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Lawmakers confused by cut in state’s tobacco funds

January 8, 2014

A hearing about tobacco funding Wednesday in the House Public Health Committee left many legislators still searching for answers.

The meeting addressed the ongoing legal battle between the state and tobacco companies.

The lawsuit stems from an agreement in 1998 – called the Tobacco Master Settlement – that says tobacco companies have to make payments to Indiana and other states. These payments are meant to help defer the health care costs caused by tobacco products.

Forty-six states, including Indiana, signed what was called a master settlement agreement with four of the largest cigarette manufacturers in the United States. The companies agreed to pay the states roughly $206 billion over 25 years to settle claims regarding smoking-related health care costs and youth smoking.

Since then, another 40 or so tobacco companies have joined the settlement, which requires the companies to make annual payments to states.

The payments vary by state, manufacturer and year, but they are primarily based on the number of cigarettes sold.The settlement allows companies to reduce the amount they pay to states if they’ve lost market share to cigarette manufacturers that aren’t part of the master agreement. States were to be exempt from the cuts if they enacted – and enforced – laws that imposed obligations on any non-participating companies that sold cigarettes within their borders.

An arbitration panel ruled in September that Indiana and five other states had failed to undertake “diligent enforcement” to collect those payments and, therefore, the participating tobacco companies could reduce what they paid to the states.

For Indiana, that means the 2014 tobacco settlement payment would fall from $131 million to $68 million. And there’s the potential for the state to lose even more. The ruling addressed only claims from payments in 2003; the years 2004 through 2012 remain in dispute.

In an appeal, the state said the panel unfairly judged Indiana by using a new legal definition created after the fact and imposed retroactively. It said the panel based its ruling on erroneous findings and disregarded Indiana laws.

Larry Hopkins, chief administer officer at the Indiana General Attorney’s office, addressed the “complex, complicated and very dry issue” of the appeal Indiana is making against the arbitration ruling.

Kristin Adams of the Indiana State Department of Health, told the committee that $59 million of the department’s budget comes from the money that could be lost from the payments that come from the Tobacco Master Settlement.

These programs include community health centers that 500,000 Hoosiers use, HIV programs, children’s services, cancer education, and general health education. This money also goes toward local departments of health.

“Hoosiers lives are impacted by this,” Adams said. “We are all represented by a local health department, so we are all affected.”

Money from federal grants could also be affected because these grants are money matched to what the state spends.

Legislators had many questions, including, most prominently, why Indiana was ruled to be “not diligent” while other states were. But officials said they couldn’t really answer.

The meeting ended with more questions and confusion as to what this appeal and future litigation means for the state.

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