Tobacco Deal’s Mountain of Cash Has Tetons Buzzing

JACKSON HOLE, Wyo. — Against the awesome profile of the Tetons, one of America’s natural treasures, attorneys general from all 50 states Monday began considering how to divvy up an extraordinary treasure of a different kind: the roughly $300 billion that cigarette makers would pay in legal settlements to the states under the sweeping tobacco accord.

The annual meeting of the National Assn. of Attorneys General, being held at a lodge on the shores of Jackson Lake in Grand Teton National Park, was scheduled long before last week’s announcement that a group of state attorneys general had settled litigation against the tobacco industry for $368.5 billion.

But the meeting here was abuzz with talk about how much lucre each state would get if the deal negotiated with the industry is approved by Congress and the White House. It appears that under almost any plan for dividing the loot, California would get roughly a half billion dollars or more annually through the life of the agreement, which initially covers 25 years.

Meanwhile, there was mounting criticism of the deal Monday as the 68-page settlement document began to receive thorough scrutiny from congressional and White House aides and public health advocates.

Among the troubling details they cited:

* The industry would be able to write off its payments, meaning that the taxpayers would bear about $110 billion to $120 billion of the costs of the settlement.

* Industry obligations could be reduced by as much as 1% for each percentage point drop in annual tobacco sales, creating an anomalous situation where the size of the settlement pot is at least partially dependent on millions of people continuing to smoke.

* The industry’s obligation to pay penalties if youth smoking doesn’t go down in five years could be dramatically reduced if the cigarette makers can convince the Food and Drug Administration that they have utilized all “reasonably available measures.”

* A “passthrough” provision that may mean the industry’s payments would all be financed out of raising prices, not out of profits.

These criticisms come on top of those already leveled by former Food and Drug Administration Commissioner David A. Kessler that provisions of the deal will make it very difficult for the agency to regulate nicotine content.

On Monday, a White House aide said the FDA provisions will be examined by the first of eight working groups formed by President Clinton to review the settlement. The president has told the working groups to complete their critique within 30 days, White House spokesman Barry Toiv said at a briefing.

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The other working groups are to study: how the money will be spent, the impact of the settlement on the industry, workplace smoking, smoking-cessation programs, the impact on litigation and the industry’s obligations to disclose internal documents, international issues and how the agreement would be implemented.

The massive settlement, in addition to being the costliest to an industry in history, calls for the tobacco companies to submit to FDA jurisdiction; eliminate their most potent advertising symbols; fund a nationwide, government-run anti-smoking campaign; and pay billions for smoking-cessation programs.

In return, the industry secured significant protections against future legal liability. Among them are a $5-billion cap on the amount of damages it would have to pay in any given year, a ban on class-action lawsuits, a ban on Medicaid-recoupment suits and a prohibition on punitive damages in any of the individual product-liability cases now pending in courts around the country.

On the first day of the meeting in the Tetons, reporters flocked around Mississippi Atty. Gen. Mike Moore, who filed the first state lawsuit against the industry in May 1994, persuaded other states to join in to make the attack a mass movement and then spearheaded the negotiations that led to the settlement.

Bristling at comments by some critics, who said the industry yielded too little for the liability protections it got, Moore remarked: “To the naysayers, I say, ‘OK, guys, you do it. This country has been waiting 50 years for you to do it.’ ”

Some skeptics, led by Sen. Edward M. Kennedy (D-Mass.), contend that the settlement fund is not nearly large enough because it fails to include money to reimburse the federal government for Medicare and veterans smoking-related health costs. However, Moore recalled that he tried and failed to persuade Atty. Gen. Janet Reno to file a lawsuit similar to his.

“Everybody thought I was crazy,” when the suit was filed, Moore recalled. “We’ve got the tobacco companies right around the neck, and we’re providing the leverage for Congress and the White House to make this work,” he said.

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Many of the attorneys general, who traded suits for chambray shirts and windbreakers here, voiced at least qualified support for the deal. Even Minnesota Atty. Gen. Hubert H. Humphrey III, who on Friday ridiculed the deal as “woefully inadequate,” tempered his remarks Monday, saying it “moved in the directions I wanted” though it still needed to be beefed up by Congress.

The attorney general committee charged with coming up with an allocation formula for the $6 billion to $15 billion per year that the states would get is headed by Indiana Atty. Gen. Jeffrey A. Modisett, who hails from--appropriately enough--Windfall, Ind. He said the panel is seeking “the most fair, the most objective variables to rely upon in coming up with a distribution formula.”

He said it was likely that total health expenses for tobacco-related illnesses--both Medicaid and private costs--would be relied on heavily as the key factor in distributing funds.

In California’s lawsuit against the tobacco companies, filed three weeks ago, Atty. Gen. Dan Lungren claimed the state pays $433 million a year in Medicaid funds to care for poor people suffering from smoking-related illness.

“We expect to get at least our tobacco-related medical costs . . . and then some,” said Tracey Buck-Walsh, a special assistant on Lungren’s staff.

Although all 50 states would be compensated--even the 10 that didn’t sue--still unresolved is what share of the pot will go to localities that sued, including Los Angeles County and San Francisco, both of which sued a year ago, before 30 of the 40 states filed their cases.

“We were the first locality in the nation to sue, but we’ve been frozen out of discussions so far about any allocations,” said San Francisco Deputy City Atty. Elizabeth LaPorte.

Los Angeles County Supervisor Zev Yaroslavsky expressed similar concerns, saying the county’s annual costs for treating indigent smokers came to $370 million. Yaroslavsky also stressed that he would thoroughly review the agreement to see if it met public health goals. He said he would take his lead from his political ally, longtime tobacco foe Rep. Henry A. Waxman (D-Los Angeles).

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On Monday, Waxman’s chief aide, Phil Schiliro, said he was troubled by a number of the settlement provisions, echoing Kessler’s concerns about how the settlement could make it very difficult for the FDA to reduce nicotine levels in cigarettes.

One feature of the settlement that has received little public attention is its prohibition on smoking at most work sites and public places with the goal of protecting millions of people from secondhand smoke. Efforts by the Occupational Safety and Health Administration and some congressmen, including Waxman, to prohibit public smoking on a nationwide basis have languished in recent years because of tobacco industry opposition.

Nonetheless, Schiliro said he was disturbed by a provision exempting bars, casinos, bingo parlors and restaurants from the agreement’s landmark restrictions on secondhand smoke.

‘You’re exempting a class of employees from protection even though the federal government recognizes secondhand smoke as a carcinogen,” Schiliro said. “At the same time, the settlement takes away the ability of these individuals to file a class-action suit against the industry in the future.”

Levin reported from Jackson Hole and Weinstein from Los Angeles.