The annual payment New Mexico receives from the tobacco settlement agreement is likely to be reduced by nearly half - anywhere from $12 million to $24 million – in 2014, thanks to an unfavorable ruling by an arbitration panel last month. Adding to the grief, reductions in future years are a distinct possibility. The Legislature’s interim Tobacco Settlement Revenue Oversight Committee wrestled with those dire prospects this afternoon, trying to determine how and when things went off-track. 
 
The arbitration panel determined that New Mexico and five other states were not diligent enough in going after escrow payments by small, off-brand, often foreign tobacco companies in 2003. Compliance in subsequent years has yet to be determined. Lawyers from the New Mexico Attorney General’s Office are considering an appeal as well as future fights against Big Tobacco, saying the panel didn’t treat states equably or provide any definitive compliance guidance. The AG also disputes the multi-million dollar fine, since the escrow funds in question amount to only $104,000.
 
The loss of the tobacco settlement revenue will affect several UNM Health Sciences Center programs, if the 2014 Legislature doesn’t take action to backstop the funding.  There will also be an impact on the already-troubled lottery scholarship fund, which anticipated a one-time infusion of about $10 million from tobacco settlement monies. Lawmakers heard today that those funds are not being transferred because of current uncertainties.
 
The reduction in funding is casting a pall over budget development and how tobacco settlement funds should be distributed in the future.  Legislative Finance Committee Director David Abbey suggested to lawmakers that there could still be money available for health programs, but not for non-related programs like early childhood and the lottery scholarship. He also has concerns about the future of state reserves and whether there will be enough money to be transferred into the state’s Tobacco Settlement Permanent Fund in future years.
 
Sen. John Ryan (R-Albuquerque) also worried about the future, questioning “how many times are we gonna have to lose” in these arbitrations before considering entering into some kind of settlement with the tobacco companies. Venting his frustration over the arbitration ruling, committee chair Sen. Cisco McSorley (D-Albuquerque) said it was unbelievable “to be forced into artificially enforced, procedural mumbo-jumbo when we’re getting to the right result.”
 
Members of the public pleaded with the committee to “not let tobacco win” and not to cut funding for health programs. Look for further discussion during upcoming interim hearings.