NCPA - National Center for Policy Analysis

States Rush to Protect Big Tobacco

April 2, 2003

State governments, once among the tobacco industry's fiercest foes, now find themselves in an unusual position: They are poised to try to rescue the country's biggest cigarette maker in one of its darkest hours.

State attorneys general may go to court to protect Philip Morris USA, the maker of Marlboro. At issue is an Illinois state judge's order that Philip Morris, owned by Altria Group Inc., post a $12 billion bond in order to appeal a massive defeat in a class-action lawsuit. Philip Morris USA suggested the bond requirement could force it into bankruptcy court.

Altria's current plight, rife with irony and contradiction, demonstrates how private and public interests can become entangled in surprising ways:

  • The very states that won huge tobacco settlements in 1997 and 1998 became hooked on the money, which for many states is staving off budgetary catastrophe.
  • The Illinois court order threatens the tobacco cash flow and has sent the states scurrying to switch sides.

All of this has angered public-health activists and some of the attorneys general who were part of the settlements.

Philip Morris, for its part, is aggressively playing on the states' dependence. The company is due to pay $2.5 billion to the states by April 15 but is warning it may not be able to do so because of the Illinois bond order.

Philip Morris is responsible for roughly half of the yearly settlement payment to the states -- its annual payment is usually made early, on March 31, but on Monday, the states didn't get their fix.

Source: Gordon Fairclough and Vanessa O'Connell, "Once Tobacco's Foe, States Are Hooked on Settlement Cash," April 2, 2003, Wall Street Journal.


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