SESSION OF 2021
SUPPLEMENTAL NOTE ON HOUSE SUBSTITUTE FOR
SENATE BILL NO. 273
As Recommended by House Committee on
Judiciary

Brief*
House Sub. for SB 273 would amend statutes related to
the tobacco Master Settlement Agreement (MSA).

Policy Statement (Section 1)
The bill would add a policy statement that it is consistent
with Kansas policy to require tobacco manufacturers that
have not entered into the MSA (non-participating
manufacturers or NPMs) to pay directly to the State an
amount that:
● Prevents such manufacturers from deriving large,
short-term profits and then becoming judgment
proof;
● Requires such manufacturers to internalize the
healthcare costs imposed on the State by cigarette
smoking;
● Increases the price of such manufacturer’s
cigarettes, thereby reducing smoking rates,
particularly among youth, consistent with the
State’s policy of discouraging underage smoking;
and

____________________
*Supplemental notes are prepared by the Legislative Research
Department and do not express legislative intent. The supplemental
note and fiscal note for this bill may be accessed on the Internet at
http://www.kslegislature.org
 ● Serves as partial compensation for the financial
burdens imposed on the state by cigarette
smoking.
Change from Escrow to Payments to Kansas Endowment
for Youth Fund (Sections 2 through 4)
Under current law, NPMs are required to pay $.0188482
per unit sold into a qualified escrow fund, which may be
released to pay certain judgments or settlements or to the
extent an amount paid in a particular year was in excess of
the payment the NPM would have made under the MSA if it
had been a participating manufacturer, with the balance
released to the NPM 25 years after the date they were placed
into escrow.
The bill would require, for 2022 and each year
thereafter, an NPM to remit to the Director of Taxation
(Director) the same amount that is currently paid into escrow,
instead of paying such amount into escrow. The Director
would remit such amounts to the State Treasurer and, upon
certification by the Attorney General that the NPM did not
seek a credit or refund within one year of the date of
remittance, the State Treasurer would deposit the entire
amount in the state treasury to the credit of the Kansas
Endowment for Youth Fund (KEY Fund).
The bill would include procedures allowing an NPM who
remits funds under the new provisions to seek a credit or
refund, within one year of the date of remittance, to the extent
such amount was greater than the NPM would have made
under the MSA if it had been a participating manufacturer.
Certification, enforcement, procedural, and other
provisions would be amended to reflect the change from
escrow payments to remittance of funds to be credited to the
KEY Fund. Failure to fully pay the required remittance for any
period for any brand family, whether or not listed by the NPM,
would be added to the list of reasons an NPM or brand family
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shall not be included or retained in the directory that allows
payment of tax due upon cigarettes or sale of cigarettes in
Kansas.

Restoration of Current Law (New Sections 5 through 9)
The bill would provide, in the event that all or any portion
of the amendments made by the bill in Section 2 (replacing
escrow with payments to the KEY Fund) are adjudged by a
court to be unconstitutional or invalid, the Attorney General
shall certify to the Secretary of State that such adjudication
has occurred, whereupon the Secretary of State would cause
a notice of such certification to be published in the Kansas
Register. On and after January 1, 2022, if such publication
occurs, the amendments made in Sections 1 and 2 of the bill
would be deemed to be repealed, and Sections 5 through 8 of
the bill would take effect, as of the date of publication of the
notice, restoring current law. The bill would state that no
holding of unconstitutionality or repeal of Sections 1 and 2
would affect, impair, or invalidate any other portions of
Sections 5 through 8, or the application of such sections to
any other person or circumstance, and Sections 5 through 8
would at all times continue if full force and effect.
[Note: Sections 5 through 8 of the bill contain the current
content of the statutes amended by Sections 1 through 4 of
the bill, with minor technical changes. Section 9 of the bill
contains the triggering mechanism described above.]

Background
As introduced and passed by the Senate, SB 273
contained provisions related to the Kansas Emergency
Management Act. Language based on these provisions was
included in the conference committee report on SB 40, which
was adopted by the Legislature and subsequently signed by
the Governor on March 24, 2021.

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 On March 25, 2021, the House Committee on Judiciary
recommended a substitute bill for SB 273 containing the
contents of HB 2451, regarding the tobacco Master
Settlement Agreement.

HB 2451 (Master Settlement Agreement)
In 1998, Kansas became one of 46 states to accept a
tobacco settlement negotiated with four major tobacco
companies. The settlement, called the Master Settlement
Agreement (MSA), is aimed at reducing the use of tobacco by
young persons, settling legal claims by states against the
tobacco industry, and providing reimbursement for health
care costs of treating Medicaid patients whose illnesses were
caused by tobacco.
Each state and territory receives the proportion of the
settlement that its smoking-related health care costs bear to
the total. In FY 2020, Kansas received $53,329,192 in
tobacco payments related to the MSA.
In 1999, the Legislature passed legislation that
established a trust fund (the KEY Fund) into which tobacco
payments are credited and created the Kansas Children’s
Cabinet to advise the Governor and the Legislature on
programs to be funded from the tobacco money. The
Legislature also created the Children’s Initiatives Fund (CIF),
which is administered by the Children’s Cabinet, and statute
requires annual transfers from the KEY Fund to the CIF of
102.5 percent of the amount transferred the previous year.
Expenditures from the CIF are requested by the Children’s
Cabinet through the Kansas State Department of Education,
recommended by the Governor, and approved by the
Legislature.
[Note: Additional details regarding payments to Kansas
under the MSA, the KEY Fund, and the CIF are available in
the memorandum “Tobacco Settlement Update,” available on

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the KLRD website under the “Health and Social Services”
policy area page.]
The requirement that NPMs put into escrow an amount
of money equal to what they would pay under the settlement
is intended to level the playing field so NPMs will not have a
competitive advantage over participating manufacturers.
HB 2451 was introduced by the House Committee on
Taxation at the request of Representative Adam Smith on
behalf of Representative Patton.
House Committee on Judiciary
In the House Committee hearing on March 25, 2021, a
representative of the Office of the Attorney General (OAG)
testified as a proponent, stating the bill was needed as part
of a negotiated agreement with other states and participating
tobacco manufacturers to eliminate potential past liability
regarding Kansas’ efforts to diligently enforce its MSA
qualifying statute.
No other testimony was provided.

Fiscal Information
According to the revised fiscal note prepared by the
Division of the Budget on HB 2451, the OAG states the
amounts paid into escrow by NPMs over the past two years
has ranged from $7.5 million to $9.1 million. While the
general trend for such payments has gone up, the OAG
states it is difficult to predict the fiscal effect of enactment of
the bill, as some NPMs may choose to cease doing business
in Kansas as a result. However, enactment of the bill could
potentially increase revenue to the Kansas Endowment for
Youth Fund by $7.5 million to $9.1 million each year
beginning in FY 2023.

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 The Department of Revenue states if the equity fee is
remitted to the Department administrative expenditures could
increase by $6,000 in FY 2023 for required changes to the
agency accounting voucher system. Any fiscal effect
associated with enactment of the bill is not reflected in The
FY 2022 Governor’s Budget Report.
Tobacco Master Settlement Agreement; non-participating manufacturers; escrow;
Kansas Endowment for Youth Fund


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Statutes affected:
As introduced: 48-904, 48-923, 48-924, 48-925, 48-933, 48-939, 48-949, 65-101, 65-119, 65-118, 65-126, 65-201, 65-202, 48-925b
Version 2: 48-904, 48-923, 48-924, 48-925, 48-933, 48-939, 48-949, 65-101, 65-119, 65-118, 65-126, 65-201, 65-202, 48-925b
{As Amended by Senate Committee of the Whole}: 48-904, 48-923, 48-924, 48-925, 48-933, 48-939, 48-949, 65-101, 65-119, 65-118, 65-126, 65-201, 65-202, 48-925b
Version 5: 50-6a04, 50-6a09, 50-6a01, 50-6a03
Enrolled: 48-933