Pennsylvania to fight reduction of tobacco funds

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HARRISBURG -- The state attorney general is seeking to overturn a decision that could cause Pennsylvania to lose more than $170 million in tobacco settlement funds next year.

At issue is an arbitration panel decision that found Pennsylvania did not "diligently enforce" certain laws requiring the collection of taxes and other payments from tobacco companies that did not sign the 1998 Tobacco Master Settlement Agreement.

The decision means the state could be out at least $170 million; Pennsylvania gets about $320 million in an average year in tobacco funds, said a spokesman for Attorney General Kathleen Kane.

The reduction will occur in the state's April 2014 payment, according to information released last month from the state budget office.

The state will freeze discretionary funds from the settlement, which will reduce funds for health research (Commonwealth Universal Research Enhancement grants), uncompensated care to hospitals and discretionary funds related to tobacco prevention and cessation programs, said a statement from Budget Secretary Charles Zogby. There will not be any impact on Department of Aging programs or mandated tobacco prevention, cessation and enforcement programs, according to the budget office.

"The arbitration panel's decision penalizes Pennsylvania for factors the panel clearly allowed for other states," said a statement from Ms. Kane's office.

For instance, the legal filing notes Pennsylvania had an identical collection rate to Ohio, which the panel found was diligent. The panel also penalized Pennsylvania for not taxing roll-your-own tobacco, while at the same time finding that Oregon had no obligation to do so.

"Whether the panel failed to follow a common set of standards, or exhibited bias against the commonwealth, it was wrong and we cannot permit this unjust decision to stand," Ms. Kane said.

The motion was filed Thursday in the Philadelphia Court of Common Pleas.

The commonwealth will be represented by attorneys from San Francisco-based Orrick, Herrington & Sutcliffe, LLP, according to the attorney general's office, who said the firm was retained "following consultation with the governor's office and the leadership of each of the four caucuses in the General Assembly."


Kate Giammarise: kgiammarise@post-gazette.com; 1-717-787-4254; Twitter @KateGiammarise.

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