JOINT MEETING SENATE HEALTH, EDUCATION AND SOCIAL SERVICES STANDING COMMITTEE HOUSE HEALTH, EDUCATION AND SOCIAL SERVICES STANDING COMMITTEE April 14, 1997 3:37 p.m. SENATE MEMBERS PRESENT Senator Gary Wilken, Chairman Senator Loren Leman, Vice Chairman Senator Johnny Ellis SENATE MEMBERS ABSENT Senator Lyda Green Senator Jerry Ward HOUSE MEMBERS PRESENT Representative Con Bunde, Chairman Representative Joe Green, Vice Chairman Representative Brian Porter Representative Fred Dyson Representative J. Allen Kemplen HOUSE MEMBERS ABSENT Representative Al Vezey Representative Tom Brice OTHER HOUSE MEMBERS PRESENT Representative Pete Kelly COMMITTEE CALENDAR DISCUSSION OF TOBACCO TAXATION, ENFORCEMENT AND LITIGATION, INCLUDING THE LIGGETT TOBACCO GROUP SETTLEMENT PRESENTATIONS: ATTORNEY GENERAL GRANT WOODS OF ARIZONA ATTORNEY GENERAL BRUCE BOTELHO COMMISSIONER KAREN PERDUE, DEPARTMENT OF HEALTH & SOCIAL SERVICES (* First public hearing) PREVIOUS ACTION No previous action to record. WITNESS REGISTER KAREN PERDUE, Commissioner Department of Health and Social Services P.O. Box 110601 Juneau, Alaska 99811 Telephone: (907) 465-3030 POSITION STATEMENT: Discussed tobacco use and public health. GRANT WOODS, Attorney General State of Arizona 1275 West Washington Phoenix, Arizona 85007 Telephone: (602) 542-5025 POSITION STATEMENT: Discussed anti-tobacco tools for decreasing use and the Liggett tobacco settlement. BRUCE BOTELHO, Attorney General Department of Law P.O. Box 110300 Juneau, Alaska 99811 Telephone: (907) 465-2133 POSITION STATEMENT: Discussed status of tobacco litigation in Alaska. ACTION NARRATIVE TAPE 97-30, SIDE A Number 0001 CHAIRMAN GARY WILKEN called the joint meeting of the Senate/House Health, Education and Social Services Standing Committees to order at 3:37 p.m. Members present at the call to order were Senators Wilken, Leman and Ellis and Representatives Bunde, Green, Porter and Kemplen. Senators absent were Green and Ward; and Representatives Vezey and Brice. Representative Dyson arrived at 3:51 p.m. DISCUSSION OF TOBACCO TAXATION, ENFORCEMENT AND LITIGATION, INCLUDING THE LIGGETT TOBACCO GROUP SETTLEMENT PRESENTATIONS Number 0008 CHAIRMAN WILKEN announced the committees would hear discussion on tobacco taxation, enforcement and litigation, including the Liggett tobacco group settlement presentations. Chairman Wilken turned the gavel over to Chairman Bunde. Number 0022 KAREN PERDUE, Commissioner, Department of Health and Social Services, stated that this meeting is part of the multi-prong process to reduce tobacco use in Alaska. She stated that tobacco tax, education, enforcement and litigation are the four-prongs of the department's agenda. She reminded the committee that the Alaska Medicaid Program is a fundamental health care program that the state makes a commitment to each year. She continued that the legislature is approving $350 million worth of funds for the Medicaid program. The amount of funds that have been paid by Alaskans for the health care of injured smokers is in excess of $100 million over a 13 year period. She explained that the cost to the Alaskan public to deal with the injuries of smoking and tobacco use are great and is one of the reasons for the ligation. She added that the ligation targets the issue of prevention of tobacco use for Alaskan youths. Number 0050 CHAIRMAN BUNDE introduced Attorney General Grant Woods and stated that he was first elected in 1990, as Arizona's Attorney General and re-elected in 1994 with 80 percent of the vote. He presides over a staff of 850 employees including 300 attorneys and is the chief counsel and law enforcement officer for the state of Arizona. Attorney General Woods was named "Attorney General of the Year" in 1995. Chairman Bunde thanked Attorney General Woods for coming before the committees to help Alaskans put in place an economic barrier to stop youths from starting to smoke, as well as to recapture the high costs that tobacco has brought to the state. Number 0098 GRANT WOODS, Attorney General, State of Arizona, stated that he has been attorney general for seven years. He declared that this issue is the most important issue that he has been involved with, because it is an important social problem that everyone in the country is sharing. He continued that tobacco has been part of the country since the beginning, however, years ago people did not understand the negative health problems associated with tobacco. He stated that the tobacco industry discovered the negative effects of tobacco prior to letting the public know which is a part of the basis for some of the lawsuits around the country. He stated that there are five companies that are producing a product that, with its intended use, will shorten its consumers lives and/or kill them. He asserted that it is a unique characteristic, as they are other products that may cause harm, but only through abuse, not with the intended usage. He stated that tobacco has no positive health effects and if used as intended it is almost assured that negative health consequences will occur. Number 0132 ATTORNEY GENERAL WOODS continued that the economic problems associated with tobacco are severe. Alaska is on the higher end of suffering health related problems for its citizens because of tobacco and consequently, a good portion of those citizens are going to require medical assistance. He stated that the tax payers are the ones paying rather than the tobacco user or the tobacco companies. Number 0165 ATTORNEY GENERAL WOODS stated that the solutions are in Commissioner Perdue's four-prong approach. He referred to education and stated that he has been in negotiations with the Liggett Company, the fifth largest producer of tobacco products in the United States. He declared that the company's largest concern is counter marketing, as they are aware that education of the negative effects of tobacco use of youths, can change their behavior. He asserted that there will always be some kids who will smoke and use drugs, but a large percent of youths can be prevented from smoking just through education. He stated that two facts need to be kept in mind; 440,000 Americans die every year from smoking related illnesses and that if children do not smoke by the time they turn 20, then they will probably not smoke for the rest of their lives. He stated that 90 percent of the people that smoke, started smoking as teen-agers. He stated that it is difficult for children to understand all the problems related to smoking. In addition to the fact that the tobacco companies spend $6 billion a year in the United States in advertising, a good portion of it aimed at teen-agers. He asserted that the reason being that the companies lose 440,000 customers a year and need to pick up the teen-age market, mainly because the companies will not get people to start smoking after the teen-age years. He stated the goal is to educate children better by hopefully using funds from the tobacco industry and through a tobacco tax. He was hopeful that the FDA would also eliminate tobacco advertising towards children. He declared that 3,000 children today in the United States will smoke for the first time and at least 1,000 will die due to smoking. Number 0228 ATTORNEY GENERAL WOODS urged, as a republican fiscal conservative, that the committee pass the tobacco tax because it is a public health situation. He believed that the people who smoke, as well as the tobacco companies, ought to be funding the efforts to deal with the problem that they are creating. Number 0252 ATTORNEY GENERAL WOODS stated that an economist of Phillip Morris, has stated that if the tobacco tax was raised to $1 a pack across the country, the result will be a 45 percent reduction of smoking in the United States. He stated that if this holds true, the health care costs would plummet in this country and in this state. He stated that with this tax, the statistics indicate that teen-agers will quit that other economists have come up with different numbers but stated that the bottom line is that the tobacco tax will have an impact on consumption. Number 0271 CHAIRMAN BUNDE asked for the record, that it is Phillip Morris' top management stating that if the taxes on tobacco are increased, usage will go down and $1 increase would reduce usage by 45 percent, more among youths. Number 0275 ATTORNEY GENERAL WOODS replied that it is correct. He stated that if you look at all the economists' results, even the tobacco institute itself, they indicate that an increase in tax will cause the usage to go down, especially among youths. He affirmed that it is a regressive tax but the health benefits would be skewed as well, poor people will have more health benefits because they will quit in larger numbers than wealthier people. He stated that from a state leader's perspective, that is not so bad because those are the people whose medical bills they are paying. Number 0292 ATTORNEY GENERAL WOODS stated that one argument is the tax will cause the creation of a black market. He stated that in talking with 21 other attorneys general, whose states have raised the tobacco tax, have not seen this result. However, it is possible but as of yet it has not been a problem. He explained that in Arizona there is a large Native American community, and they have not seen a large black market problem on the reservations. He stated that Arizona has not seen a rise in organized crime related to an underground movement to sell cigarettes at a cheaper price. Number 0311 ATTORNEY GENERAL WOODS addressed the issue of enforcement as a tool to stop teen-age smoking. He stated that logically it makes sense but practically it does not. The reality is that every law enforcement budget in the United States is strained and teen-age smoking is an important problem but does not rate with the more serious crimes. He asserted that it is impossible to put teen-age smoking at a high enough priority where enforcement will actually take place. He gave the example of the city of Phoenix, as there has been one enforcement action in the 1990s. Number 0330 ATTORNEY GENERAL WOODS addressed the issue of litigation. He stated that he hoped the state was offended that the tobacco industry sued them for thinking about suing the tobacco industry. He advised that the tobacco industry does this, because they think that they can pick on smaller states and intimidate them from taking the industry on. He continued that the days the tobacco industry wins in the court room, are over. The reasons being that the truth is out as a result of the Liggett Tobacco Company's agreement to turn state's evidence on the other four United States tobacco companies. He advised that now it is not just attorneys general, public health officials or every doctor in the United States, stating that cigarettes cause heart disease, emphysema and cancer and that nicotine is addictive; but a tobacco company. He stated that Liggett has agreed that they have manipulated that level of nicotine in cigarettes to make it difficult for consumers to quit. The company has agreed to cooperate and will now be on the plaintiffs' table in the lawsuit against the four remaining tobacco companies. He explained that in the 1960s before there was a warning, as to the medical consequences of smoking cigarettes, the tobacco companies knew that their product caused the above mentioned illnesses and/or death. He continued that the companies knew that nicotine was addictive and that there was a possibility that they could come up with a safer cigarette but did not inform the American public, nor did they produce a safer cigarette. He stated that he believes they conspired together to make sure no company did that because it would destroy tobacco's market place. Number 0350 ATTORNEY GENERAL WOODS stated that the reality is that a number of deaths from tobacco use did not need to occur if the tobacco companies did the responsible thing and disclosed what they knew. He informed the committee that Mississippi is going to trial in July, Florida in August and Texas in September. As of last night the total number of states that will be going into trial is 22. He stated that the states are asking for $1 billion to $5 billion in damages. He predicted that the states will win the lawsuits and then the tobacco companies will be in financial trouble. Number 0400 ATTORNEY GENERAL WOODS advised that Alaska move aggressively forward to prevent harm to Alaska's youth. Education is very important to inform youths of the reality of tobacco. He reiterated that the tax will require the smoker to pay for the problems caused by the product as well as offset the incidence of the problem. He urged support of enforcement efforts and community unity in this effort. He stated that Joe Camel is everywhere and is as recognizable to the average six-year-old as Mickey Mouse, which is wrong. He emphasized that lives are at stake and it is the lives of the Alaskan teen-agers who are currently making the decision about a product that could ultimately kill them. Number 0431 BRUCE BOTELHO, Attorney General, Department of Law, thanked the committees for this hearing and its active role on this issue. He also thanked Attorney General Woods for his efforts in Alaska, as an instrumental person in improving the department's management practices. He reiterated the statement that this is a serious social issue that requires a multi-faceted attack in order to bring it under control. He explained that the tobacco industry has chosen to sue Alaska, to prevent Alaska from joining with other states against the tobacco companies. He informed the committee that a motion has been filed to dismiss the case. He stated that he is confident that there will be action on that in the near future, as it is pending before Judge Sedgewick in Anchorage. Number 0457 ATTORNEY GENERAL BOTELHO explained that the department has filed, with the Governor's approval, a 150 page compliant against 12 of the largest tobacco companies doing business in this state and in the United States. He stated that the case has been filed in the Alaska Superior Court and assigned to Judge Larry Weeks, presiding judge for the first judicial district. He stated that the complaint outlines the conspiracy, dating back to 1953, by an industry that knew of the health hazards and the risk of tobacco use, but went out of its way to suppress any scientific research, which would demonstrate its harm to the public. He stated that this has enabled the tobacco industry to not develop safer tobacco products. He stated that this conspiracy shows that the tobacco industry has manipulated the nicotine content in its products as a way to hook and maintain its users as addicts. He referred to research done by the industry itself, comparing the addictive quality of nicotine to cocaine. He reiterated that the tobacco industry targets youths in their campaigns, as 90 percent of six-year-olds iden Botelho brought in a copy of Rolling Stone magazine to show a Camel advertisement that enabled users to save money on Ticket Master tickets with "Camel cash". Number 0477 ATTORNEY GENERAL BOTELHO stated that with the information available now on the effects of tobacco use combined with the Liggett settlement, would prove irresponsible for Alaska not to join in. Especially, with the opportunity for Alaska to recover public monies that have been expended for the public's health and to help remove marketing to youths. He informed the committee that he intends to put out a request for proposals to private law firms so that this matter will be dealt with on a contingency fee basis, the consequence being to make sure there is no impact on the general fund budget. This is an arrangement that has been worked out in most states. Number 0519 ATTORNEY GENERAL BOTELHO thanked Assistant Attorney General Dee Schwartz and Assistant Attorney General Doug Gardner for their time and work on this complaint. Number 0526 CHAIRMAN BUNDE asked what Arizona is seeking in monetary damages and what would Alaska be looking for. ATTORNEY GENERAL WOODS replied that they are still working on their damages model. He advised to look at the state's population and Medicaid claims. He stated that Arizona has sued the tobacco companies for contributing to the delinquency of minors. If it is illegal to sell tobacco to minors and it is proven that they are advertising to minors to commit an illegal act, they should be liable. He stated that the trial date is for October of 1998. He assessed that Alaska probably could not get a trial date before 1999. He stated that the population of Arizona is about 3 to 4 million people. He stated that in addition to himself, two others from his office and two outside lawyers are working on the issue. The tobacco industry has hired eleven Arizona law firms, every lobbyist in town and a public relations firm. He stated that it was prudent that Alaska waited for the facts to be developed before getting involved. He commended Alaska's participation. Number 0554 ATTORNEY GENERAL BOTELHO stated that Alaska is perceiving in terms of Medicaid coverage, over the last fifteen years, to be around $150 million and is also considering additional counts, such as contributing to the delinquency of minors and several accounts pertaining to consumer protection and anti-trust statutes. Number 0558 CHAIRMAN BUNDE stated that the manufacturer is being sued and asked what the possibilities are of suing the distributor. Number 0561 ATTORNEY GENERAL BOTELHO replied that it is a potential outcome but at this point it makes sense to focus collectively on the manufacturers themselves. He stated that Alaska is not in a position financially to venture too far off the primary target. Number 0572 ATTORNEY GENERAL WOODS stated that there are a lot of possibilities as the evidence unfolds, but in that case it would have to be a provable existence of knowledge in regards to the harmful effects and he stated that he was unsure if that exists. He suggested the avenue of looking at the lawyers involved, as to their knowledge of the crimes that were being committed and if so they should be sued as well. He specified that Oklahoma has been the only state that has sued the lawyers. He referred back to the Liggett case and stated that they have not seen the most sensitive document because the company has asserted it attorney client privileges. He stated that the various judges are currently deciding whether those documents are privileged or not. They will not be privileged if the documents show evidence of crime or fraud. TAPE 97-30, SIDE B Number 0001 ATTORNEY GENERAL WOODS stated that from Arizona's perspective if the documents prove that lawyers perpetrated the fraud, they should be sued as well. Number 0012 SENATOR LOREN LEMAN asked how much the tobacco tax was increased to in Arizona and when was it implemented. He asked what the results have been. ATTORNEY GENERAL WOODS replied that the tax was decided by referendum two years ago to be about 20 cents. He stated that the statistics relating to the results are not in yet. He stated that a vote of the people enabled the income from the tax to be directed to specific areas. He stated that the tobacco industry has fought every step of the way to avoid having the money spent on counter marketing. Number 0026 SENATOR LEMAN asked if he has the support of the legislature and other branches in Arizona and pointed out that Attorney General Woods was elected into his position. Number 0033 ATTORNEY GENERAL WOODS responded that it depends on who you were to ask. The legislature has not been involved in it, therefor it is varied to the individual. He stated that his guess would be that the majority of the legislators support the lawsuit. He informed the committee that the governor has multiple views on the subject, as he originally supported and requested the lawsuit but then backed off the Medicaid plan and asked him not to pursue it. He continued that the governor's last position is that they should be able to win the case on the consumer fraud and anti-trust claims and that the Medicaid plan is not needed. Attorney General Woods explained that the governor and the Mississippi attorney general are the only ones who take that view. He stated that the republican governors that support the lawsuits are Tommy Thompson, Rudy Giuliani, Christy Whitman and the Kansas governor. He stressed that support has crossed party lines. Number 0045 SENATOR LEMAN asked Attorney General Botelho if he will be requesting punitive damages in this litigation. Number 0050 ATTORNEY GENERAL BOTELHO replied that they will be seeking treble damages under the anti-trust provision, a specific provision within that section of the act. SENATOR LEMAN asked if there was anything in HB 58 that is currently drafted that would negatively impact this litigation. ATTORNEY GENERAL BOTELHO replied the only issue that may be present is if we were required to prove, in regards to Medicaid, on a person by person basis and that would be an issue of the statute of repose, as to how far back we could reach. He advised that he does not see that as an issue because they are not restricted in terms of consumer protection and anti-trust recoveries, however, it would come into play under the negligence claim if it was to become an issue. Number 0057 SENATOR LEMAN responded that he did not think he concurred with him on the statute of repose and deferred to Representative Porter to respond to that. He asked were he could get a copy of the filing and if a summary of it is available. Number 0061 ATTORNEY GENERAL BOTELHO replied that a copy would be available to the committee and there is a press release that summarizes the case, very briefly. He encouraged the committee to read the first 10 to 15 pages of the complaint, as it gives a good overview of the issue. Number 0066 SENATOR WILKEN thanked Attorney General Botelho for his efforts and hoped that the legislature will support him in the effort. He said to Attorney General Woods, "I take great comfort in you talking about being a republican and you too have identified the fact that all of us support the choices of other people when they make the choices to smoke. As an elected republican, ran on the issue of a tobacco tax and am very comfortable because I, like you, have identified that cost and I do not think I should participate in those choices. So I thank you for reminding us and the public that indeed it does cross party lines." He asked how he addressed the issue to children in Arizona. Number 0075 ATTORNEY GENERAL WOODS replied that they have contracted a small public relations company and it appears their efforts are having an impact on teen-agers. He continued that a lot of money has been spent on advertising, targeted to teen-agers, about the negative aspects of smoking. He stated that hopefully merchandizing by tobacco companies will soon be banned. He stated that Arizona has a counter merchandizing campaign in effect and is successfully selling it, redirecting the money into more anti-tobacco efforts. The key is having the advertising efforts on the teen-agers' level. He explained the "ash-kicker" which is a mobile home that is taken to various schools, that the students go through to see exhibits, such as a smokers lung's, heart and brain. He stated that no matter who the teen-ager is, no one walks out of there thinking they want their lungs to look like that. He identified California as having positive results, in that their anti-smoking campaign has brought down the rate of teen-age smoking significantly. Governor Wilson has just reinstated the campaign as it was suspended by the powers that be. He advised that Alaska needs to actively have a counter market campaign because it does work. Number 0117 SENATOR WILKEN asked if in Arizona the program is run out of the Department of Education or out of the Department of Health and Social Services. ATTORNEY GENERAL WOODS replied that it is out of the Department of Health Services. Number 0119 REPRESENTATIVE JOE GREEN asked, with 23 states having filed lawsuits, if Alaska could take advantage of some of the briefs that have been filed. He also asked if there is any thought that the remaining states, with the exception of North Carolina, will file litigation. Number 0123 ATTORNEY GENERAL WOODS stated that the first state to sue was Mississippi and it was quite a battle but he agreed that North Carolina and Virginia would probably not be candidates for this. He stated that everyone is working together, anything in the participating states will be shared with Alaska's attorney general. He stated that what happens in the first three lawsuits is going to be quite significant. If the states lost it would not fare well, if the tobacco companies lost he was unsure as to what would happen. He asserted that appeals would be unlikely because if the judgements are in the amount of $10 billion, he raised the question of how would they would be able to bond the appeal. He asserted that the tobacco industry does not have that kind of money. He stated that there is a possibility of a movement towards settlement. He continued that if there was another way to solve this issue, without suing, he would be open to it but as it stands there is not and now it is a matter of the outcome of the first three lawsuits. Number 0164 REPRESENTATIVE GREEN asked if the litigation includes in the damages, the court costs and if these costs would cause the tobacco companies to have to raise the price of their products. Number 0171 ATTORNEY GENERAL WOODS replied that domestic tobacco is important to them but their future is non-domestic tobacco. He stated that they are doing very well in the rest of the world. He stated that the situation in China is unbelievable. He stated, however, he did believe that losing the lawsuits would cause them to have to find revenue. Number 0184 ATTORNEY GENERAL BOTELHO stated that Alaska operates uniquely under the "English Rule", which entitles parties to both their costs and reasonable attorney fees. He informed that part of the recovery that they will be seeking is the cost of the attorney fees. Number 0190 REPRESENTATIVE GREEN asked "You think those will be elevated to the supreme court or will we hear them or will these all be decided among the courts?" Number 0191 ATTORNEY GENERAL BOTELHO replied that there will be a lot of motion practice as there is right now and a lot of attempts to test the limits of the law, both before and after trial. Number 0195 REPRESENTATIVE BRIAN PORTER stated that Attorney General Botelho and himself have been discussing tort reform for some time and are continuing to do so. He pointed out that the statute of repose has an exemption that deals with anyone who is committing fraud or deceit and another exception that deals with anyone who is trying to hide facts. He stated even if that statute was not in existence product liability is exempted anyway. He stated that there is a new expanded proposal for punitive damages that seems to fit this bill perfectly. REPRESENTATIVE PORTER stated that he has just finished reading Runaway Jury and referred to the extra judicial activity that has been occurring on both sides. He asked if Attorney General Woods has encountered any of those activities in his preparation or in previous trials. Number 0223 ATTORNEY GENERAL WOODS responded that he read the book, after the fact, but in Arizona he has not encountered anything relating to that. He continued that the case is on the front line, in national news, and to do some of those things in the face of tremendous scrutiny would be difficult. He is concerned that any resolution of the lawsuits would have to go through congress where the tobacco companies have done very well in the past. The leverage is that there could not be a resolution without the concurrence of the suing attorneys general. He stated that he would not concur with anything that does not fundamentally change the way the tobacco companies do business. Number 0233 CHAIRMAN BUNDE acknowledged the presence of Representative Pete Kelly. He stated that there has been a poll in Alaska by a respected pollster, that indicates 64 to 73 percent of the people support the tobacco tax depending on the form and the details of the form that the tax takes. He asked Attorney General Woods what kinds of polls in Arizona have been performed. Number 0238 ATTORNEY GENERAL WOODS stated that he can not remember all the details but the tax passed and that is indicative of support of the tax, despite the industry's expensive campaign against it. He stated that they did see some "runaway jury" tactics in that effort. He stated that he thinks the public understands that the tobacco companies have not been straight forward and the users and the companies should be paying, not the average tax payer. He reiterated the effectiveness of their advertising campaigns to youths. He stated that selling the product to adults after the risks are identified is one thing, but selling it to youths has got to stop. Number 0268 REPRESENTATIVE GREEN asked if there was a media or Hollywood approach to suppress smoking on screen. Number 0284 ATTORNEY GENERAL WOODS responded that there have been approaches but it ultimately has to be that the tobacco companies agree to stop that. He stated that they have denied it happens, but product placement is a big deal and cigarette smoking in movies is being seen. Number 0301 CHAIRMAN BUNDE thanked and applauded the efforts. He stated that if there is any justice then the tobacco industry will not only be faced with a "runaway jury", but perhaps a "runaway legislature". ADJOURNMENT Number 0305 CHAIRMAN BUNDE adjourned the joint meeting of the Senate/House Health, Education and Social Services committees at 4:52 p.m.