Thursday, April 3, 2003

Tobacco snag may cost state

Philip Morris payment called iffy

By John McCarthy
The Associated Press

COLUMBUS - The state could face a fresh $82.5 million hole in its budget if Philip Morris is unable to make an April 15 payment as part of the tobacco lawsuit settlement, the state's top budget official told Gov. Bob Taft in a memo obtained Wednesday by the Associated Press.

An Illinois court last week found the parent company of Philip Morris USA liable for $10 billion award in a class-action lawsuit on behalf of 1 million Illinois smokers. The smokers alleged Philip Morris misled them into believing its "light" cigarettes are less harmful than regular ones.

The company has appealed, but a judge ordered it to post a $12 billion bond when it filed the appeal.

Ohio Budget director Tom Johnson says Philip Morris has told the nation's attorneys general that if the bond is not lowered, the company might not be able to make payments due to 46 states April 15 as part of a national settlement. Ohio is to receive about $126 million as part of its $10 billion share of the settlement.

"Roughly half of the projected revenue to the master settlement agreement comes from Philip Morris. Failure on its part to make the April 15 payment would have dramatic fiscal consequences for our current budget," Johnson told Taft in the memo dated Monday.

The state already has had to raise $3.4 billion through budget cuts, tax increases and money from the tobacco settlement to balance the budget over the past two years.

Ohio transferred part of its promised payment to balance its budget, which the state must do by June 30. The projected portion of the payment committed to the budget is $114.5 million. Without the Philip Morris payment, the projection drops to $32 million, the memo says.

However, if the company makes the entire payment by June 30, "there would be no significant fiscal impact," Johnson wrote.

"This is a worst-case scenario," Johnson said Wednesday. "We have to at least let the governor and legislative leaders know that there's a possibility that these funds may not be coming in during this fiscal year."

Taft said he hasn't decided what options he would consider if the payment is late or not made at all.

"We would have to, in all probability, look for additional cuts, savings or ways to keep spending down this fiscal year. We have to balance our budget," Taft said.

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