In the short term, the Sept. 11 penalty from a three-judge panel could force the state to pare back tobacco prevention and other health-related programs.
In the long run, it might set the stage for more legal disputes with tobacco companies, because the ruling applied just to a one-year period.
Senate Finance Committee Chairman John Arthur Smith, D-Deming, said he’s concerned not only about the 2014 payment reduction, but also about the possibility of smaller distributions in coming years.
“We don’t know what the future holds,” he told the Journal.
Anti-tobacco advocates claim the ruling could put the squeeze on the state, which incurs an estimated $954 million in annual medical and other smoking-related costs, according to the state’s Tobacco Use Prevention and Control Program.
“It’s a big loss to lose any of this money that we are supposed to be using for future death and disease,” said Sandra Adondakis, the state government relations director for the American Cancer Society’s Cancer Action Network.
New Mexico has received roughly $572 million in payments from the national tobacco master settlement since 1999, with yearly payments averaging about $38 million.
Money from the annual master settlement payments was originally intended to be split, with half the amount flowing into the state’s general fund to be spent on tobacco education and health programs and the other half going into the state’s Tobacco Settlement Permanent Fund.
However, state lawmakers have used the money to pay for other expenses in recent years, including $20 million that was allocated this year for early childhood education programs and the state’s cash-strapped lottery scholarship fund.
The annual payments stem from a landmark deal, known as the master settlement agreement, that New Mexico and 45 other states signed with big tobacco companies in 1998.
The companies, which had been sued over the harmful effects of cigarette smoking, agreed to make ongoing annual payments to the states and cease certain advertising practices.
In the recent arbitration, which came about after a dispute over 2003 payment amounts, New Mexico was one of six states found not to have diligently enforced market fairness laws that require smaller tobacco companies to pay money into escrow accounts.
The exact amount of the penalty in New Mexico’s case is not clear. But between $10 million and $25 million will likely be subtracted from the annual payment the state receives in April 2014, according to the Legislative Finance Committee.
Denise Keane, executive vice president and general counsel of the Richmond, Va.-based Altria Group, which owns Phillip Morris and other big tobacco companies, said the judges’ decision sent a “strong message” to the states.
Keane said the company is prepared to move forward with similar claims for subsequent years, though she left the door open for out-of-court agreements.
However, New Mexico Assistant Attorney General Ari Biernoff, who was one of the state’s top attorneys on the case, said the Attorney General’s Office is considering appealing last month’s ruling and is ready to fight the tobacco industry in coming years.
“We’re obviously disappointed in the order,” Biernoff said. “But longer term, the state is confident it will prevail in these disputes with big tobacco companies.”
Biernoff also said there were silver linings in the recent arbitration ruling, including the panel’s decision that New Mexico is not responsible for ensuring proper compliance in tobacco sales on tribal land.
He also claimed the penalty levied against the state was “disproportionate,” because three judges cited just $100,000 that should have been paid into escrow accounts by small tobacco companies in 2003 but was not.