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Sunday, March 12, 2006

Michigan Could Lose $49.3 Million If National Tobacco Settlement Scaled Back

LANSING - Michigan could lose $49.3 million of its anticipated $274 million in the Tobacco settlement, a decision that could weigh heavily as the state prepares its 2007 budget, and could impact the plans for the state to invest $2 billion over the next decade to develop high-tech businesses.

Tobacco companies involved in the Master Settlement Agreement of 1998 are arguing that their loss of market share should allow them to cut back on payments made to states. Phillip Morris USA and others are requesting $1.2 billion of the payment be withheld from states because they say an "adjustment" provision in the settlement allows them to scale back if their collective market share drops below a certain threshold.

Other tobacco companies have grown since the settlement was reached, with those companies holding 8 percent of the market share as of 2003 - compared to 0.4 percent in 1997. An independent arbiter has already released a preliminary ruling in favor of the tobacco companies, saying that the settlement agreement caused the market share plunge.

If Michigan were to see a direct decrease of the 18 percent (the percentage of payment dropped under the provision), the state would lose $49.3 million of the $274 million the state is scheduled to receive in 2007. Attorneys general across the nation have until Monday to make their case to the arbiter before a final ruling is made on March 27.

Nate Bailey, spokesperson for Attorney General Mike Cox, said the office is reviewing the matter, but that because it's a pending legal issue he could not go more into detail. He did add that Cox will be "promptly responding," to the matter.

Lawmakers like Rep. Bill Huizenga (R-Zeeland) who helped craft the state's securitization deal that uses tobacco settlement funds to invest in high-tech businesses. During a joint oversight committee on the 21st Century Jobs Fund, Huizenga said the decision will not only impact the fund in terms of bond prices the state gets, but also what will happen to Michigan's budget. "That is a potential concern," he said, adding that what happens in New York is beyond their control.

The Wall Street Journal, which broke the story, cited Moody's Investors Service rating most of the tobacco securitization as low investment-grade bonds "under review with direction uncertain."

During the oversight meeting, Michigan Economic Development Corporation CEO Jim Epolito said if there is a threat to the tobacco payment then securitizing the money is a good way to go.

Sources for the WSJ article said the conflict is a long way from being final, and added that some observers believe the issue will bring about a new agreement between the tobacco companies and the states.

Terry Stanton, spokesperson for the Department of Treasury, said because negotiations are ongoing at the national level it's hard to say what the impact will be in Michigan.

This story was provided by Gongwer News Service. To subscribe, click on Gongwer.Com


Author: Staff Writer
Source: Gongwer News Service


 
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