ANNAPOLIS Maryland will receive a $268 million bonus for its efforts in settling last year’s national tobacco deal, according to a report released this week.
The money comes on top of the expected $4.4 billion windfall Maryland will receive over the next 25 years from the deal between 52 U.S. jurisdictions and tobacco companies Philip Morris, R.J. Reynolds, Brown & Williamson and Lorillard.
Critics charge the bonus money is more like a bribe it rewards states for passing legislation to protect the tobacco dealmakers’ market against non-signing competitors.
According to the report obtained by Capital News Service, Maryland’s share is the sixth largest of all states, with the more populous states of New York and California topping the list. Maryland should get its first bonus payment of about $26.8 million on April 15, 2008. Under the bonus agreement, tobacco companies will distribute $861 million into the fund annually until April 15, 2017.
It is unknown when Maryland will receive the first $54 million payment from the national deal. That money is held up until 80 percent of the settling states approve contract terms.
“We feel good that we’ve been recognized as the sixth state, but we’re just beginning to look at if we want to submit something further,” said Assistant Attorney General and tobacco litigator Maurine M. Dove.
The $8.6 billion bonus fund was established as part of the $206 billion national settlement to cover state costs for treating sick smokers. The bonus fund rewards states for their efforts in settling the national deal.
The bonus amounts, released in a report on Monday, were determined by a National Association of Attorneys General group called the Strategic Contribution Fund Panel. The panel is made up of three former attorneys general: Dave Frohnmayer of Oregon, Mike Cody of Tennessee and John Van de Kamp of California.
Frohnmayer, president of the University of Oregon, would not comment on the panel’s decision.
Bonus amounts were determined by factors like each state’s Medicaid population, dates lawsuits were filed and suits settled before the national deal was reached. States like Maryland that passed legislation directly related to the national settlement received more money.
Among the laws that states were rewarded for passing are those that would protect those tobacco companies involved in the national deal from competitors, who could charge lower prices and make big profits because they weren’t yet required to set aside money for liability payments. The states were encouraged in the national settlement to require such non-signing companies to contribute to a reserve fund.
To establish these reserve funds, states would essentially have to impose a tax on any company that didn’t sign the agreement in order to equalize the price those companies can charge consumers for their products, said Northeastern University law professor Dick Daynard, chairman of the school’s Tobacco Products Liability Project. This would ensure a company couldn’t undercut a settlement- participating competitor.
“It’s to make sure they (settling companies) didn’t lose any market share for the damages imposed from their improper conduct,” Daynard said.
But critics say the national lawsuit should not have been based upon legislation in the first place and that placing decisions like these in the hands of a non-governing body like the National Association of Attorneys General circumvents the legal system.
“I’m very suspicious at what this national thing is and why the states don’t just decide what they do with their money,” said Boston University law professor Susan Koniak. “We have a Congress. If they (NAAG) can’t get the legislation through Congress…that’s all underground.”
“I just don’t think there’s enough public awareness of what the ramifications of these things are,” she said.
Laurie Loveland, a liaison between the states and tobacco companies, stressed that Monday’s decision is not final.
Ten percent of the $8.6 billion bonus fund was reserved for changes the panel may make on appeals. States will have until April 7 to submit disagreements.
“They (panel) don’t want to be in a position where they have to take part of someone’s award away,” if another state wants more money, Dove said.
A final decision should be made by May 22.