Debate Flares Over Plans for Tobacco Funds

By PETER M. WARREN

April 16, 1999 12 AM PT

TIMES STAFF WRITER

The national tobacco-industry settlement is about to shower $1 billion annually on California through 2025, and political and health care leaders--like a family bickering over a bequest--can’t agree on how to spend the windfall.

In the next several months, from the state government to the county and city level, pitched battles will be fought over the bounty. Already some are wide-eyed at suggestions by top elected officials that the tobacco cash should be spent on Los Angeles city sidewalks or Orange County bankruptcy debt.

At issue is not only how to allocate the money, but whether government has a moral and fiscal responsibility to use settlement funds to reduce smoking and care for people with illnesses often caused by tobacco. Some also question the wisdom of using the cash to create projects that would lose funding should the payments stop after 2025.

In San Diego County, where public spending on health care took a back seat earlier in the decade to other budget priorities, supervisors already have voted to put its $945 million in a health care trust fund.

“Thousands of people have died for these dollars,” said county Supervisor Rob Roberts. “We felt it would be criminal if we didn’t ensure that these dollars went into health care in the community and tobacco-related issues.”

The state and the counties are guaranteed about $25 billion through 2025, with half going to the state and the rest split among the counties and four cities that filed their own lawsuits against the tobacco industry. The payment formula changes after that, based on the assumption that there will be decreased use of tobacco, said Nathan Barankin, spokesman for Atty. Gen. Bill Lockyer, whose office represented the state in the litigation.

“It is highly unlikely there will be nothing, but it is not possible to tell what the sums would be,” he said.

State legislators also are intensely interested in what happens with the bounty. More than a dozen bills are pending that would dictate how the tobacco settlement money should be used. They range from several that would leave state and county governments entirely free to spend the money in any way they choose to measures that would designate specific spending, such as a plan to build a new county hospital in Los Angeles.

The national tobacco settlement in November ended more than 40 pending lawsuits filed by states, counties and cities against the tobacco companies. The firms agreed to pay $206 billion to 46 states. Four other states earlier had settled with the industry for an additional $40 billion. The suits sought compensation for the cost of paying for tobacco-related illnesses as well as a variety of anti-trust, fraud and anti-consumer claims.

The states last month were successful in beating back an effort by the Clinton administration to steer part of each state’s share of the settlement to tobacco-related health and anti-smoking campaigns, as well as aid to tobacco farming regions.

The U.S. Senate backed governors’ pleas for local control, but state officials remain wary that the federal government will seek a piece of the settlement, which is based in part on compensating government health insurance programs--such as Medicaid--for the cost of tobacco-related illnesses.

In California, some are adamant that the counties should similarly be free from strictures from Sacramento.

“This is local money,” said Los Angeles County Chief Administrative Officer David Janssen. “It is ours and legally they can’t tell us what to do with it.”

State Sen. Joe Dunn (D-Garden Grove), who before his election last year was involved in the tobacco litigation, is charged by Democrats with corralling all the legislation and devising a plan for joint hearings in the State House.

Legislators face a moral and financial imperative, he said.

“We are at a unique point in history,” Dunn said. “We either make the decision to reinvest the dollars into health care for tobacco-related illnesses and tobacco-control programs or 25 years from now we as a state are going to be right back in the same situation we are now with no recourse to [sue] the industry.”

Rather than using a blunt weapon to force counties to use the money on health programs, Dunn suggested using state matching funds to encourage counties to spend the money on anti-smoking campaigns and care for tobacco-related illnesses.

“If this money is spent on football stadiums or even something as laudable as improved roadways in local communities, we are not addressing what the litigation and settlement is all about,” he said.

Some local-control advocates favor a bill by Assemblyman Dean Florez (D-Shafter) that would authorize counties to sell bonds repaid with their annual tobacco payments to finance capital improvements such as hospital construction. The arrangement also would protect against the state raiding the county’s portion of the settlement in future years, he said.

Gov. Gray Davis initially budgeted to the general fund the $562 million the state will get from the first two installments. But that could change once tax revenues begin arriving after the April 15 filing deadline.

Davis has identified anti-smoking education programs as a priority, but has indicated he would use some of the money for school improvements, state employee raises and a reserve fund.

The settlement money is distinct from other large pools of tobacco-related cash generated each year under Propositions 99 and 10. Both measures tax tobacco sales.

Prop. 99, passed in 1988, will raise about $420 million this year with the money spent on health care programs, anti-smoking education and advertising, as well as some money for counties. Prop. 10, approved last year, will raise about $750 million annually, with the bulk of the money distributed to counties for early childhood health development programs.

Even with this seemingly steady flow of tobacco money, health care advocates disagree about how to spend the settlement windfall and what’s the best way to pressure county government to commit the funds to medical care.

“There is a patchwork of activity throughout the state,” said Steven Thompson of the California Medical Association.

In Orange County, a coalition of health care groups--which includes business leaders, doctors and hospital administrators--is highly critical of plans to spend the money to retire bankruptcy bonds.

They are gathering signatures to persuade supervisors to commit to spending the $912 million on health care, especially for the uninsured and working poor.

Supervisor Chairman Chuck Smith believes these advocates are shortsighted. “We spend $75 million a year in interest,” he said. “If we let it ride, it is just money going down the rat hole.”

Los Angeles too has its disagreements.

Supervisors have taken the position that its $3.4 billion in tobacco settlement money will go to supplement existing outpatient care programs and alleviate other public health problems, said Janssen.

But the commitment has caused friction on the board, where there is sharp disagreement over whether a new county hospital should have 600 or 750 beds. In support of the larger facility, Sen. Richard Polanco (D-Los Angeles) has a bill to require tobacco funds to go to building a new County-USC Medical Center.

Mayor Richard Riordan wants to spend Los Angeles $313 million on fixing sidewalks and installing 108,000 curb cuts to avoid a federal suit under the Americans with Disabilities Act. “Yes, it’s a health-related program,” said spokeswoman Jessica Copen.

The idea has been criticized by the American Lung Assn. of Los Angeles County. “We need to have curb cuts,” said Johanna Goldberg, vice president of the group. “But this money should be spent to halt the marketing of tobacco to children, to provide protection from second-hand smoke and to reimburse the cost of lung disease related to tobacco use.”

Even in San Diego, the first county to promise to spend every dime of its $945 million share on health care, that hasn’t resolved the expected bickering over dividing the pie.

“We are going to have a huge food fight within the health community over how best to spend those dollars,” said Dr. Robert Ross, director of the county’s Health and Human Services Department.

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Tobacco Windfall

Tobacco companies will pay local governments in California an estimated $12.5 billion through 2025, with undetermined payments to continue indefintely, under terms of a lawsuit settlement. All 58 counties, plus the cities of Los Angeles, San Diego, San Francisco and San Jose are eligeble. Southern California totals, in millions:

Counties

Los Angeles: $3,400

San Diego: $945

Orange: $912

San Bernardino: $536

Riverside: $443

Ventura: $253

Kern: $206

Santa Barbara: $140

Imperial: $41

Cities

Los Angeles: $313