Kentucky Legal wrangling affecting tobacco farmers

Source from:  Murray (KY) Ledger & Times, Monday June 6, 2005 06/06/2005

Despite legal efforts by tobacco companies to deny payment, 605 Calloway County burley tobacco farmers and quota holders will get at least part of their share of $124,703 in payments under the Phase II Tobacco Settlement this year under provisions of the new state budget that will draw upon Phase I funds. That's not a lot of money - a little more than $206 per farmer if it were distributed evenly; however farmers will get even less than that amount because Phase II payments have been held up by the courts as tobacco companies claim that last year's federal tobacco buyout eliminated the debt. The Kentucky General Assembly decided this year to sell $114 million in bonds and use Phase I money to pay farmers at least part of what was expected under Phase II as a stop-gap measure, according to state Rep. Melvin Henley. "They're going to take Phase I money to pay the farmers and then when the Phase II money comes in it will be put back." Henley said Tuesday. "They'll get the money after the bonds are sold, but they will only get 90 percent. I would think that it would be sometime around the end of the year." More than 163,000 farmers will receive payment under the law state wide. Payments for 2004 were stalled after Congress approved buyout legislation that tobacco companies claim gave them the right to withhold payments for 2005 and get a refund on 2004 payments, according to a news release from Henley. Kentucky, Tennessee, North Carolina and 11 other states argue that Phase II payments would not end until the buyout began this year. "However, the tobacco companies differ in their interpretation of the buyout language and have now been successful in the first round of the courts," Gov. Ernie Fletcher said in an statement about the issue on the Governor's Office of Agricultural Policy Web site at www.agpolicy.ky.gov. "They claim that their financial obligation ended with the signing of the buyout into law and thus are due a refund of their 2004 payments. We disagree with that position and will continue to use every avenue available to us to fight this matter in the courts." Philip Morris and other tobacco companies involved in the lawsuit notified officials in 14 "grower states" in November requesting a full refund of the 2004 Phase II payments currently held in reserve. The federal tobacco buyout was introduced and pushed through Congress by U.S. Sen. Mitch McConnell with support from Sen. Jim Bunning. McConnell said alleviating tobacco companies of their debt was not the intent of the legislation. However, in a letter to former Agriculture Secretary Ann Veneman in November, McConnell said there was a possibility of conflict with passage of the Fair and Equitable Tobacco Reform Act of 2004. "Congress was aware that passage of FETRA could impact payments under the Trust. It was not our intent to disrupt this year's Trust payments, which are scheduled for disbursement on Dec. 15," McConnell said. "Furthermore, it was our intent that eligible farmers would not start to receive payments under FETRA until next year, at the earliest. We were concerned about the possibility of an interim period where farmers would receive no payments under either program." U.S. Rep. Ed Whitfield's press secretary, Jeff Miles and Corey Hicks, the congressman's agricultural aide, explained that the timing of President George W. Bush's signature on the bill may have given Philip Morris and other tobacco companies the idea that they had a legal claim to deny Phase II payments. "The language said that the assessment won't start until the president signed it and the president signed it before the end of the year (2004)," Hicks said. "If the president had waited until after the first of the year then I think the tobacco companies would have had a lot harder time of getting out of that much. That's not to say that the tobacco companies wouldn't have disputed it, but they would have had a lot harder time." "It boils down to that 30 days after the president signed it and not what was clearly written about the Phase II money in the legislation," Miles added. The decision of whether or not the buyout alleviated the tobacco companies debts will be made by the General Court of Justice, Superior Court Division of North Carolina where the lawsuit was filed. Will Clark, president of the West Kentucky Dark Fired Tobacco Growers Association in Calloway County, said state agricultural leaders and burley growers expect to receive the payments. "The farm organizations interpret (the buy-out legislation) to mean that they still have to make those payments and the bottom line is that it will be decided by a judge," Clark said Thursday. "Probably, pretty shortly, we hope to know the answer to that. I'm sure it might take a little longer, but we're a lot closer than we were." 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, according to the U.S. Congress' General Accounting Office Web site.