States May Settle for Less in Tobacco Deal

Five months after intense criticism from Congress and public-health groups scuttled the $368 billion national tobacco agreement, state attorneys general are on the verge of striking a new deal to settle most of the remaining state lawsuits against the industry.

But as the details of the new agreement become known, public-health advocates are saying that it is a decided step backward.

According to securities analysts, the industry has agreed to pay $196.5 billion during the next 25 years to settle 30 to 35 of the state cases pending against it. While the industry maintains that the deal would be an "an enormous change," critics are pointing out that each state would be settling for less money, per capita, than Minnesota got in its agreement earlier this year. The latest arrangement also has no new major public-health agreements, such as additional advertising restrictions.

"From what I've seen, it's not very good, it's a very weak settlement," says Paul Billings, assistant director of government affairs for the American Lung Association.

Public-health advocates, who have been excluded from the talks, are lining up against the proposed settlement, which is expected to be announced soon by Washington State Attorney General Christine Gregoire. Unlike the national settlement, this one would not need to be approved by Congress because it is only a deal between the industry and the states - not a nationwide agreement.

The proposal is weaker and smaller than the legislation that failed to get through Congress this session. It is also lacking some of the provisions from the previous settlement - such as penalties for tobacco companies if teens continue to buy cigarettes.

The tobacco industry, however, believes the proposed settlement reflects reality - what can be accomplished without a lot of rhetoric to cloud the issues.

Would the new agreement hurt the tobacco industry? "It's an awful lot of money," says Scott Williams, a spokesman for the industry.

Mr. Williams also counters the suggestion that the new agreement wouldn't offer sufficient public-health protections. It has all the protections of the Minnesota agreement, he says, including the one by the tobacco industry to end billboard advertising, most sponsorship of events, and the marketing of cigarettes to underage smokers.

Yet many public-health advocates believe the negotiators should have been able to get a better deal because the settlement involves so many states. Eight attorneys general have been negotiating with the industry and some states are balking at what they've gotten. For example, Massachusetts Attorney General Scott Harshbarger has walked away from the negotiating table, meaning that the Bay State will continue with its lawsuit against tobacco companies next year.

The negotiations, which are in New York, have been cloaked in secrecy. As a result, public-health advocates have been left in the dark.

"One of the problems is that a lot of the attorneys general want to get this out of the way before the election, so that's an added impetus," says former Surgeon General C. Everett Koop, who says he is not aware of the latest proposals.

Dr. Koop says if the deal is as good as the Minnesota agreement, "It's not nearly as bad as it could be, so I say it's better than nothing, but it's not as good as it could be if we had gone the federal route."

If the attorneys general reach an agreement with the industry, it would result in an increase of 35 cents per pack, estimates securities analyst Gary Black of Sanford C. Bernstein.

In the past, such price increases have temporarily reduced smoking. But the modest increase bothers antismoking advocates. "It ensures that this deal won't have much of any positive impact on young people," says Cliff Douglas of Tobacco Control, Law and Policy Consulting, based in Ann Arbor, Mich. "The price hikes can be mitigated through marketing and other ways to reduce the damage."

The agreement would allow Philip Morris to continue to use the Marlboro man in advertising, but tobacco companies would have to end the use of cartoon characters. That might not have much effect, though, because a year ago, RJ Reynolds announced it was ending its Joe Camel ads. The industry will also continue to sponsor auto racing, which has become a major marketing arena.

Public-health advocates are unhappy that the proposal will apparently preclude cities and counties (in those states signing) from suing. A number of cities and counties have announced such lawsuits, and the issue was a big part of the Minnesota lawsuit. Ultimately, the tobacco industry gave in to get a settlement there.

Mr. Douglas is also worried the settlement will keep Congress from looking at the issue in the next few years. "They may just say, "Hey, it's been done.' "

To date, four states have settled lawsuits with the industry, and 36 states have lawsuits pending. The states that have settled are Texas, Florida, Mississippi, and Minnesota. The industry has agreed to pay them $36 billion.

Meanwhile, with negotiations nearing an end in New York, a scramble has started in Washington over the money. Under current federal law, the states would have to reimburse the US Treasury for any money they receive from the tobacco companies for Medicaid expenses.

Late last month, though, Texas Sen. Kay Bailey Hutchison (R) said she would introduce an amendment to waive the federal government's claim. Over the deal's 25 years, this could reach $100 billion.