Wall Street Journal
Commentary
September 20, 2005; Page A16
Unconstitutional Cartel
By MARK HILLMAN
When politicians take campaign contributions from Big Tobacco, self-proclaimed watchdog groups yelp about impropriety. Yet for the past seven years, the industry has paid tens of billions of dollars to state governments to protect tobacco profits. Until recently, hardly anyone seemed to notice, much less care.
Then, on Aug. 2, the non-profit Competitive Enterprise Institute filed a lawsuit arguing that the 1998 Master Settlement Agreement (MSA) between Big Tobacco and 46 state attorneys-general (AGs) violates the Constitution and establishes a cartel designed to circumvent antitrust law and quash competition. Hallelujah.
I am a state treasurer and this suit could greatly reduce revenue to my state; and still I am enthusiastic. The billions generated by the settlement cloak the pernicious threat that activist AGs pose to the checks and balances on political power that govern our Constitutional system. Regulation and taxation policies are the rightful responsibility of the legislative and executive branches -- not the domain of states' chief law enforcement officers.
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The tangled history of the MSA begins in 1997. Big Tobacco and a group of AGs drafted a settlement agreement that ended the state lawsuits against the tobacco industry. It stipulated payments to states in return for liability protection. The proposal was presented to Congress for ratification, as required by the compact clause of the Constitution; but it died in the Senate, in large part because of its potential to undermine antitrust law.
By November 1998, Big Tobacco had negotiated another deal with several AGs, what became the MSA. This time, rather than seek Congressional ratification, the proposed settlement was presented to the nonparticipating AGs, who were given just seven days to decide whether to play ball. They had little choice but to participate. The MSA enabled the tobacco companies to raise prices on cigarettes nationwide -- not just in participating states -- to finance the deal. All smokers would pay the costs; the only question for AGs was whether their state would collect its share of the benefits.
Other than four states which had negotiated earlier settlements, every state signed on. Each was required to adopt uniform state laws -- with absolutely no amendments -- to enforce the terms of the MSA, including barriers that penalized smaller cigarette companies if their sales cut into those of the Big Four that organized the deal. In short, the states would help protect the majors from competition. "All states have an interest in reducing [small manufacturer] sales in every state," Vermont Attorney-General William H. Sorrell advised his colleagues.
Next, the MSA handed over $50 million and a significant role for enforcement and administration to an unelected entity, the National Association of Attorneys-General. NAAG plays a central role in determining how state AGs interpret and enforce the MSA. States can never opt out of the MSA, which can only be modified with unanimous consent of all states and all participating cigarette manufacturers. States relinquished their right to challenge the MSA in court.
This Faustian bargain locks states into a sleazy partnership with Big Tobacco, enforced by a compact that violates antitrust law and undermines market competition. Federal appellate judge Ralph K. Winter wrote, in a separate lawsuit brought by cigarette importers, that tobacco company executives "would long ago have had depressing conversations with their attorneys about the United States Sentencing Guidelines" had they forged a similar agreement without the complicity of state AGs. To add injustice to insult, the MSA takes money from predominately low- to middle-income smokers and transfers it to wealthy trial lawyers, some of whom reaped fees in excess of $100,000 an hour for their "work." On top of these affronts, the Constitutional objections to the MSA are manifold:
• The Constitution stipulates that "No state shall … enter into any agreement or compact with another state" without the approval of Congress. The MSA has never been so approved.
• The Constitution gives Congress exclusive authority to regulate interstate commerce. The MSA clearly usurps that authority.
• Delegation of inherent state powers to the NAAG undermines the state sovereignty protected by the Tenth Amendment.
The question facing the courts is not whether the MSA is good policy or whether tobacco companies are scoundrels. The larger issue is whether AGs can rightfully evolve into a law unto themselves, usurping the Constitutional roles of state legislators, governors, Congress and, ultimately, the voters themselves.
Mr. Hillman is Colorado state treasurer.
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Associated Press
Posted on Tue, Sep. 27, 2005
New Colorado treasurer questions legality of tobacco settlement
STEVEN K. PAULSON
Associated Press
DENVER - Less than four months after taking office, acting State Treasurer Mark Hillman is making waves by suggesting a 46-state tobacco settlement is illegal, even though it provides Colorado with millions of dollars a year.
Hillman wrote a column for the Wall Street Journal arguing that the settlement, negotiated among state attorneys general and big tobacco companies, was unconstitutional because it set up a system to collect taxes without legislative authority.
"The billions generated by the tobacco settlement conceal the threat that activist attorneys general pose to taxpayers and to checks and balances on political power," Hillman wrote in the column, published last week.
Since 1998, Colorado has collected $572 million under the settlement, including $87 million this year, according to legislative officials.
Hillman told The Associated Press Tuesday he is not suggesting the state give the money back, but that he agreed with a lawsuit filed in New Orleans federal court last month claiming the agreement was illegal.
"I think what they can do is take the Master Settlement Agreement to Congress and have Congress decide if they want to approve it. As long as the money is being collected, we'd be stupid not to keep it," said Hillman, who was named acting treasurer in June after then-treasurer Mike Coffman said he was returning to active duty with the Marines in Iraq.
The settlement requires major tobacco companies to pay $206 billion to the 46 participating states, which include North Dakota. In return, the states dropped lawsuits seeking health cost reimbursement from the companies.
Colorado has used its share for Medicaid and other programs.
The lawsuit, filed Aug. 2, by the nonprofit Competitive Enterprise Institute, argues that the legal settlement created a government-protected cartel that keeps cigarette prices artificially high. It asks that states be prevented from enforcing it.
Similar lawsuits have been filed in Oklahoma, New York, Kentucky, Tennessee and Arkansas.
Senate President Joan Fitz-Gerald, D-Golden, said Colorado joined the settlement to help cover the high cost of providing medical treatment for smoking-related illnesses, and to set up tobacco cessation and prevention programs. She said losing that money would be a blow to the state.
"I can't count the number of services we rely on from the tobacco settlement. I can't imagine Mark Hillman aligning himself with big tobacco," Fitz-Gerald said.
Hillman said the issue is not "whether the Master Settlement Agreement is good policy or whether tobacco companies are scoundrels."
"The larger issue is whether attorneys general can rightfully evolve into a law unto themselves, usurping the constitutional roles of state legislators, governors, and even Congress," he said.
The Grand Junction Sentinel
Editorial: Is tobacco settlement an illegal tax increase?
Thursday, September 29, 2005
"Already some Democrats are attacking Hillman for 'aligning himself with big tobacco' in challenging the validity of the settlement. However, one doesn’t have to be in the vest pocket of the Marlboro Man to question whether the settlement passes constitutional muster."
Letter-to-the-Editor: Big Tobacco and the states are business partners
By Sam Kazman, General Counsel
Competitive Enterprise Institute,
Washington D.C.
Monday, October 03, 2005
"Big tobacco does not oppose the settlement. It emphatically supports it. The $246 billion tobacco deal forged a cozy cartel between state governments and major tobacco companies, with the states getting a huge share of tobacco revenues in return for protecting big tobacco from small competitors."
Rocky Mountain News
Column: Hillman wants it both ways with tobacco settlement
By Peter Blake
Saturday, October 1, 2005
"Hillman is a smart and philosophically consistent constitutionalist who would like to be elected to a full term as treasurer next year. You don't get elected treasurer by surrendering state tax revenue. Thus he has been forced into a paradoxical position."
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