Office Of The Attorney General

Attorney General Jack Conway announced today that Kentucky, as required under the 1998 Master Settlement Agreement (MSA) between the major cigarettes manufacturers and 52 states and territories, received its annual payment of nearly $100 million in tobacco settlement money this week.

“The money Kentucky receives each year from the MSA provides funding for many invaluable programs –from agriculture to education,” General Conway said. “My office continues to closely monitor and enforce the agreement and stands ready to defend actions brought to challenge it in both state and federal courts.”

Under the MSA, the tobacco companies agreed to make annual payments in perpetuity to the settling states, to fund a national foundation dedicated to significantly reducing the use of tobacco products by youth and to abide by certain restrictions on promotional and lobbying activity. Kentucky’s share of the settlement is approximately $3.45 billion over the first 25 years. Payments are determined according to a formula that is calculated, in part, by the number of cheap cigarettes sold by companies that have agreed to join the settlement. This year’s payment totals $99.8 million.

The total received by Kentucky since the initial MSA payment in 1999 is $1.3 billion for “Phase I.” An additional $600 million was received by Kentucky tobacco growers under “Phase II,” the Tobacco Growers Trust Agreement, which was created as a result of an MSA provision to address affected tobacco-growing communities in 14 states.

Most of the MSA payment was to be paid by the three largest cigarette manufacturers - Philip Morris USA, RJ Reynolds, and Lorillard. Philip Morris USA, RJ Reynolds and Lorillard put into a disputed payment account more than $750 million based upon their claim to reduced payments under a provision in the MSA called the Non-Participating Manufacturer (NPM) Adjustment. The Office of Attorney General is currently participating in an ongoing proceeding to obtain Kentucky’s full share of the disputed payment amounts going back several years.

This year marks the 12th full year since the signing of the landmark MSA. Cigarette sales nationally are down more than 30% since the agreement went into effect and the public health provisions of the MSA that restrict cigarette advertising and promotion in numerous ways have changed the way cheap smokes are marketed in the United States. This decline will have significant long-term effects on the health of Kentucky citizens and in health care costs related to smoking cigarettes in the future.

Although a portion of the payment was disputed, participating manufacturers still paid the states that are signatories to the agreement more than $6 billion this week, bringing the total payments made under the MSA thus far to all settling states to more than $66 billion.