Tobacco agreement yields $600 million windfall for Mass.

Roughly $600 million will flow into the Massachusetts General Fund this fiscal year from tobacco companies, the result of a new agreement Attorney General Andrea Campbell struck to resolve seven years worth of disputes stemming from payments owed under the 1998 nationwide tobacco settlement.

The new agreement is the largest resolution in recent history of the attorney general's office, officials said. In addition to the $600 million coming in fiscal 2025, Campbell's office said the deal also requires tobacco companies to "make additional payments totaling tens of millions of dollars each year going forward." The agreement stems from arbitration related to the 1998 master settlement agreement that banned many tobacco ads and required annual payments to 51 states and territories to offset medical expenses caused by smoking.

Tobacco use is the leading cause of preventable death and disease in Massachusetts, the American Lung Association said, leading to the deaths of 9,300 people each year.

"The country’s major tobacco manufacturers have pushed smoking products to young people for decades — and this settlement is evidence of our ongoing commitment to hold these companies accountable for their actions that caused irreparable harm to public health and safety," Campbell said. "I am grateful to my team whose dedicated efforts over the course of many years secured these funds."

Though Massachusetts received between $100 million and $315 million through the settlement each year, Campbell's office said certain manufacturers withheld funds on an annual basis due to a contractual adjustment, leaving in dispute hundreds of millions of dollars that states argued should be owed to them. Those disputes led to arbitration and the agreement that Campbell announced this week.

The attorney general's office said it has successfully resolved seven years worth of those disputes, covering 2005 through 2011. The $600 million coming to Massachusetts includes the principal amount owed for those seven years, plus interest that money earned while sitting in an account during the dispute, Campbell's office said.

Some of the $600 million also comes from an interest-free advance on payments for years after 2011 that are still in dispute, and Campbell's office said it feels the risk of Massachusetts having to pay back any of that advance is extremely low. The new agreement requires that the companies withhold less money in future years based on the contractual adjustment to the 1998 settlement.

"Accordingly, Massachusetts will receive greater and more consistent annual payments going forward," Campbell's office said. "While the AGO is at odds with the major tobacco companies on nearly every ground, such resolution is not possible without the cooperation of all parties and counsel."

Signatories to the new agreement include Philip Morris USA, Sherman 1400 Broadway N.Y.C., RJ Reynolds Tobacco Company, Santa Fe Natural Tobacco Company, Farmers Tobacco Co. of Cynthiana, Wind River Tobacco Company, Commonwealth Brands, Compania Industrial de Tabacos Monte Paz, Daughters & Ryan, Japan Tobacco International U.S.A., King Maker Marketing, Kretek International, Scandinavian Tobacco Group Lane, Liggett Group, ITG Brands, Peter Stokkebye Tobaksfabrik, Premier Manufacturing, P.T. Djarum, Reemtsma Cigarettenfacbriken Gmbh, Top Tobacco, U.S. Flue-Cured Tobacco Growers, Vector Tobacco and Von Eicken Group.

In December of 1995, Massachusetts became the fifth state to sue tobacco companies to recover health-related spending. Public health-based lawsuits from multiple states led to nationwide settlement talks, and Congress killed one settlement in the spring of 1998 that would have had the federal government regulate nicotine as a drug.

That provision was not part of the nationwide tobacco litigation settlement that Attorney General Scott Harshbarger made the "gut-wrenching decision" to sign onto in November 1998. The settlement with various tobacco companies was projected in 1998 to deliver $7.6 billion to Massachusetts over 25 years.

Through 2023, Massachusetts had actually received about $6.2 billion in tobacco settlement payments, according to a database maintained by health policy nonprofit KFF. The amount changes each year, ranging from a low of $99.7 million in 1999 to a high of $315.2 million in 2009, though the annual amount is generally in the ballpark of $250 million.

The latest information statement on state finances, published in May, said Massachusetts has received $6.48 billion in payments since fiscal year 2000, including $185.9 million in fiscal 2024.

Since fiscal 2013, state law has required that 10% of annual tobacco settlement revenues be deposited into the State Retiree Benefits Trust Fund (there have been some adjustments in the percentage over the years, but the fiscal 2024 budget provided for the continued transfer of 10% of annual settlement funds), according to the information statement.

Campbell's office said this week that the 1998 settlement "has proven to be an effective public health agreement leading to a decrease in smoking, particularly among young people." Cigarette consumption across the U.S. has dropped by more than 50% and regular smoking among high school students dropped from 36.4% in 1997 to 6% as of 2019, her office said.