JEFFERSON CITY, Mo. – Attorney General Chris Koster announced Monday the State of Missouri has negotiated a settlement with major tobacco companies to resolve a contract dispute pertaining to 12 years of annual tobacco payments to the State. The settlement will be contingent upon the General Assembly passing a law before April 15 to require escrow payments made by tobacco companies that did not join the 1998 national tobacco settlement.
Koster’s office challenged the arbitration decision in state court, arguing that reallocating the liability of the 22 settling states onto the six losing states violated the terms of the MSA. The trial court ruled that Missouri was entitled to a $50 million refund, but the Missouri Court of Appeals reversed that finding in September 2015, reinstating the $50 million loss.
The appeal is pending before the Missouri Supreme Court.
Under the Settlement, Missouri would recoup $50 million lost in the 2003 NPM Adjustment Arbitration, protect itself from potential further losses of more than $1 billion in the 2004-2014 NPM Adjustment Arbitrations, and receive an estimated $11 million increase to the State’s annual tobacco payments beginning in 2020.
“Recovering $50 million and preserving future payments provides the legislature some certainty going into the next budget cycle and continues to fund the programs that depend on this money,” Missouri Attorney General Chris Koster said. “I hope that we are able to work together to protect a significant revenue stream that benefits Missourians.”
Koster met with legislative leaders last week to discuss the settlement proposal, and sent a letter to all members of the General Assembly on Monday outlining the history of the tobacco litigation. The letter highlights the need to update Missouri’s tobacco law to repeal what is known as the “allocable share release,” or “ASR.”
Not all legislators are on board with the proposal, with Rep. Eric Burlison, R-Springfield, calling it an unfair tax increase to the other tobacco companies.
Burlison is joined by the Missouri Petroleum and Convenience Store Marketers in opposing the proposal.
“Democrat Attorney General Koster is asking the Republican Legislature to pass a 400 percent tax increase that benefits Big Tobacco, hurts consumers and hurts small businesses all in an election year and all without a vote of the people,” said MPCA Executive Director Ron Leone.
Koster’s settlement hopes to resolve the ongoing dispute over the $50 million loss from 2003, which Burlison believes untrue due to recent federal commission rulings.
“If we don’t address it, the state may be at a loss because of the mistakes of Gov. Jay Nixon, when he was attorney general, in 2003, 2004, and 2005,” Burlison said on Saturday. “When he was attorney general, he was not doing due diligence in his job as attorney general in prosecuting as required by the master settlement. What they tried to argue a year ago was in order for him to be in compliance from due diligence, we should have to eliminate our allocable share fund. But the commission that settled on the national level, the commissioners actually said that Missouri position to repeal the allocable share fund would have no impact on whether or not our attorney general was found to be performing in due diligence. That kind of threw cold water on the argument that we would have to repeal allocable share in order to comply.”
The settlement agreement does not take effect unless the Missouri General Assembly updates a particular tobacco law, commonly known as “ASR,” this legislative session. The ASR law requires tobacco companies that did not participate in the settlement to set aside funds in escrow each year that could pay states’ claims against the companies in the future. But a gap in the law’s drafting led to unintended consequences, releasing almost the entire escrow amount deposited each year back to companies that concentrate their sales in Missouri. While all of the other 45 states participating in the settlement have corrected this error, legislation in Missouri has not succeeded.
Then-Attorney General Jay Nixon first proposed repealing Missouri’s ASR in 2002, and continued to seek its passage every year. Koster has also asked the General Assembly to amend the escrow law.
“The time has come to close the loophole in our tobacco law, as every other state has already done,” said Koster. “This year, the benefits to Missouri are clear and quantifiable.”
Rachael Herndon was the editor at The Missouri Times and also produced This Week in Missouri Politics, published Missouri Times Magazine, and co-hosted the #MoLeg podcast. She joined The Missouri Times in 2014, returning to political reporting after working as a campaign and legislative staffer.
Rachael studied at the University of Missouri – Columbia. She lives in Jefferson City with her husband, Brandon, and their two children.