National Tobacco Growers Settlement Trust History

The National Tobacco Growers Settlement Trust (the Trust) was established by Phillip Morris, Inc., Brown and Williamson Tobacco Corporation, Lorillard Tobacco Company and RJ Reynolds Tobacco Company to compensate tobacco quota owners and growers for potential reductions in their tobacco production and sales. These reductions are expected to result from the Master Settlement Agreement (743 KB, rtf), a $206 billion court settlement between the major cigarette manufacturers and 46 state attorneys general. This settlement compensates state governments for the expenses incurred in the treatment of tobacco-related illness through government-sponsored health insurance programs like Medicaid. In order to finance this settlement, the major cigarette manufacturers have implemented steep price increases. They expect these increases to lower demand for their products and consequently to lower demand for American-grown tobacco. In an effort to lessen the economic impact of the Master Settlement Agreement on tobacco quota owners and growers, the cigarette manufacturers agreed to establish the Trust.

This $5.15 billion trust fund was negotiated by the four cigarette companies and the political leadership of tobacco growing states. Governor Paul Patton helped lead tobacco state governors in their negotiations, and played a critical role in the establishment of the trust. When one cigarette company began to back away from negotiations and threaten establishment of the Trust, Governor Patton and other governors demanded to speak with the Chief Executive Officer of this company's parent corporation. The resulting conversation put the negotiations back on track, and the Trust was established shortly thereafter. The participating companies will make annual payments to the Trust beginning in 1999 and concluding in 2010.

The Trust is divided among tobacco producers in 14 states. Each state's share is determined by its relative share of the total 1998 basic quota for flue-cured and burley tobacco. Other cigarette tobacco producers in Maryland and Pennsylvania are included in the Trust according to their 1998 tobacco sales. Kentucky is the second-largest tobacco producing state, and the second largest recipient of Trust proceeds. Participating states and their share of the Trust proceeds are listed below:

Base payments to the Trust shall be made by the four cigarette companies (the settlors) on the following schedule. These payments are divided annually among the participating states by the percentages listed above.

Payments from the Trust are made directly from the National Trustee to eligible tobacco quota owners and growers. The Trustee is relying on certification entities in each participating state to determine eligibility criteria and a formula for distribution of the Trust proceeds. In Kentucky, the certification entity is known as the Kentucky Tobacco Settlement Trust Corporation.