by Sam Kazman
March 17, 2004

CNNFN

SHOW: MONEY & MARKETS 04:00 PM Eastern Standard Time

March 18, 2004 Thursday

Transcript # 031809cb.l07

SECTION: Business

LENGTH: 1382 words

HEADLINE:
GUESTS: Richard Blumenthal, Sam Kazman

BYLINE: David Haffenreffer

BODY:
UNIDENTIFIED MALE: At Shards-of-Glass Freeze Pops, we want you to know where we stand on important glass-freeze pop issues.  We now agree, there's no such thing as a safe glass-freeze pop.  The only proven way to reduce health risks from our glass pops, is to not eat them. To learn more, visit our website.  And remember, Shards-of-Glass Freeze Pops are for adults only.

(END VIDEO CLIP)

DAVID HAFFENREFFER, CNNfn ANCHOR, MONEY & MARKETS: That humorous ad is just one of the many ads partly funded by big tobacco aimed at preventing kids from smoking, but this week cigarette companies say they've paid their dues now and are refusing to lay out any more cash.

The nation's largest tobacco companies have spent $300 million a year to promote anti-smoking as part of that 1998 settlement with 46 states.  But the agreement was legal as long as they controlled more than 99 percent of the market share.

The market share has shrunk due to higher cigarette prices and the move in by discount cigarette makers.  The tobacco companies also complain that the states simply have been using their money for other programs and not originally for what it was intended for.

Joining us to talk about this issue is Connecticut Attorney General Richard Blumenthal and Sam Kazman, general counsel at the Competitive Enterprise Institute.

Welcome to you both.

SAM KAZMAN, GENERAL COUNSEL, COMPETITIVE ENTERPRISE INSTITUTE: Hi.

RICHARD BLUMENTHAL, CONNECTICUT ATTORNEY GENERAL: Thank you.

HAFFENREFFER: Richard Blumenthal, this was part of an initial agreement between 46 states, one of which is Connecticut, and these four big tobacco companies.  What happened with regards to these market share threshold numbers?  Was it simply an expectation they would never fall that low?

BLUMENTHAL: Well, part of the expectation was that the non-participating, now deep-discount cigarette manufacturers, would be escrowing funds as they had done, and that would be an incentive for them to come to the table and participate in this kind of independent campaign.

And I should stress the importance of an independent edgy campaign in reaching kids.  The tobacco companies have launched their own ads. Like the Shard-of-Glass parody, they are simply very thinly disguised methods of inducing kids to do what only adults can do.  What more opportuning does a child need than to say, only adults can do it.

We believe that the kind of independent public education effort that has been so successful in reducing teen and youth smoking, it's at its lowest point in 28 year, should continue to be funded at the rate of $300 million a year by the big tobacco companies, despite the reduction in market share below the 99 percent figure.  They still have more than 90 percent of the market share, somewhere around 92 percent or 94 percent.  The drop is really fairly marginal, and there is a public trust.

HAFFENREFFER: OK, but the big tobacco companies disagree.

Sam Kazman, should they continue paying for the advertisements? Or since the contract essentially, that they had with these 48 states is now null and void?

KAZMAN: No, the contract is not null and void.  It's still in effect.  One of its provisions said they would make these payments only as long as their market share was above a certain level. And so the question is, why should these rules suddenly be changed in mid-stream?

Remember, this tobacco settlement was a shotgun affair.  It had the fingers of dozens of state attorney generals on its trigger, and the tab was picked up by smokers in the form of incredibly higher cigarette prices.

What's the outcome? Here we are six years later. It's the states, the states themselves, that had become hooked on tobacco revenue. Now these guys are sweating over their next fix.  I don't see any reason for changing the rules.

HAFFENREFFER: Mr. Blumenthal? Your thoughts on that?

BLUMENTHAL: There is a—yes, there is a public trust here, and there was a spirit, as well as a letter in this agreement. The spirit was that both sides would inaugurate a new day, a new era really seeking to reach out to children before they began to smoke.  If the tobacco companies are serious about that new day, if they really mean that they want to stop kids from smoking, they will continue to contribute, despite the drop in market share.

They have a kind of obligation.  I would say a public interest obligation, regardless of the price of cigarettes, regardless of market share, to make good on their implicit promises.  And I think that the tobacco companies will recognize that the average age of kids beginning to smoke is still 11 years old in Connecticut.

And they still spend $11 billion dollars on advertising every year; $11.2 billion, which is twice what they spent on advertising when this settlement was concluded.  Surely, they can use $300 million of it to really reach kids as they promised to do before they begin smoking.

HAFFENREFFER: Mr. Kazman, if the four major tobacco companies continue to hold out and say they are not going to fund these advertisements any further, is there a legal ground for the states to stand on?

KAZMAN: I doubt it, but the real question is, if this is such an important issue, why isn't the state of Connecticut spending more of its tobacco funds on this purpose?  Remember, the General Accounting Office, in its report on how the states are spending this tobacco money estimates that Connecticut has zero—zero dollars out of the hundreds of millions of dollars its gotten, zero dollars is budgeted to tobacco control in the current fiscal year.

I think Mr. Blumenthal ought to get his own house in order before he starts to spark a public campaign, and if Connecticut won't come up with the money, let him go to his trial attorney friends who got $8 billion in payments and have them cough up small change for this program.

HAFFENREFFER: Mr. Blumenthal, I want you to respond to that, but, first, can you answer what's happening to that tobacco money that has come to the state of Connecticut?  How is it being spent?

BLUMENTHAL: Well, you know, I'll be very honest with you, I've said it on this program before, so it's not novel or surprising. Connecticut must and should do more to combat tobacco, using its share of these tobacco revenues, which every year are in the range of $110 million to $120 or $130 million.

I believe that citizens of Connecticut, like many other states, ought to be outraged and embarrassed that their states have not done more to combat youth tobacco use with this money.

That said, states have felt and faced obvious, severe financial shortfalls.  Not of their own making.  Many of them, the result of federal policies during the past years, and they have confronted those tough choices by using some of those tobacco funds to fund public health and education measures that perhaps indirectly combat the same ills.

After all, we spend $50 billion as a nation on tobacco-related disease and other health costs.  So the simple answer is, the state should be doing more.  They will do more with the money coming to them out of the $206 billion emanating from that settlement, which is over 25 years, remember.

HAFFENREFFER: Sure.

BLUMENTHAL: But in the meantime, we need this money independently.  And these ads really need to be funded, and supported by an independent foundation like the Legacy Foundation, which is the source of these ads that are very, very effective and should in no way be modified or reduced at the political whim of anyone.

HAFFENREFFER: Mr. Kazman, real quick, we have limited time here.  Do you feel as though the drop we've seen in teen smoking over the past couple of years has come because of the effectiveness of these ads or simply because the price of cigarettes has gone up so much?

KAZMAN: The Center for Disease Control, I believe, places the increase in price is the single most important factor in the drop of underage smoking.

HAFFENREFFER: OK, we have to leave it there. But I want to thank you both for being part of the program today.

BLUMENTHAL: Thank you.