Topeka An Illinois court judgment against a cigarette maker could disrupt payments of tobacco settlement funds to Kansas -- and sink Gov. Kathleen Sebelius' proposal to issue bonds to help balance the budget, legislative leaders say.
A judge in Madison County, Ill., ordered Philip Morris to post a $12 billion appeal bond after ruling against it in a class-action lawsuit alleging fraud in the marketing of "light" cigarettes. The judge's March 21 ruling found Philip Morris liable for $7.1 billion in compensatory damages and $3 billion in punitive damages.
Now, however, Philip Morris has told the attorneys general of 46 states that it cannot post the appeal bond and pay its April 15 installment of $2.6 billion in the tobacco settlement.
Philip Morris represents about 50 percent of the settlement reached in 1998 between big tobacco companies and states that sued to recover their costs for treating people with smoking-related illnesses.
Kansas could lose more than $20 million in April if Philip Morris cannot pay its share. The state expects to receive $56 million from all companies during the current fiscal year and $57 million during the fiscal year beginning July 1.
The proceeds have been going into the Children's Trust Fund, to be spent on youth programs, but the state has increasingly used the money for other special education programs and other general operations.
"It's not a good development," Senate Ways and Means Chairman Steve Morris, R-Hugoton, said Friday of the warning from Philip Morris. "It would cause significant damage to our budget infrastructure."
Beyond the immediate loss of money, Sebelius has proposed to sell $175 million worth of bonds against the future tobacco revenue to help balance Kansas' budget through June 30, 2004.
Atty. Gen. Phill Kline said he notified the governor's chief counsel, Matt All, of the development Friday. He said he was preparing a letter to her and legislators.
"We will definitely look into it and see how it could affect us," said Sebelius spokeswoman Nicole Corcoran-Basso.
Kline said he told legislative leaders that payments to Kansas could be reduced by as much as 50 percent.
Senate President Dave Kerr said the development doesn't affect the Sebelius revenue proposal.
"The use of the tobacco money was just a cover story," said Kerr, R-Hutchinson.
If Philip Morris defaults or files bankruptcy, Kerr said, he would expect the 46 attorneys general to file suit saying bankruptcy does not excuse the tobacco company from its obligations.
Speaker Doug Mays said a special House committee on the bonding proposal would meet Tuesday to discuss the development.
"This is our worst fear," said Mays, R-Topeka. "It demonstrates that the tobacco revenue is tenuous at best."
Mays added that Sebelius' revenue plan is "taking on water."
"It's time to go to Plan B, if there is one," Mays said.
But House Minority Leader Dennis McKinney said the bonds could be backed with general tax revenues or other funds, such as gambling proceeds.
"It's a little more complicated, but it's not a disaster," said McKinney, D-Greensburg.
In other legislative action:
l House leaders formed a committee to review Sebelius' proposal to fund the state budget with bonds.
l The governor and Senate president discussed the possibility of the state issuing bonds to finance the $500 million investment sought by Boeing Wichita officials to help secure work on a new Boeing jetliner.
l The House passed a bill requiring treatment rather than prison sentences for some people convicted of drug possession.
l A proposed constitutional amendment that would put a commission in charge of Kansas' political redistricting process failed in the Senate.