Indiana settles longtime dispute with major tobacco companies that will bring US$217M to state over the course of this year and next year, eliminating need to take issue to court

Nevin Barich

INDIANAPOLIS , June 27, 2014 (Indianapolis Star) – Indiana has settled a longtime dispute with major tobacco companies that will bring $217 million to the state this year and next combined and eliminate the need to take the issue to court.

The settlement for this year and 2015 is more than the amount a federal arbitration panel had decided on, but less than the state had expected under the original 1998 nationwide agreement between states and major tobacco companies.

Attorney General Greg Zoeller announced the settlement Thursday, a month before a scheduled court hearing over his appeal of an unfavorable federal arbitration ruling last October.

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"Nobody gets everything they want in a lawsuit settlement, but Indiana's recovering this amount and preserving future payments at the end of this process is a better outcome than if we had not appealed and not entered into settlement talks with the tobacco defendants," said Zoeller in a release.

Indiana uses the funds to pay for a variety of health-related programs. Large amounts go to community health centers, the Children's Health Insurance Program, children with special health-care needs and residential services for developmentally disabled persons. While the state initially spent nearly all of the settlement money toward smoking-cessation efforts, that spending has gradually dwindled.

State legislators expressed concerns last year that a major drop in the tobacco settlement funds would put some of these programs in jeopardy, given the state's tight budget.

The agreement means Indiana ultimately will recoup a "significant amount" it lost after last year's tobacco arbitration panel opinion, said the attorney general's office.

"By clawing back a larger amount of money from Big Tobacco, we will provide the legislature some certainty going into the next budget cycle and continue to fund the health programs near-term that depend on this money," Zoeller added.

Indiana was one of six states that the panel, consisting of three retired federal judges, found not to be "diligent" enough in enforcing compliance by smaller cigarette manufacturers that didn't sign the original 1998 nationwide tobacco settlement.

Under the October ruling, Indiana received about $68 million in April, rather than the anticipated $131 million. Now, under the new settlement, the state will receive another $24.8 million this year, bringing the total for 2014 to $92.8 million. The state will receive a payment of $124 million in 2015.

State Sen. Luke Kenley, R-Noblesville, chairman of the Senate Appropriations Committee, said the settlement negotiated by Zoeller will provide the certainty needed to meet obligations of the state to health care-related programs.

"It's important to stabilize that source of revenue and provide some predictability, so that taxpayers aren't asked to make up the difference," said Kenley in the release.

Indiana was among 46 states that signed the master settlement agreement in 1998 with four of the largest manufacturers of cigarettes in the country. About 40 other tobacco companies later joined the settlement.

Since 1999, Indiana has received more than $1.9 billion from the tobacco companies.

The agreement requires tobacco companies to pay states annually. The money is intended to reimburse them for the health-care costs of cigarette smoking-related diseases, such as lung cancer and heart disease. The payments vary year to year and are largely based on how many cigarettes a manufacturer sells in each state.

Tobacco companies can reduce state payments if they lose market share to smaller tobacco companies that weren't part of the original agreement. However, states cannot have their funds cut if they properly enforce laws that force companies to pay that aren't part of the settlement and sold cigarettes in their state.

In the recent settlement, Zoeller maintained his legal position that the state acted diligently in enforcing the agreement. He had argued the federal panel exceeded its authority under law and the process it used to determine payments was unfair to Indiana.

The settlement also stabilizes future payments from tobacco companies to Indiana and estimates that the state should receive an estimated $110 million to $115 million in later years of the agreement.

Call Star reporter Barb Berggoetz at (317) 444-6294. Follow her on Twitter @barbberg.

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