WHAT OTHERS SAY: Loophole in law could cost $1 billion

Thursday, April 5, 2012 | 6:00 a.m. CDT

Not only does the Missouri legislature foolishly ignore ways to raise revenues for its anemic coffers, its inaction threatens to cost the state hundreds of millions of dollars.

Here again, the problem is Missouri’s unique propensity to coddle cigarette manufacturers and vendors.

The state’s ridiculously low tobacco tax — at 17 cents a pack, the nation’s lowest — is only the start of the problem. For years, the legislature has balked at addressing a loophole in a legal settlement among states and tobacco manufacturers. That obstinance has turned Missouri into an open marketplace for smaller manufacturers and put the state in legal jeopardy.

"Simply put, the General Assembly’s inaction over the last decade has placed our state in terrible and unnecessary peril," Attorney General Chris Koster wrote in a letter to Senate President Pro Tem Rob Mayer early this session.

In 1998, four "Big Tobacco" companies agreed to make annual payments to most states in return for being exempt from future state lawsuits over health care costs caused by smoking. A number of other cigarette manufacturers later signed on to the agreement.

Companies that declined to sign are required to make annual payments into state escrow accounts, in anticipation of future legal judgments. But those firms, called nonparticipating manufacturers, figured out that if they concentrated their sales in just a few states, they could recover nearly all of their deposit at the end of each year.

All other states quickly passed legislation closing the loophole. But not Missouri. And now the day of reckoning might be at hand.

Tobacco manufacturers that have made payments to Missouri for years understandably object to the fact that nonparticipating manufacturers can sell products in the state and pay next to nothing. They are using that discrepancy as the basis of an attempt to recoup the payments they’ve had to make. Arbitration on Big Tobacco’s attempted clawback is supposed to begin this month.

Koster warned in his letter that Missouri risks having to pay back $100 million that tobacco companies paid to the state just in 2004. The damage from the years until 2012 could amount to more than $1 billion.

"Whatever damage is attributable to legislative inaction during those years has already occurred ...." Koster wrote. "What I am asking is that you address this risk for fiscal years 2013 and beyond."

His urgency does not seem to be shared by legislative leaders. Sen. Kurt Schaefer, a Republican from Columbia, is sponsoring a bill to correct the flaw in Missouri's statute. The legislation appears stuck in a Senate committee. There is no companion bill in the House. Similar bills introduced in the Senate and House last year never gained traction.

It's not like this impending crisis sneaked up on lawmakers. Jay Nixon, who was the state’s attorney general before he became governor, pleaded with lawmakers to close the loophole. Koster has warned them annually about the risk.

But, more and more, the Missouri legislature seems unwilling or incapable of solving problems. Like the controversy over students transferring out of unaccredited school districts, its default position is to let the courts figure something out. That’s not acceptable, and it’s not what voters expect when they send legislators to Jefferson City.

It should be noted that, over the years, small tobacco companies have donated thousands of dollars to the campaigns of key lawmakers. That’s fine for all of them. But taxpayers might end up paying a big price.

Copyright The Kansas City Star. Reprinted with permission.

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