SANTA FE, N.M. (AP) — Gov. Susana Martinez’s administration plans to cut spending on several health and education programs because New Mexico faces the loss of up to $25 million from a nationwide settlement with tobacco companies.
The state expected to collect about $39 million in tobacco payments in the current budget year. However, the attorney general’s office said Wednesday that amount will be lowered because of an arbitration ruling against New Mexico and five others states in September.
The state is using nearly $20 million in tobacco revenue this year for early childhood services and to shore up a lottery-financed college scholarship program that is running out of money. About $19 million is going for a host of health programs, including Medicaid and services to help people stop smoking.
Finance and Administration Secretary Tom Clifford told The Associated Press his agency will be require to trim monthly budget distributions for all the tobacco-funded programs to offset the reduced revenue. Those cutbacks will likely start in December.
The Legislature meets in January and lawmakers could try to find other sources of money for the programs in the budget year that runs through June.
Assistant Attorney General Ari Biernoff told lawmakers the amount of New Mexico’s reduction won’t be certain until late this year or early next year. But he estimated it would range from $12 million to $25 million.
“It’s a substantial reduction and that’s going to have real and unfortunate consequences for us,” Biernoff told the Legislature’s Tobacco Settlement Revenue Oversight Committee.
The state has relied on the tobacco money in the past to help plug budget gaps when state tax revenue collections are lower than expected.
Because of uncertainty about tobacco revenue, lawmakers will have to narrow uses of the money and likely stop using it in the future for programs such as college scholarships and early childhood education, said Legislative Finance Committee Director David Abbey.
A three-judge arbitration panel concluded that New Mexico, Missouri, Indiana, Kentucky, Maryland and Pennsylvania didn’t adequately enforce laws requiring smaller tobacco companies to pay certain fees if they weren’t part of the 1998 settlement between the major cigarette manufacturers and 46 states. The settlement resolved lawsuits over health care costs associated with smoking and other tobacco use.
The settlement allows participating tobacco companies to reduce payments to states if they lose market share to those that aren’t part of the agreement. The arbitration ruling covers claims for payments in 2003.
New Mexico and the other states face the potential of more revenue losses for payment claims from 2004 to 2012 if the tobacco companies win similar arbitration rulings in the future.
New Mexico isn’t required to refund part of the $572 million it’s received since 1999. Instead, the tobacco companies will lower their future payments by the amount determined by arbitrators. The next payment will be made to New Mexico in early 2014.
Biernoff said New Mexico is considering an appeal of the arbitration ruling on 2003 payments, and will oppose the tobacco industry’s efforts to lower future payments to recover money for any compliance problems in 2004 to 2012.
Lawmakers were told that more than a dozen smaller tobacco companies, most of them based in foreign countries, failed to pay about $104,000 in fees for 2003.
He said the state had about an 80 percent success rate in getting compliance by the smaller companies. But arbitrators faulted the state’s record-keeping about its compliance efforts and for not filing more lawsuits against the companies. However, Biernoff said lawsuits generally have proven ineffective and expensive because it’s difficult to subject overseas companies to U.S. and state laws.