Kentucky Lawmakers Tackle Details of $100M Tobacco Settlement

By | March 13, 2015

State lawmakers are trying to figure out how to enforce the terms of a settlement reached with the nation’s largest tobacco companies.

What’s at stake: About $100 million in state revenue every year that pays for a host of agricultural, public health and early childhood education programs.

Kentucky gets that money every year from tobacco companies as part of a 1998 settlement to compensate the state for how much it spends each year treating people who have tobacco-related illnesses, such as lung cancer. But some smaller tobacco companies are not part of the settlement. To compensate, Kentucky taxes those companies more.

But the settlement has a rocky history. The big tobacco companies have accused Kentucky of not taxing the smaller companies as it promised. In response, the big companies stopped paying Kentucky the full amount – prompting a 10-year legal dispute that ended after Kentucky lost a federal arbitration hearing and reached a $110 million settlement last summer.

Now state officials worry the settlement money could be in jeopardy again. Right now, tobacco companies are given a 30-day warning to pay their taxes or be banned from retail stores. Once the 30 days is up, the company’s products can’t be sold in Kentucky. But retailers say it is not fair to force them to dump merchandise they have already paid for, resulting in a significant loss. A bill before the state Senate would give retailers an additional 60 days to sell those products before they have to get rid of them.

“We bought them when they were legal … and we had them in stock. Shouldn’t we have the opportunity to at least sell our investment to move forward?” asked Donna Brown with the Kentucky Tobacco & Candy Association, adding that many times retailers often receive the notifications late, giving them even less time to prepare.

But Chief Deputy Attorney General Sean Riley said Kentucky’s surrounding states do not have a grace period. If Kentucky has one, it could lead to “a flow of contraband product to the state that would not be helpful in our enforcement efforts,” Riley said.

Sen. Paul Hornback, the Republican chairman of the Senate Agriculture Committee, said the bill will likely be changed before the Senate votes on it.

“I want to make sure that we don’t have to go to arbitration again. I want to make sure we are collecting everything that we should,” he said.

The bill is just one of the dozens of issues lawmakers are weighing as the legislature wraps up its 2015 session. The calendar has been disrupted twice for snow, with the House of Representatives missing an entire week in February. The legislature will adjourn on March 24.

The House version of the bill does not include the 60-day grace period.

“We’re protecting a $100 million revenue stream, so we need to keep that in mind,” said Democratic state Rep. Rick Rand, chairman of the House budget committee.

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