COLUMBIA - South Carolina, like many other states, expects to spend more than $1 million in a legal fight with cigarette companies who want to cut tobacco settlement payments.

The 1998 settlement called for the nation's largest tobacco companies to pay $206 billion to 46 states, including about $77 million each year to South Carolina. Now the companies are considering reducing the settlement payments, which could leave South Carolina without $14 million it was expecting next month.

The settlement protected the companies from future financial losses by allowing them to reduce payments if new, smaller companies began taking too much of the market share, state Attorney General Henry McMaster said Tuesday.

A report due Monday will say if that has happened, McMaster said. States are expecting $6 billion by April 17, but they are worried the companies will withhold about $1 billion.

"We're in a position now where we have the big tobacco companies on the verge of withholding payment," McMaster said.

David Howard, a spokesman for R.J. Reynolds, wouldn't confirm how much tobacco companies may hold back, but he said challenging the payments is "something we are allowed to do."

The fight "will require lawyers," McMaster said. "This is one of those kinds of cases where we need to go outside and hire counsel and pay them to bring the lawsuit against big tobacco."

If there is a lawsuit, it would cost $300,000 this year and $900,000 in the next fiscal year, which begins July 1, McMaster said.

Other states expect to spend that kind of money, too, said John Dalporto, a senior assistant to West Virginia Attorney General Darrell V. McGraw Jr.

"Every state will be hit if the tobacco companies don't pay the entire amount" on April 17, Dalporto said. "Everybody is pretty much on notice that, number one, they may have a shortfall and number two, if they have shortfall, there could be significant litigation expense."

Those lawsuits would play out in each state, not a single courtroom, Dalporto said.

And they could dent state budgets.

For instance, West Virginia Gov. Joe Manchin diverted tax revenues in his proposed budget to cover $10.2 million that could be lost from a reduction in settlement money. Those funds help pay for workers' compensation and state-run hospitals.

In the short run, South Carolina's taxpayers wouldn't be hit by the loss because the state sold $912 million in bonds.

The bonds, backed by 25 years of tobacco settlement payments worth $2.3 billion, are supposed to leave bondholders bearing the risk of lower payments.

The state has a reserve fund set up that could help cover those losses, McMaster said.

While McMaster said South Carolina has upheld its part of the agreement, he says more needs to be done.

He received approval from a tobacco settlement panel to spend $340,000 to help make sure small tobacco companies aren't skirting laws aimed at protecting larger tobacco companies from competition.

Part of that money will hire two State Law Enforcement Division field investigators to determine if illegal cigarettes are being sold.