States Battle to Hold On to Tobacco Funds

The nation’s governors, displaying a united front on an issue critical to their state budgets, today plan to urge President Clinton to halt attempts by the federal government to claim a portion of more than $200 billion that states captured last year in a landmark legal settlement with the tobacco industry.

One after another, governors who are here for a four-day conference indicated Sunday their resolve to defend their share of the tobacco settlement, even though Clinton has included a major chunk of that same money in his own proposed budget.

The only distinctions heard from the assembled state chief executives were of tone, not of substance.

California Gov. Gray Davis, like Clinton a Democrat, said he would “very politely” ask the president not to take any state proceeds, which for California is projected to total $25 billion over the next quarter-century. New Jersey Gov. Christine Todd Whitman, a Republican, said she “violently” opposes any federal claim on her state’s share.

“The governors feel very strongly that this is money that came through a suit brought by the states, not by the federal government,” Whitman said. “It should be up to the states how they spend the money.” She dismissed arguments by the Clinton administration that the law entitles the federal government to some reimbursement.

More is at stake in the tussle between the statehouses and the White House than simply determining which government agencies will receive how many dollars from tobacco companies. For the president and for each of the governors, the tobacco settlement represents a windfall that could fund a plethora of new government programs or tax cuts.

The governors plan to tell Clinton their opinions during a two-hour meeting today at the White House, their first since 46 states and the tobacco industry reached an estimated $206-billion settlement in November. Four other states had settled with the industry earlier for an additional $40 billion. In addition, Clinton this year has called for a new federal lawsuit against the industry.

Clinton administration officials, aware that disputes over tobacco money could sorely test state and federal relations, say they are holding out the possibility of compromise. In effect, the administration appears to be maneuvering to obtain yet another tobacco settlement, this time between the federal and state governments.

Clinton’s newly proposed budget assumes that the federal government will receive more than $18 billion from the tobacco settlement over four years, starting in fiscal 2001.

But a senior administration official said Clinton is seeking guarantees that the billions of dollars from tobacco companies will be spent on programs for public health, anti-smoking campaigns, child development and economic aid for tobacco farming regions.

The official, speaking on the condition of anonymity, noted that federal taxpayers spend on average 57 cents out of every dollar allocated for Medicaid, the health program for low-income families and the disabled. That program, also funded by states, was a key element in many of the lawsuits against the tobacco companies as states sought to recoup the public costs of caring for people with smoking-related diseases.

With the federal and state governments sharing the cost of Medicaid, the administration official asked, “Shouldn’t the federal government have at least some assurances on how the [tobacco settlement] money gets spent?”

Some in Congress say the federal government should butt out. Sens. Kay Bailey Hutchison (R-Texas) and Bob Graham (D-Florida) have introduced a bill that attempts to bar the federal government from seizing any settlement money. The administration opposes the bill. But most of the members of the National Governors’ Assn. are expected to support it, said Delaware Gov. Thomas R. Carper, a Democrat and the group’s chairman. The group discussed the issue in a closed-door luncheon here at a hotel a few blocks from the White House.

Most governors are already laying plans for spending the money.

In California, Davis said he is counting on the availability of more than $500 million this year from the settlement--and billions more in coming years--to go into the state’s general fund “to finance education and do a number of other things.” Davis said the state deserves the money because “we won it fair and square.”

In Nevada, Republican Gov. Kenny Guinn has proposed spending half of his state’s annual settlement proceeds on state university scholarships for high school students who graduate with a B average or better. Guinn said his idea would complement current federal anti-smoking efforts. “The more education you have, the less smoking there is,” he said.

Battle Lines Being Drawn

Several states are drawing up plans for endowments to fund public health and anti-smoking programs. Some Southern states are targeting aid for tobacco-growing regions, which could be hit hard by the settlement and other public efforts to curb smoking. But Virginia Gov. James S. Gilmore said he also wants to hold about 40% of his tobacco settlement money in reserve for the state, to spend on whatever it sees fit. The federal government, Gilmore said, “should not be able to recoup that money, or even tie strings to it.”

Besides the state and federal governments, municipal agencies across the country are also preparing to spend settlement money. Los Angeles is in line to receive more than $300 million over 25 years, and Mayor Richard Riordan has said he wants to spend the money to fix 1,550 miles of damaged city sidewalks, trim 216,000 trees and build 80,000 curb ramps to comply with federal disability access law, among other uses, a spokeswoman said.