AG Schmidt: Kansas tobacco settlement receipts cross $1 billion level

Kansas Attorney General's picture

Release Date: Jun 06, 2016

TOPEKA – (June 6, 2016) – With the receipt in April of the 2016 Master Settlement Agreement annual payment, Kansas has now received more than $1 billion in total tobacco settlement payments, Attorney General Derek Schmidt announced today.

Since the first payment was made in 1999, Kansas has received $1,013,566,691.35 from the participating tobacco manufacturers. The settlement payments are intended to offset the costs of tobacco-related illness and disease that are borne by Kansas taxpayers through government-paid medical benefits. The payments are made each year pursuant to a legal settlement that resolved claims made by 46 states, including Kansas, against the tobacco companies in the late 1990s.

The Master Settlement Agreement has allowed Kansas to recover a significant portion of the cost Kansas taxpayers bear to deal with the health-related costs of tobacco use in our state,” Schmidt said. “These payments offset what otherwise would be a taxpayer subsidy of the tobacco industry.”

Schmidt noted that in order for payments to continue, Kansas must continually meet the obligations it undertook as part of the Master Settlement Agreement.  The principal obligation that has been a point of dispute is for the state to “diligently enforce” its tobacco-related statute, including a requirement the state account for all tobacco sales in the state and require tobacco companies that were not part of the MSA to pay funds into escrow accounts that may later be used to offset tobacco-related health care costs borne by state taxpayers.

When Schmidt assumed office in 2011, the tobacco companies had accused many states, including Kansas, of failing to live up to their end of the MSA bargain since 2003 and were demanding repayment of billions of dollars in past payments to the states. If the companies’ claims had succeeded, Kansas could have been required to repay hundreds of millions of dollars previously received.

In 2012, Schmidt and 18 other state attorneys general reached an agreement with the tobacco companies to eliminate that potential liability for the state. Subsequently, five other states joined this settlement. The provisions of that settlement agreement are reflected in a term sheet that has governed annual payments for the past three-and-a-half years. The final details of that settlement agreement are still being worked out among Kansas, the other settling states and the tobacco companies.

To minimize the risk the companies may again accuse the states of failing to live up to their obligations under the MSA, the attorney general’s office has taken several steps:        

  • Worked closely with the Department of Revenue to strengthen enforcement efforts against illicit cigarette sales.
  • Obtained permission from the Legislature to add an investigator at the attorney general’s office who will focus specifically on non-compliant sales.
  • Entered into negotiations with the four resident Indian Tribes in Kansas to improve accounting for tobacco sales on tribal lands. Compacts with two of the tribes were approved by the Legislature earlier this year; negotiations with the other two tribes remain ongoing.
  • Worked closely with the Legislature to strengthen the state’s escrow statutes to improve MSA compliance.

“Protecting these annual payments to the fullest extent possible is a priority for our office,” Schmidt said. “We are determined to continue making these funds available to ease the burden tobacco use can impose on Kansas taxpayers.”

Schmidt noted that because the MSA, which was reached in 1998, is now almost 20 years old, Kansas tobacco payments are expected to naturally decline starting in April 2018. This is because certain provisions of the original MSA were designed to expire after payment year 2017. With those provisions expiring there will be a change in the amount of money Kansas receives each year. Because the state’s annual payment amount is based on numerous variables, it is difficult at this time to predict how much the annual payment will decline, but the attorney general’s office has informed the state’s revenue estimators it could be significant.

The Legislature in 1999 decided most of Kansas’ receipts from the MSA would be used to finance children’s programs in the state.

The annual amounts received by the State of Kansas each year pursuant to the MSA are as follows:

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