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Post date: April 21 2003

State Receives $653 Million Tobacco Settlement Payment

Attorney General Spitzer said today that the state and its local governments received a scheduled tobacco settlement payment last week totaling $653 million.

The amount is the second largest ever received under the 1998 Master Settlement Agreement (MSA) and includes the full amount owed by tobacco giant, Phillip Morris.

"These are extremely difficult fiscal times for New York State, New York City and counties throughout the state," Spitzer said. "We are pleased that we have been able to ensure the receipt of these much-needed funds."

Philip Morris – which is responsible for more than half of the total amount owed – had threatened to withhold its payment, citing an adverse decision in an unrelated court case in Illinois. But Attorney General Spitzer, along with attorneys general across the nation, threatened legal action against Philip Morris if it failed to pay the amount owed.

"We made clear to Philip Morris that defiance of the court order would not be tolerated," Spitzer said. "In the process, we sent a strong message to the tobacco industry that we will aggressively pursue those who withhold amounts owed under the MSA."

Phillip Morris made its scheduled payment on April 15.

New York State, New York City and each county will receive its usual percentage allocation of the overall payment, with the state scheduled to receive $334 million (51.2 percent), New York City receiving $174 million (26.7 percent), and a total of $145 million (22.1 percent) being paid to the other 57 counties.

These payments are part of the 1998 MSA, which requires tobacco companies to pay over $200 billion to 52 states and territories, and imposes significant marketing and advertising restrictions on the participating tobacco manufacturers. The latest payment increases the total MSA payments to New York to more than $3.6 billion since December 1999. New York is expected to receive about $25 billion by the year 2025, with additional payments continuing thereafter.

Each tobacco settlement payment is based on a complex formula set forth in the MSA. The calculations begin with a base amount, which may increase or decrease depending on a number of factors, including national cigarette shipments, non-participating manufacturer sales, inflation and other adjustments.

The Attorney General once again reminded local governments that, under the payment schedule set forth in the MSA, there will be a substantial decrease in the amounts received next year. In particular, he noted that in January the states received the last of five "Initial Payments" under the MSA. Starting next year, there will be only a single payment in April of each year, and this will cause a 13 percent drop in the "base payment" amount. In addition, cigarette shipment volumes continue to decline, which will have an additional downward impact on payments next year.

"Our advice to county officials is the same advice we have given in every prior year: It is imperative that you budget conservatively," Spitzer said.

Attached are two charts. The first shows the MSA payments made to New York every year since 1999. The second chart shows the allocation of this week's $653 million payment among New York State, New York City and the 57 individual counties.