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Tobacco Settlement Boosts Revenue, But Doesn’t Resolve Budget Woes

by | May 30, 2013 11:55am () Comments | Commenting has expired | Share
Posted to: Legal, State Budget

Connecticut will receive an additional $63 million this year under a partial settlement with tobacco companies in a dispute dating back to 2006, Attorney General George Jepsen’s office announced Wednesday.

The state will be one of 21 others to be included in the settlement, which resolves a dispute regarding the payments under 1998’s Master Settlement Agreement between the tobacco industry and the government.

A press release from Jepsen’s office notes that the partial settlement reached Friday is complex. The $63 million Connecticut will receive by next year represents a percentage of future disputed payments and will be in addition to the funds the state typically receives under the Master Settlement Agreement.

The partial settlement also prevents the state from losing out on up to $260 million in tobacco settlement payments if related litigation in the future is not successful. In 2015 and 2016 the state’s settlement payments are expected to drop by $1-2 million, however it will increase by more than $8 million annually in the years after, the press release said.

“After careful consideration, I have determined that this settlement is in the best interests of our state,” Jepsen said. “It provides direct financial benefits, in a much shorter term, than we could have achieved by litigation, even if we were fully successful.”

Jepsen said the state’s long-term goal is to reduce smoking and its associated health care costs to zero. If that were to happen, payments from the tobacco settlement would also drop to around zero.

“But until that day, it remains essential that states receive all possible compensation for the past wrongs and present medical costs imposed on all of us by tobacco sales to our citizens,” Jepsen said.

House Speaker Brendan Sharkey said Wednesday that some of the money will be used to balance the state budget, but some of it will be dedicated to specific programs to reduce the use of tobacco.

The money is not enough to save lawmakers from having to make some tough choices when it comes to balancing the $43.8 billion, two-year state budget proposal on the table now.

As of Wednesday evening, it looked as if a deal could fall apart when 50 House Democrats signed onto an amendment that would cause the state to lose about $80 million in anticipated revenue. The revenue would come from auctioning off the electricity bills of about 800,000 Connecticut residents.

Those residents currently get their electricity bills from Connecticut Light & Power or United Illuminating, instead of one of the state’s 40 or so “competitive” electricity suppliers that were allowed into the market after deregulation 13 years ago.

Deregulaton was supposed to create more competition among suppliers and drive down prices for customers. But so far the results have been mixed.

Even though CL&P and UI no longer generate power, they continue offering customers a regulated rate that is used by more than half of the state’s residents. The other half have switched to competitive suppliers.

Earlier this month, Jepsen weighed in on the measure and strongly cautioned lawmakers about the lack of consumer protections included in the legislation. In a May 23 letter, he warned against eliminating “standard offer” electricity service.

“Customers who have heretofore affirmatively chosen to stay out of the competitive retail electricity market may now be required to actively protect themselves from high bills and fraudulent behavior,” Jepsen wrote in a May 23 letter to legislative leaders. “The prices charged by competitive electric suppliers can be volatile and bills require regular and careful scrutiny.”

AARP, which lobbied against the proposal, is concerned that if there is no longer a “standard offer” everybody’s rate will increase because there will be no benchmark rate to compare it to.

Jepsen said customers who have been “harmed by competitive suppliers” should be allowed to remain with CL&P and UI. Like the AARP, Jepsen believes “standard offer” customers should be given a meaningful opportunity to opt-out, if they don’t want to switch to a competitive supplier.

Chris Kallaher, senior director of government and regulatory affairs for Direct Energy, a competitive supplier, said the consumer protections expected to be included in the bill are the “most stringent” he’s aware of.

He said there will be no early termination fee and consumers will be given the opportunity to opt-out. He said his company is not opposed to these protections and estimates only about 5 to 10 percent of the population will opt-out when given a choice.

The House Democratic caucus discussed the issue early this morning behind closed doors.

Mark Ojakian, Malloy’s chief of staff, said they always planned to include these consumer protections in the bill, but they had little time to communicate them to the caucus. He said once lawmakers get a chance to go over them the issue will be resolved.

If it’s not, then there’s an $80 million hole in the budget with a handful of days left in the legislative session.

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Archived Comment

posted by: Noteworthy | May 30, 2013  3:16pm

All of the tobacco settlement money should be spent on cessation programs, not balancing the state budget. Former speaker Jim Amann noted after he left office that one of his great regrets was not using that money for its intended purposes and allowing the governor and fellow legislators to raid the till. It’s a habit the G.A. does every year with whatever fund is supposedly “dedicated” like gas taxes. Remember tank removal and replacement? Transportation needs? Welshers.

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