CHARLESTON-- State officials say major tobacco companies are threatening to withhold about $10.2 million from this year's payment to West Virginia under their groundbreaking, multibillion-dollar settlement with 46 states.

The threat has prompted Gov. Joe Manchin to divert tax revenues in his proposed budget to cover the potential shortfall, which represents 18.6 percent of the annual settlement payment. The tobacco settlement helps fund workers' compensation and state-run hospitals, state Budget Director Roger Smith said. Money allocated for workers' compensation is not in jeopardy, but about $6.7 million for the hospitals would be needed for this fiscal year if the money is withheld. Another $3 million would be needed for the fiscal year that starts July 1. Smith said tobacco companies may withhold the funds as part of a dispute stemming from the historic 1998 settlement with Philip Morris USA, R.J. Reynolds, Brown & Williamson and Lorillard Tobacco Co. The settlement resolved lawsuits filed by states seeking to recoup money spent treating tobacco-related illnesses. Tobacco company officials did not immediately return telephone calls seeking comment. West Virginia and the other states were to receive $206 billion over the next several decades under the settlement. It also requires the states to ensure that non-settling tobacco companies set aside funds in trust accounts in the event they, too, are sued over health care costs. The issue is coming to a head now because of a 2003 agreement that allows for a ruling on whether the companies that participated in the settlement lost market share because of the payments, John Dalporto, a senior assistant to the attorney general, said Tuesday.

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