AUSTIN, Texas (AP) — A key Texas House committee on Tuesday discussed the possibility of levying fees on cigarette companies that weren't part of the state's multibillion-dollar 1998 settlement and mulled whether to revive similar legislation that stalled last year.

Texas is one of four states that reached its own agreement with leading tobacco companies to settle lawsuits seeking to recover health care costs of treating smokers, finalizing its settlement in January 1998. Ten months later, the remaining 46 states reached a collective settlement with major cigarette companies, which also required tobacco manufacturers who were not part of that agreement to pay "non-participating manufacturers fees."

Since then, Minnesota and Mississippi have passed laws levying fees on tobacco manufacturers who weren't party to their state settlements, leaving only Texas and Florida as the states where some tobacco companies can avoid fees.

Big tobacco manufacturers claim they are getting undersold by smaller firms that can charge less for cigarettes because they aren't subject to fees in Texas. But those companies counter that the larger firms are simply worried about losing market share statewide.

Two bills introduced in the Texas Legislature last year would have levied fees of between 40 and 50 cents a pack against tobacco companies not included in the state's settlement — but the measures weren't approved.

On Tuesday, members of the House Ways and Means Committee heard testimony on whether similar measures should be drafted after the Legislature reconvenes in January.

Complicating matters, however, is the fact that revenue from such fees in other states goes into escrow accounts to guard against future lawsuits. Any new Texas fee would presumably follow the same guidelines.

Dean Ferguson of the Texas Comptroller's office told the committee that levies could generate up to $25 million a year — but that such a figure was extremely rough because officials anticipate that any new fee would violate Texas' constitutional guarantees by making certain tobacco manufacturers subject to payments that don't apply to others.

Story continues

Keith Teel, an attorney who represented major tobacco companies during the 1990s lawsuits, said that when the settlements with Texas and the other states were reached, the leading cigarette manufacturers controlled more than 98 percent of cigarette sales nationwide. Today they control only about 90 percent, he said.

"That translates into a loss of real revenue for the state of Texas," he said.

Monte Williams, representing Phillip Morris USA, held up a pack of his company's cigarettes and a discount brand made by a firm that didn't participate in the Texas settlement. He said one sold for $4.33 and the other for $3.88.

"There's a significant difference and it's not all based on product quality," Williams said. "One of the major advantages is they don't have to pay anybody to sell in the state of Texas."

Also testifying, though, was Yolanda Nader, CEO of Miami-based Dosal Tobacco which was not included in the Texas settlement. She noted that her company was founded in 1962 and was sued with larger firms by states looking to recuperate health care costs — but that Dosal was dismissed from the proceedings because there was no evidence the company deliberately misled the public about its product being harmful.

Nader said larger firms were simply trying to keep smaller ones from offering lower-priced cigarettes in Texas by promising lawmakers additional tobacco revenue that will never materialize.

"The states do not get one penny, not one cent of those escrow moneys and can only get them if they file a lawsuit," she said. "This is one thing and one thing only: It is a market-share-grab tax."