Fiscal impact
reports (FIRs) are prepared by the Legislative
Finance Committee (LFC) for standing finance committees of the NM Legislature. The
LFC does not assume responsibility for the accuracy of these reports if they
are used for other purposes.
Current FIRs (in HTML & Adobe PDF formats) are available on the
NM Legislative Website (legis.state.nm.us). Adobe PDF versions include all attachments,
whereas HTML versions may not.
Previously issued FIRs and attachments may be
obtained from the LFC in
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SPONSOR |
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DATE TYPED |
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HB |
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SHORT
TITLE |
Tobacco Settlement Appeal Bond Amounts |
SB |
176 |
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ANALYST |
Neel |
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REVENUE
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Estimated Revenue |
Subsequent Years Impact |
Recurring or
Non-Rec |
Fund Affected |
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FY04 |
FY05 |
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See
Narrative |
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(Parenthesis ( ) Indicate Revenue Decreases)
Relates to:
HB 59, Increase Tobacco Products Tax
HB 86, Tobacco Stamp Procedure Changes
HB 220, Tobacco Settlement Revenue Appropriation
SB 192, Smart Moves Smoking Cessation Program
Funding
HM 1, Promote Cigarette Taxation Parity
LFC Files
Responses
Received From:
Attorney
General’s Office (AGO)
Department
of Health (DOH)
SUMMARY
Synopsis of Bill
Senate Bill 176 proposes to establish a maximum
bond amount ($25 million) during the pendency of all
appeals or review in a civil action by signatories of the Tobacco Master
Settlement Agreement (MSA), regardless of the value of the judgment. This maximum bond amount, however, would not apply if it
were proven by a preponderance of evidence by the appellee,
that the appellant is dissipating assets outside the normal course of business
in order to avoid payment of the judgment.
SB 176 has an emergency clause.
Significant Issues
DOH makes the following observations:
The maximum limitation
of $25 million for a bond may be too small given the size of the major tobacco
companies. For example, Altria, the parent company of Phillip Morris USA, had total
net revenues of $80.4 billion with net profits of $11.1 billion in 2002 (US
Securities & Exchange Commission, 2002 10-K report, March 27, 2003). A
maximum bond of $25 million for a company such as Altria
amounts to 0.2% (one-fifth of one percent) of their annual net profits and
0.03% of their annual net revenues.
A May, 2000, the Wall
Street Journal reported that Brown & Williamson cigarette advertising in
magazines with large youth readership increased by more than 70% since Brown
& Williamson signed the Master Settlement Agreement (MSA), prohibiting marketing
to youth. The Federal Trade Commission’s
latest report (2001) shows that the tobacco industry has
increased its marketing expenditures by 66% in the three years after the MSA
was reached. This amounts to a record
$11.45 billion per year, or $31.4 million per day. Based on these figures, it is
estimated that the tobacco industry spends about $74 million annually on
advertising in
FISCAL IMPLICATIONS
The current estimate
for tobacco settlement revenue is $34.7 million Part of this figure may be at
risk if companies such as Altria are force into bankruptcy through litigation.
OTHER SUBSTANTIVE ISSUES
Since the Master Settlement Agreement (MSA) was
signed in November 1998, the cigarette industry has been forced to raise prices
to cover the costs associated with the settlement. The agreement between the
attorneys general from 46 States and the major cigarette companies was intended
primarily to reimburse States for expenses related to the treatment of smoking-related
illnesses. Cigarette companies have boosted prices as a result of payments
required by the settlement. Higher prices have curtailed consumption, although
not as much as originally expected. The long-term decline in cigarette consumption
due to non-economic factors continues as well.
Domestic consumption was expected to slide by more than 2% in 2003. Fourteen states were expected to increase
excise tax in 2003 ranging from $ .17 to $1.50 in
SN/yr