“What’s wrong with state activism?”

In recent decades, state governments have increasingly assumed tax and regulatory powers that impact consumers and businesses nationwide. But many of those important policy decisions are made not by a public vote of legislators but by multi-state commissions and associations, state courts, and attorneys general. And the costs are passed along to citizens of other states. This type of state activism cannot be squared with federalism or democratic principles.

Attorneys general, often acting in concert with trial lawyers and special interest groups, target industries with novel and aggressive multi-state lawsuits. Subsequent settlements are negotiated behind closed doors with an elite group of industry insiders. Most consumers, businesses, and legislators are left out in the cold, with no input and little recourse in contesting new taxes and regulations that follow.

The most egregious example is the 1998 tobacco settlement. The Master Settlement Agreement (MSA) among 46 state attorneys general and major tobacco manufacturers imposed, in effect, a new national sales tax on cigarettes, the cost estimated at $240 billion over the first 25 years. State legislators, taxpayers, consumers, and small businesses were not consulted. Initially Congress was, but the final agreement was based on a plan that had already been rejected by Congress in April 1998, when the Senate killed a national settlement plan (S. 1415) proposed by Sen. John McCain.

Another example is the recent multi-state action against a handful of utility companies. In July 2004, eight state attorneys general filed lawsuits against five major electric utility companies, asking a court to require defendants to reduce their emissions of carbon dioxide. The plaintiffs, mostly states with high electricity rates, seek a costly version of emissions control policy repeatedly rejected by Congress, most recently in the failed “Climate Stewardship Act.” As CEI’s global warming scholar Myron Ebell has noted, higher energy costs resulting from such policies would largely be paid by residents of states other than those whose attorneys general are suing.

Other industries have also been the target of multi-state lawsuits, including financial institutions and pharmaceutical companies. Moreover, trial lawyers are continually pitching new tobacco-style lawsuits to attorneys general, as Delaware Attorney General Jane Brady has reported.