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GAO-03-262R 1 (2002-12-03)

handle is hein.gao/gaocrptapet0001 and id is 1 raw text is: S=GAO Accountability * Integrity * Reliability United States General Accounting Office Washington, DC 20548 December 3, 2002 Congressional Requesters Subject: Tobacco Settlement: States'Allocations of Phase H Funds The 1998 Master Settlement Agreement-the largest civil settlement in U.S. history- required the nation's four largest tobacco companies to make annual payments to 46 states in perpetuity as reimbursement for health care costs related to tobacco use, such as Medicaid expenditures.' The agreement also required the tobacco companies to meet with the political leadership of states that grow and manufacture tobacco to address their concerns about potential reductions in tobacco production and sales because of the agreement. As a result of these discussions, in July 1999, 14 tobacco- producing states signed the National Tobacco Grower Settlement Trust agreement, commonly referred to as Phase II, with the tobacco companies.2 The Phase II agreement requires the tobacco companies to pay a total of $5.15 billion over 12 years to compensate tobacco growers and quota owners for the economic consequences resulting from the Master Settlement Agreement. The Farm Security and Rural Investment Act of 2002 (the 2002 Farm Bill) required GAO to report annually on how states have used funds received under the Master Settlement Agreement and the Phase II agreement. (A complete list of congressional requesters is provided at the end of this letter.) This letter is the first in a series of reports responding to the 2002 Farm Bill requirement. Specifically, this letter provides information on (1) the amount of funds that have been distributed to each of the participating states under the Phase II agreement and (2) how the states have allocated these funds to tobacco growers, quota owners, and others. In summary, we found the following: 'The 1998 Master Settlement Agreement requires Philip Morris Incorporated, Brown & Williamson Tobacco Corporation, Lorillard Tobacco Company, and R.J. Reynolds Tobacco Company to make annual payments totaling approximately $205 billion over the agreement's first 25 years to 46 states and imposes no requirements on how states spend these payments. 2 The 14 tobacco-producing states are Alabama, Florida, Georgia, Indiana, Kentucky, Maryland, Missouri, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Virginia, and West Virginia. 3 Tobacco growers include tobacco farm owners and tenant farmers. Quota owners are owners of tobacco-marketing quotas or farm acreage allotments. Production and sale of tobacco in the United States is regulated under a quota system, established by the Agricultural Adjustment Act of 1938, which limits domestic tobacco production by requiring growers to own or rent quota for each pound of tobacco they want to market. GAO-03-262R States' Allocations of Phase II Funds

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