By PHIL KABLER
West Virginia's annual payment from major cigarette manufacturers under the 1998 national Tobacco Settlement Agreement slipped to $61.2 million this April, as a nationwide decline in smoking appears to be accelerating, members of the state Tobacco Settlement Finance Authority learned Monday.
Paul Creedon, Citigroup financial adviser, said cigarette consumption declined by 4.45 percent in 2017, with a total of 260 billion cigarettes sold in the U.S.
Since 1999, when the first tobacco settlement payments were issued, cigarette consumption has been declining at a rate of just over 3 percent a year, Creedon said.
In 1999, Americans smoked 400 billion cigarettes, down from the peak consumption year of 640 billion in 1981, he noted.
Because the tobacco master settlement agreement builds in an annual increase of at least 3 percent for inflation, West Virginia's payment had been holding roughly steady at about $64 million a year in recent years.
Creedon said there are signs the decline in smoking is accelerating. He said Altria, parent company of Phillip Morris USA, the largest cigarette company in the U.S., recently reported a 5.5 percent decline in cigarette sales in the first three months of 2018, apparently the result of a higher than expected proportion of smokers switching to electronic cigarettes.
Nonetheless, he said the market for tobacco bonds remains "robust."
West Virginia, under then-Attorney General Darrell McGraw, was one of the first states to sue cigarette manufacturers for the future costs of medical care for smokers. In 1998, the state agreed to a settlement estimated to be worth more than $1.8 billion over the life of the payments.
In 2007, the state sold the rights to those payments to bondholders for $911 million, using more than $800 million of that bond sale to shore up the critically underfunded Teachers Retirement System.
Although the bonds technically will mature in 2047, projections at the time were that the bonds will be paid off in 2029, at which point the annual payments, which go on for perpetuity as long as cigarettes are sold in the U.S., will go back into state coffers.
At the time, $73 million of the tobacco windfall was placed into a reserve fund, to be tapped if annual tobacco settlement payments ever fall significantly below the $62 million annual payment to bondholders.
On Monday, authority member Larry Mazza, with MVB Financial Corp., questioned whether settlement payments could drop so low that the bonds would default, noting, "West Virginia not paying off a bond, in my eyes, is not good."
Creedon stressed that the Tobacco Settlement Finance Authority is an independent entity, and that the bonds are not an indebtedness or obligation of the state.
He said that, as the decline in smoking accelerates, it could take longer than the projected payoff year of 2029 for the bonds to be retired, but said that with payments from cigarette manufacturers continuing in perpetuity, bondholders can expect full payment eventually, even with a steeper than expected downturn in smoking.
The authority meets once a year, after the annual settlement payment to the state is made, a payment that falls on or about April 15 each year.