Bill could secure state tobacco settlement funds

Nebraska would adopt additional cigarette regulations under a bill heard by the Revenue Committee March 2.

LB590, introduced by Grand Island Sen. Mike Gloor, would change laws regulating tobacco licenses, tobacco sales, cigarette taxes, the state directory of cigarettes, escrow deposits under the Master Settlement Agreement (MSA) and reporting requirements. The bill would create new requirements and penalties for licensees that would apply to Native American tribes and would authorize the state to negotiate a compact with tribes regarding tobacco products.

Gloor said the bill is intended to secure funds provided by the MSA under a 1998 settlement between the four largest U.S. tobacco companies and 46 states. Under the agreement, tobacco companies provide annual payments to states to cover public health costs associated with tobacco use, Gloor said, and states require companies that are not part of the agreement — called nonparticipating manufacturers — to put money in escrow as if paying their share of the settlement.

Gloor said tobacco manufacturers contend that states have not collected the escrow from nonparticipating manufacturers. Consequently, $46 million has not been deposited into Nebraska’s Health Care Cash Fund, he said, and collected funds are in dispute.

“If the court finds the state has not been diligent in enforcing this law, we could lose future payments and potentially have to pay back millions sitting in the Health Care Cash Fund,” Gloor said.

LB590 would help the state by closing loopholes and enhancing enforcement under the MSA, Gloor said.

Among other provisions, enforcement measures would include:

• requiring nonparticipating manufacturers to post bond if their cigarettes have not been sold in the state for a year or they fail to make escrow deposits;
• increasing the frequency of stamping agent reports and holding agents liable for nonparticipating manufacturers escrow payments if their products are stamped;
• revoking stamping agent licenses for inadequate reporting, outstanding escrow deposits or sales of unstamped cigarettes;
• requiring cigarette manufacturers and importers to report all sales into Nebraska within 15 days;
• removing manufacturers from the state directory that fail to submit required reports;
• revoking stamp agent licenses and removing manufacturers from the state directory for violations of similar laws in other states; and
• prohibiting tobacco products not on the state directory from being sold to or purchased from tribes that do not follow the provisions of LB590.

Chief Deputy Attorney General David Cookson testified in support of the bill. Under the MSA, he said, Nebraska must ensure that companies not party to the settlement provide escrow for each cigarette. A current loophole in this enforcement is tribal cigarette sales, he said.

Tribes have the authority to tax tribal members and entities, Cookson said, but the state has no such authority. The state does, however, have authority to tax tribal sales to nontribal members, he said, but many of these transactions occur on reservations.

Cookson said LB590 authorizes the state to negotiate a compact with tribes similar to the agreement in place with the Winnebago Tribe to collect gas taxes.

If the state were deemed not in compliance with the MSA, up to $300 million could be subject to return, Cookson said.

Lance Morgan, CEO of Ho-Chunk and a member of the Winnebago Tribe of Nebraska, spoke in opposition to LB590, saying it would reduce the competitiveness of tribal manufacturers of tobacco products. The tribe receives no benefit from the MSA, he said, so mandating escrow deposits would hurt tribal revenues and businesses.

The committee took no immediate action on the bill.