By Tim Carpenter
June 6, 2016

Slightly more than $1 billion has been paid to Kansas during the past 18 years by tobacco companies making annual payments to states to compensate for health consequences of smoking, officials said Monday.

Attorney General Derek Schmidt said manufacturers of tobacco products deposited $1.013 billion since 1999 to Kansas as part of a legal settlement to resolve claims by 45 states and Kansas. The master settlement agreement allowed Kansas to recover a portion of the cost Kansans dedicate to tobacco-related illness and disease, he said.

“These payments offset what otherwise would be a taxpayer subsidy of the tobacco industry,” Schmidt said.

In Kansas, most of Kansas’ receipts have been used to finance programs for children.

Annual payments to the state from tobacco giants ranged from a low of $38.5 million in 1999 to a high of $72 million in 2009. During the past five years, receipts in Kansas peaked at $68.1 million in 2013. In April 2016, the total was $59.1 million.

Schmidt said payments to Kansas likely would decline significantly in April 2018 under terms of the master settlement agreement.

During the 2016 legislative session, Gov. Sam Brownback raised the possibility of dealing with a tax revenue shortfall by leveraging the state’s share of tobacco litigation settlement funds. The idea was to sell bonds, which would provide the state treasury with a lump-sum amount of as much as $400 million, with investors compensated with revenue received in the future from tobacco companies.

State legislators didn’t warm to the bonding concept, but Brownback officials said the idea would remain an option.

Kansas lawmakers continue to earmark a majority of annual tobacco money to early childhood education programs. There is interest in shifting a portion of the funding, perhaps $15 million, to other areas of the state government’s budget.

To close a previous deficit, the Legislature and Brownback agreed in 2015 to raise the statewide sales tax to 6.5 percent from 6.15 percent, eliminate most tax deductions and raise the state’s tobacco tax.

In 2013, Kansas Action for Children filed a lawsuit alleging the attorney general violated Kansas law requiring disclosure of records about tobacco settlement payments. The issue was how much the state would receive as part of a 2012 arbitration settlement in a dispute with Kansas and 18 other states.

Schmidt said in a statement Monday the attorney general’s office still was working out final details of that supplemental agreement with tobacco companies. The companies had accused a cluster of states of failing to live up to their end of the master settlement agreement for the previous decade.

To minimize the risk of tobacco companies accusing Kansas of falling short of obligations, Schmidt said the attorney general’s office was working closer with the Kansas Department of Revenue to strengthen enforcement of illegal cigarette sales.

The Legislature approved hiring of an investigator to focus on compliance issues, Schmidt said.

Schmidt said compacts with two of the four tribal governments in Kansas have led to agreements to improve accounting of tobacco sales on tribal lands. Negotiations with the other tribes continue.

“Protecting these annual payments to the fullest extent possible is a priority for our office,” Schmidt said. “We are determined to continue making these funds available to ease the burden tobacco use can impose on Kansas taxpayers.”

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