Another year, another squabble between the country's largest tobacco companies and state attorneys general, it appears.

For the second consecutive year, two of the largest three tobacco companies have withheld a significant percentage of their annual Master Settlement Agreement (MSA) payments from the states.

America's tobacco companies last week wrapped up their 2007 MSA payments of $6.009 billion. But two of three largest, R.J. Reynolds (RJR) and Lorillard, withheld a combined $672 million in disputed payments, The Bond Buyer reported recently. That represents 25 percent of the two companies' combined payment this year.

RJR deposited $561 million of its $2.2 billion due 2007 into a "disputed payments" account. Lorillard added $111 million but has declined to make public statements on the issue.

Other 2007 MSA non-payments made a total of $756 million the states did not receive this time around, a press release last week from New York attorney general Andrew Cuomo stated. That represents 11 percent of the $6.75 billion the states were expecting.

The withheld funds represent a loss to each state of around $2-$3 per person compared to MSA payments that vary by over $20 per person depending on states. Because of payment disputes with RJR and Lorillard, few states have so far reported their MSA share for 2007.

Kansas's Paul Morrison is so far the only attorney general west of the Mississippi to announce his state's share of the 2007 MSA payment. Kansas received about $50.21 million but Morrison said his office "will continue to fight to maintain the annual payments to our state" in the face of the escrows.

The RJR/Lorillard escrowed payments will join $775 million the two companies deposited last year over a similar dispute involving loss of market share since the original 1998 MSA. The companies say the $1.45 billion now in escrow represents MSA overpayments they made in 2003 and 2004.

These calculations are based on study by the Boston-based Brattle Group showing MSA payments were "a significant factor" in reduced profits for tobacco companies in 2003 and 2004, The Bond Buyer reported.

Using the study's analysis, America's largest tobacco company, Philip Morris USA, also claims it does not owe about 12 percent of the $3.5 billion it paid the states last week under the MSA.

However, the market leader has chosen not to imitate RJR and Lorillard by withhlding a portion of its MSA payment. Instead it will pursue last year's strategy of paying the full amount and aim to regain a portion by negotiation or arbitration in future, the AP reported.

New York state tops the list of reporting states so far with a $767 million MSA payment share, or around $39.00 per person. But the state was actually due $820 million, Cuomo points out, and he is now suing the escrow payers to recover the additional $53 million.

Maine received $46.3 million from the MSA pool this year, or $35.62 per person. To the west, Kentucky got $106 million ($25.40 pp) while Tennesse bagged $147 million ($25.83 pp). Kansas's $50.2 million represents $18.30 per person.

Governments are under strong market pressure to recover complete MSA payments each year because many have borrowed against the payments. The Bond Buyer says state and local governments have sold $45.5 billion worth of so-called "tobacco bonds" since 1999.