This could be real bad news for Erie County

[biker]

Tobacco payment to states in limbo
Top companies point to diminishing sales
Jon Kamman
The Arizona Republic
Apr. 28, 2006 12:00 AM
As Americans kick the habit or smoke cheaper cigarettes, the reaction by major tobacco firms is proving hazardous to the financial health of 46 states, including Arizona.

For the first time since cigarette-makers agreed in 1998 to distribute billions of dollars a year to the states to compensate for the costly effects of tobacco use, Big Tobacco balked last week at paying the full amounts. The dispute puts in limbo at least $755 million the states expected to receive this year.

It also portends what could be protracted resistance by tobacco companies to paying huge compensation at a time when their sales and market share are eroding. The tobacco companies contend the states are allowing their competitors an unfair advantage.

Sixteen states have filed lawsuits in quick succession so far, seeking their full shares, and Arizona is moving toward filing its own, lawyers in the state Attorney General's Office said. Each suit is filed individually in state courts.

Arizona's portion of the frozen funds is $11.8 million, or 12 percent of the $96.9 million the state expected.

In Arizona, all tobacco settlement money goes to the state's health care program for the impoverished, as required by Proposition 204, a ballot measure passed in 2000.

Tom Betlach, deputy director of the Arizona Health Care Cost Containment System, said that the shortfall will not cause immediate harm but that effects will mount if the companies withhold funds every year.

The money withheld this year represents the companies' claims for refunds of part of their 2003 payments, so larger subtractions are possible in coming years.

Payments from tobacco companies are due annually, with no termination date.

As allowed under the master agreement, the companies put the money into a "disputed payments" account until a ruling determines whether the states should get the full amounts.

At its root, the dispute is caused by a significant change in Americans' smoking habits since the deal went into effect.

To cover the payouts, tobacco companies raised prices. That, combined with the growing number of people who quit smoking, put a dent in the companies' bottom lines.

The big companies lost even more sales because people who continued smoking flocked to cheaper brands. Those brands weren't obligated to pay the states because they were not part of the agreement.

The master agreement had anticipated these effects and tried to level the field for participants and non-participants in the settlement.

First, under the agreement, reductions in payments were to be allowed if sales dropped.

The companies have shown reduced sales, but the states maintain that some of the loss was because of overpricing of cigarettes.

Another provision is that if the big companies lost more than 2 percent of their near-total corner on the tobacco market, and if they showed that the master agreement was to blame, they could further reduce their payments.

An independent auditor has validated the companies' argument on this point.

A third element is at the crux of the dispute. Tobacco companies claim the states are not enforcing measures required of other companies that were not parties to the original deal.

Non-participants, mostly makers of bargain-priced brands, were required to set aside amounts as if they were paying the states. They were to hold the money in escrow in case the states made claims similar to those lodged against the big firms.

States are required to enforce this provision, and Big Tobacco contends that they aren't doing so.

Arizona, however, has "aggressively pursued" tobacco companies that have failed to set aside the funds, said Susan Segal, chief of the public advocacy division in the Attorney General's Office.

"We've filed suit every time," she said.

Segal and senior litigator Ann Uglietta said they hold little hope of an out-of-court settlement with the majors.

This year's distribution from the three largest companies, which account for 92 percent of sales, was to be $6.1 billion.

Philip Morris USA, the largest cigarette company, paid its full $3.4 billion share and indicated in a statement on its Web site that it favors negotiating whether it deserves a partial refund. According to the settlement's auditor, as much as $386 million would be at stake. A spokesman would not elaborate.

No. 2 maker R.J. Reynolds Tobacco Co. put up its required $2 billion but deposited $647 million of it into the dispute fund.

Lorillard Tobacco Co. sent $108 million of its $666 million obligation into the disputed account.

R.J. Reynolds spokesman David Howard said it is not up to the tobacco companies to determine which states may be lax in enforcement but for the states to show their compliance.

Arizona's lawyers take issue with that, saying the companies should cite specifics in their complaints.

The tobacco companies want the issue to go to arbitration, but state lawsuits would keep it in the courts.

The master agreement affects 46 states because four states negotiated their own agreements.

[biker]

I haven't read any of the tobacco settlement securitization/sales EC has entered into (and don't plan to), but I wouldn't be surprised if there weren't some residual liability ascribed to EC should the payments from the tobacco companies fall short.

[WNYresident]

Woodstock sent over some interesting information on the amounts of cash NYS gets from smoke sales.

She has permission to put it up because it would lend to bikers posts.

[biker]

Where has she posted it?

And by "NYS gets" , do you mean just the state or the county by county share?

[300miles]

I thought Erie County has already received 45 years worth of payments up front after selling those rights to investors for cash. If that the case then it may have been a very smart move, considering future tobacco money is not guarenteed.

Erie county is not the real loser... the investors that bought the payment rights will lose out.

[biker]

That's probably true, 300. But I raise the issue because who's not to say that there is some pain/gain sharing arrangement in it?

I'm sure you're familiar with morgage-backed securities. Most deals call for the investors to absorb default losses. But some don't.

So I raise the issue.

Because, who did the negotiating on Erie County's behalf? Some genius in securitization? Or Joe Passifiume?

Scary thought, huh?

[TheRightView]

If that happens, then everything wil get very interesting and I would believe that it wil have an impact on some political candidates...both past and present.

[Ragin]

"Thursday, Apr. 27, 2006

Dispute Brewing Over Amount of Tobacco Settlement Payments

By KENNETH BRADLEY, ESQ., Andrews Publications Staff Writer

Two tobacco companies have announced they have met their full payment obligations for the year under the massive 1998 settlement agreement with the states, while the New York attorney general says the payments fall short.

R.J. Reynolds Tobacco Co. and Lorillard Tobacco Co. released statements April 17 saying an independent consulting firm had determined the companies were due a credit against their annual payments because of a loss of market share in 2003.
Click here to find out more!

The 1998 agreement settled lawsuits brought by 46 states and the District of Columbia against the major tobacco companies. The plaintiffs alleged the cigarette makers were liable for the costs of treating the smoking-related illnesses of residents on medical assistance.

New York Attorney General Eliot Spitzer said in an April 24 statement that his state received $100 million less than it was due from the tobacco company signatories this year. Spitzer said he will file suit to recover the difference.

The tobacco companies insist the dispute must be arbitrated according to the provisions of the agreement.

In the meantime, R.J. Reynolds said it placed about $647 million into a special escrow account pending the resolution of the disagreement.

Spitzer said more than a dozen tobacco companies, including Philip Morris USA Inc., made their "full payments."

R.J. Reynolds and Lorillard said some states are not vigorously enforcing laws requiring non-signatory tobacco companies to make payments to escrow accounts. The laws, required by the 1998 agreement, are intended to keep the non-signatory companies from gaining a financial advantage over the companies that participate in the settlement.

The advantage gained by the non-signatory companies is reducing the market shares once enjoyed by R.J. Reynolds and Lorillard, the two companies said."

http://news.corporate.findlaw.com/an...60427news.html

[Ragin]

County refinances tobacco fund again

Business First of Buffalo - December 1, 2005
by James Fink
Business First

For the second time since August, Erie County lawmakers have agreed to refinance the remaining money from its tobacco settlement funds.

The Erie County Legislature, Thursday afternoon, unanimously approved to refinance the $52 million that remains from its original $246 million tobacco settlement fund, a move that will generate $13.2 million for the county coffers by early January.

The move follows a similar refinancing package that lawmakers approved in August to help fill the county's 2005 budget gap.

The difference is this time, the county isn't planning to spend the money -- at least not immediately, said interim comptroller James Hartman, who recommended the deal.

"It will go into a special fund that can be used for capital projects or settling legal claims," Hartman said.

The legal claims aspect could take on a new sense of urgency should the county lose its battle with Erie County Medical Center about reduced subsidies for the hospital.

"It could go there, I suppose," Hartman said.

With two refinancing deals within four months of each other, Hartman thinks the county has reached the end of the road in terms of trying squeeze more money from the tobacco settlement package.

"For all practical purposes, we've hit that end," he said.

http://www.bizjournals.com/buffalo/s...8/daily44.html

Sounds like Erie County tapped the bottom of the well that was once the County's share of the Tabacco Settlement.

[Cgoodsp466]

http://www.bizjournals.com/buffalo/s...8/daily44.html

Sounds like Erie County tapped the bottom of the well that was once the County's share of the Tabacco Settlement.

Just when you think the Circus is leaving town they put a new act in the center ring.

[Crisco Kid]

"New York Attorney General Eliot Spitzer said in an April 24 statement that his state received $100 million less than it was due from the tobacco company signatories this year. Spitzer said he will file suit to recover the difference."


Just knew "the Spitzer" would jump on the litigation bandwagon ! Think it has anything to do with election campaign?

[WNYresident]

"New York Attorney General Eliot Spitzer said in an April 24 statement that his state received $100 million less than it was due from the tobacco company signatories this year. Spitzer said he will file suit to recover the difference."


Just knew "the Spitzer" would jump on the litigation bandwagon ! Think it has anything to do with election campaign?

Would be nice if he's investigate his own like the authorites for BONING the tax payer and such.

[woodstock]

R.J. Reynolds and Lorillard Withheld $100 Million from New York State - Spitzer files suit (Apr 26th, 2006)
http://www.speakupwny.com/article_2666.shtml

-------------

extra information to the tobacco settlements received:

MSA TOBACCO SETTLEMENT PAYMENTS TO NEW YORK STATE

1999 - $ 315 million
2000 - $ 716 million
2001 - $ 772 million
2002 - $ 956 million
2003 - $ 956 million
2004 - $ 802 million
2005 - $ 814 million
2006 - $ 738 million

Total - $ 6.069 billion

---------------------

April 2006

Erie County (among the highest) $16,181,201.74
Monroe $11,328,316.26
Suffolk $19,713,925.36
Westchester $14,204,646.56

--------------

April 2006 NY Tobacco Master Settlement + county by county

State of New York $377,433,537.02
City of New York $196,696,741.29

totals by county

Albany County ---- $4,373,497.10
Allegany County ---- $789,147.03
Broome ---- $3,289,341.83
Cattaraugus ---- $1,320,161.86
Cayuga ---- $1,224,284.18
Chautauqua ---- $2,271,563.42
Chemung ---- $1,563,543.65
Chenango ---- $767,021.41
Clinton ---- $1,253,785.00
Columbia ---- $929,275.94
Cortland ---- $737,520.59
Delaware ---- $744,895.80
Dutchess ---- $3,687,602.95
Erie ---- $16,181,201.74
Essex ---- $553,140.44
Franklin ---- $722,770.18
Fulton ---- $892,399.91
Genesee ---- $870,274.30
Greene ---- $626,892.50
Hamilton ---- $95,877.68
Herkimer ---- $1,047,279.24
Jefferson ---- $1,401,289.12
Lewis ---- $398,261.12
Livingston ---- $826,023.06
Madison ---- $966,151.97
Monroe ---- $11,328,316.26
Montgomery ---- $840,773.47
Nassau ---- $20,200,688.95
Niagara ---- $3,444,221.15
Oneida ---- $4,012,112.01
Onondaga ---- $7,168,700.13
Ontario ---- $1,334,912.27
Orange ---- $4,159,616.13
Orleans ---- $575,266.06
Oswego ---- $1,762,674.21
Otsego ---- $899,775.12
Putnam ---- $1,121,031.30
Rensselaer ---- $2,337,940.27
Rockland ---- $4,130,115.30
St. Lawrence ---- $1,762,674.21
Saratoga ---- $2,242,062.59
Schenectady ---- $2,352,690.68
Schoharie ---- $464,637.97
Schuyler ---- $280,257.82
Seneca ---- $508,889.21
Steuben ---- $1,556,168.44
Suffolk ---- $19,713,925.36
Sullivan ---- $1,143,156.91
Tioga ---- $737,520.59
Tompkins ---- $1,253,785.00
Ulster ---- $2,463,318.77
Warren ---- $833,398.27
Washington ---- $833,398.27
Wayne ---- $1,268,535.41
Westchester ---- $14,204,646.56
Wyoming ---- $597,391.68
Yates ---- $324,509.06

As a side note: rez gave me permission to post facts only. any questions, comments or concerns should be taken up with him. thank you.