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Pennsylvania Loses Money in Tobacco Dispute, Cuts Funding to Programs

The Pennsylvania Attorney General’s Office plans to fight an arbitration related to tobacco settlement money, but in the meantime, the Department of Health has started cutting millions of dollars.

That's expected to shutter tobacco programs such as Tobacco-Free Allegheny which will now be operating on a week-to-week basis.

The Master Settlement Agreement was made in 1998 between the big tobacco companies Philip Morris USA Inc., R.J. Reynolds Tobacco Co. and Lorilland Tobacco Co. and state attorney generals to reimburse the states for providing health care to smokers in exchange for protection from the states for suing them.

Every year, Pennsylvania gets around $300 million dollars as part of that settlement. That money goes toward smoking cessation programs and research. The companies say Pennsylvania didn’t appropriately collect payments based on the 2003 sales of tobacco products. So the state now owes $170 million out of the $300 million they annually receive. That means programs will get cut.

And this is just based on numbers from 2003 – 10 years ago.

Adrian King, First Deputy Attorney General at the Pennsylvania Office of the Attorney General, said the Master Settlement Agreement is one of the most complicated legal documents he has ever seen. It's just taken this long.

"It does seem to me that the attorneys, probably for the tobacco companies, deliberately designed this agreement to be overly complex because it creates confusion and creates delays," he said. "There are trap doors for payments to come back to them. It just seems to me that its an agreement that only a lawyer that is making a thousand dollars an hour could love."

One of the major factors in ruling against Pennsylvania is that the state never collected tax or escrow on roll-your-own tobacco. 

“We believe very fervently that roll your own did not have to be taxed under the terms of the Master Settlement agreement and that is the main point we are appealing to the Arbitration panel presently," King said. 

The Master Settlement Agreement required escrow to be collected only on products that were being taxed in 1998.

"There were some winners in the arbitration process, but there were losers and Pennsylvania is a loser. We’re losers," said Vicki Sirockman, executive director of Tobacco Free Allegheny, which, starting this week, will now be operating on a week-to-week basis.

Its board will vote weekly, Sirockman said, but she expects they will be shuttered in the near future. Sirockman said they only learned of the state’s plan to cut their funding last week.

Of their $950,000 budget last year, all but 50,000 of it came from the state. There are 10 employees, and eight partial employees based at UPMC, Mercy Behavioral Health and St. Clair Hospital. They also employ some teenagers part-time.

"One of the things we’re supposed to do is go out and make sure that stores are selling tobacco properly in terms of what the law is, make sure they don’t sell to minors, so we actually have some teenagers who work for us who go out and try to buy tobacco illegally to see if the stores are enforcing the law and carding them,” she said. 

Some of their other projects include smoking cessation and working with city and county officials to curb smoking in public and subsidized housing.

Sirockman said this is devastating.

"I don’t know whether to be livid or just plan sad," she said. "But when you look at the greater picture, or just beyond the ground losses, when you look at what your supposed to be doing it still needs to be done."

Department of Health spokeswoman Kate Gillis said all mandated funding programs will continue to function, such as Quitline and the Pennsylvania Coalition for Tobacco.

“The (Corbett) Administration is ensuring all options to ensure continuity of care of all vital health and medical programs that receive the master settlement agreement funding for commonwealth citizens,” she said. 

The Attorney General’s Office filed a motion last Tuesday for reconsideration to correct the record.