bans gifts of non-tobacco items to youth in exchange for tobacco products. Restricts use of non-tobacco brand names for tobacco products. |
| Youth access | Limits free samples to adult-only facilities. Bans sale of cigarettes in packs of less than 20 through December 2001. |
| Corporate culture | Requires corporate commitments to reducing youth access and consumption. Prohibits manufacturers from suppressing health research. Disbands existing tobacco trade associations and provides regulation and oversight of new trade organizations. |
| Industry lobbying restrictions | Companies agree not to lobby against certain specified kinds of state anti-tobacco legislation and regulation, but perm its them to oppose efforts to raise excise taxes, create lookback penalties, or restrict environmental tobacco smoke exposure. Requires lobbyists to seek company authorization for their activities. |
| Tobacco document disclosure | Industry agrees to release, and create a website for, all documents under protective order in specified state lawsuits, except those for which companies assert privilege or trade-secret protection. |
| Annual payments | Mandates up-front and annual payments to the states totaling $204.5 billion through 2005. Payments subject to inflation adjustment volume-of-sales adjustment, and a federal legislation adjustment. No restrictions on how the states spend the funds. |
| Anti-tobacco research education | Creates a national foundation to reduce underage tobacco use and substance abuse. Requires industry to pay the foundation $250 million over 10 years to fund research and surveillance, and $ 1.45 billion (subject to inflation and volume-of-sales adjustment) over 5 years to pay for a national anti-tobacco education program. |
| Enforcement, consent decrees | Requires companies and states to sign legally enforceable consent decrees that include key provisions of the agreement. Only the tobacco divisions and not the parent companies are liable. Mandates the National Association of Attorneys General to coordinate implementation and enforcement of the agreement. Direct industry to pay $52 million for that purpose. |
| Attorney's fees | Companies agree to pay all fees and expenses of attorneys general, subject to a $150 million annual cap. Requires companies to pay outside attorneys retained by states: either (i) all fees paid from a $1.25 billion pool, or (ii) fees determined by arbitration panel and paid subject to a $500 annual cap. |
| Civil liability | Settles state and local medical-cost reimbursement lawsuits and protects industry (including retailers and distributors) from future state and local tobacco-related lawsuits. Allows dollar-for-dollar reduction in state's recoveries should the industry be found liable in a local government lawsuit. |
States had been concerned that the federal government would attempt to recoup some of the states' tobacco settlement revenues. However, the Fiscal Year 1999 Emergency Supplemental Appropriations Bill (PL 105-277) included an amendment prohibiting the federal government from taking any of the states' tobacco settlement money.
The four states that negotiated their own lawsuit settlements began receiving payments from the tobacco companies in 1998. Payments to other states began in 1999. A May 4, 2005, fact sheet released by the Campaign for Tobacco-Free Kids details the amount of money the states have received each year since the start of the agreement. (See Table 8.6.)
On June 18, 2003, states reached a $160 million agreement with several tobacco companies to settle disputes over payments involving the MSA. The major tobacco firms will take responsibility for cigarettes they manufacture for other companies. The agreement also resolves the issue about whether the 1998 settlement was a contributing factor to the loss of market share among the four largest firms.
Spending the Money
The Master Settlement Agreement does not tell states how to spend the money they receive from the tobacco companies. Nearly five hundred tobacco-settlement bills have been introduced in state legislatures. Most deal with establishing a trust fund to allocate money to specific issues, such as tobacco control and smoking cessation programs, children's health, education, and highway construction. Other bills propose using the settlement funds to compensate tobacco farmers or to pay for long-term care or tax cuts. Antismoking advocates are critical of states' plans to use the money for programs unrelated to tobacco control.
Since the November 1998 tobacco settlement, the Campaign for Tobacco-Free Kids, the American Lung Association, the American Cancer Society, the American Heart Association, and the SmokeLess States National Tobacco Policy Initiative have published annual reports to monitor how states are handling the settlement funds. The 2005 report "A Broken Promise to Our Children: The 1998 State Tobacco Settlement Six Years Later" (December 2, 2004) reports that states fell short in their efforts to adequately fund tobacco prevention and cessation programs.
The report notes that in 2005 only three states—Maine, Delaware, and Mississippi—were funding tobacco prevention programs at minimum levels
TABLE 8.5
Aggregate Master Settlement Agreement (MSA) estimated payments to the state and territories through 2025
| MSA states | Dollars |
| Alabama | 3,166,302,119 |
| Alaska | 668,903,057 |
| Arizona | 2,887,614,909 |
| Arkansas | 1,622,336,126 |
| California | 25,006,972,511 |
| Colorado | 2,685,773,549 |
| Connecticut | 3,673,303,382 |
| Delaware | 774,798,677 |
| D.C. | 1,189,458,106 |
| Georgia | 4,808,740,669 |
| Hawaii | 1,179,165,923 |
| Idaho | 711,700,479 |
| Illinois | 9,118,539,559 |
| Indiana | 3,996,355,551 |
| Iowa | 1,703,839,986 |
| Kansas | 1,633,317,646 |
| Kentucky | 3,450,438,586 |
| Louisiana | 4,418,657,915 |
| Maine | 1,507,301,276 |
| Maryland | 4,428,657,384 |
| Massachusetts | 7,913,114,213 |
| Michigan | 8,526,278,034 |
| Missouri | 4,456,368,286 |
| Montana | 832,182,431 |
| Nebraska | 1,165,683,457 |
| Nevada | 1,194,976,855 |
| New Hampshire | 1,304,689,150 |
| New Jersey | 7,576,167,918 |
| New Mexico | 1,168,438,809 |
| New York | 25,003,202,243 |
| North Carolina | 4,569,381,898 |
| North Dakota | 717,089,369 |
| Ohio | 9,869,422,449 |
| Oklahoma | 2,029,985,862 |
| Oregon | 2,248,476,833 |
| Pennsylvania | 11,259,169,603 |
| Rhode Island | 1,408,469,747 |
| South Carolina | 2,304,693,120 |
| South Dakota | 683,650,009 |
| Tennessee | 4,782,168,127 |
| Utah | 871,616,513 |
| Vermont | 805,588,329 |
| Virginia | 4,006,037,550 |
| Washington | 4,022,716,267 |
| West Virginia | 1,736,741,427 |
| Wisconsin | 4,059,511,421 |
| Wyoming | 486,553,976 |
| American Samoa | 29,812,995 |
| N. Marianas Islands | 16,530,901 |
| Guam | 42,978,803 |
| U.S. Virgin Islands | 34,010,102 |
| Puerto Rico | 2,196,791,813 |
| Non-MSA states | |
| Florida | 13,437,600,000 |
| Minnesota | 6,573,800,000 |
| Mississippi | 4,162,500,000 |
| Texas | 15,670,400,000 |
recommended by the CDC. Together, the states allocated $538 million for tobacco prevention in fiscal year 2005, only one-third of the $1.6 billion minimum that the CDC recommends.
Issues for Congressional Consideration
Several issues were unresolved by the MSA. It is likely that tobacco legislation will continue to be introduced in Congress. Public health officials and others want a "youth look-back" provision that would keep track of tobacco use by minors and penalize the industry if use does not decline. Antismoking advocates will likely continue to push for a tax increase on tobacco products. They maintain that sharp price increases result in a decline in cigarette sales.
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