By David Farmer,Staff Writer

AUGUSTA – The state will receive about $6 million less than it anticipated from Big Tobacco companies this year.

R.J. Reynolds Tobacco Co. and Lorillard Tobacco Corp. together have decided to withhold more than $750 million from their annual payments to 46 states that agreed not to sue the industry as part of a national settlement plan in 1998.

Philip Morris USA, the largest of the tobacco companies, paid its entire bill, about $3.4 billion for its part of the settlement.

The deadline to make the payments was Monday.

With Philip Morris making its full payment but the Nos. 2 and 3 companies holding back, the state is expecting to lose about $5.8 million for 2006, down from an earlier projection of $8.8 million that assumed the tobacco industry would act in unison, according to the state budget office.

The state had expected $50.6 million from the tobacco industry. That projection has been adjusted to $44.8 million.

On Monday, the state received $41.8 million from the settlement and expects to receive another payment today of approximately $3 million, according to Deputy Treasurer Barbara Raths. By Friday, the state should have a complete breakdown of the payments from individual tobacco companies and exact information on how much was withheld.

The decision by the two companies comes as no surprise. The state’s supplemental budget anticipated that the tobacco companies might not pay their entire bill this year and included $4.45 million to bridge a possible fiscal year 2006 funding gap in the Fund for a Healthy Maine, which is financed with tobacco settlement money.

In 2007, there’s still a potential shortfall of $5.5 million, which could be worse if Philip Morris changes course and joins the other major tobacco companies by withholding money next year. Phillip Morris made its full payment this year, but has not made a commitment for next year, leaving about $3 million more in doubt.

“It could be bad news,” Carol Kelly, director of the Maine Coalition on Smoking or Health, said earlier this month. “If there’s no resolution found to the potential shortfall, it could be devastating to The Fund for a Healthy Maine programs. Right now we feel confident that we are going to be able to work with legislators and the governor’s office to make sure that doesn’t happen. But we can’t take our eye off the ball because that type of a cut could ruin the progress we’ve made in so many areas, not least of which is the tobacco program.”

The problem is partially remedied in 2008, when under the terms of the master settlement tobacco companies are due to increase their payments to states. The increase would offset the disputed funds, even if the state does not receive all the money to which it’s entitled.

It’s a one-year cash flow problem in 2007, Kelly said.

Maine consistently wins accolades for its anti-smoking efforts and the use of tobacco settlement money.

The Attorney General’s Office is being cagey about its strategy to recover the money. “At this point, we’re weighing our options,” said Chuck Dow, a spokesman for the attorney general. “I’d prefer to keep all of our powder dry.”

Because this is the first time tobacco companies have withheld settlement money, there’s no precedent for moving forward.

According to Dow, the AG’s office will decide how to proceed within the next several days.

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