Philip Morris USA said this month it had made all of its $3.4 billion payment, but that it too believes the sum should be reduced.

Philip Morris spokesman Michael Neese said the company hoped it could negotiate an agreement with the states. "We're going to continue to strive for that resolution," Neese said.

If the negotiations don't lead to a resolution, Blixt said the issue should go to arbitration, in which a three-judge panel would weigh in on the matter. Blixt said the states would prefer the issue to be handled in state courts.

A spokesman for North Carolina Attorney General Roy Cooper indicated that a court battle could be looming.

"Attorney General Cooper believes that the people of North Carolina are due the full amount under the Master Settlement Agreement, and he will fight in court if necessary to see that full payments are made," said the spokesman, William McKinney.

There is a lag in annual payments to the states. The money owed this year actually deals with the companies' loss of market share in 2003. That year, the companies saw their share of the market drop to about 92 percent. Before the settlement, they had about 99 percent of the market.

"We're entitled to these adjustments," Blixt said, adding that states have become too dependent on the tobacco money for budgeting purposes. "States should not be spending money that they're not certain that they're going to get."

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