California and the West : Smokers Group Ends Challenge to Industry Settlement : Tobacco: Move means California joins other states in the possibility of getting a share of the money before June.

A smokers rights group has dropped its challenge to the tobacco industry’s massive $206-billion settlement with 46 states, helping to pave the way for the states to get their money.

Earlier a San Diego Superior Court judge had rejected the challenge of Smokers for Fairness, who contended that the deal, which is being financed by cigarette price hikes, imposed unfair penalties on smokers. A state appeals court upheld that ruling and the advocacy group decided against asking the state Supreme Court to review the rulings.

“The settlement is now ironclad in California,” said Owen J. Clements, an assistant city attorney in San Francisco, the first municipality to sue the industry.

The tobacco industry put $2.4 billion into an escrow account late last year as the first installment on the settlement. But the November 1998 settlement provided that the earliest the states would get any money is next June 30, unless 80% of all the states and states that would receive 80% of the funds have achieved what is called “settlement finality.” That is a legal term meaning that there is no pending legal challenge that could upset the deal.

Now that the final hurdle has been cleared in California, 83% of the states (38 of 46 states) have achieved finality. But since those states would receive just 79.7% of the funds, another state must achieve finality if the money is to flow before June 30. (Before the November accord, the industry had paid out $41 billion to settle with three states--Mississippi, Florida and Texas--on the eve of trial and with Minnesota just before that state’s case against the cigarette companies went to the jury.)

Industry sources said they thought it was likely that at least one of the remaining eight states would clear the finality hurdle soon, meaning that the first chunk of cash might arrive in state and local treasuries before the end of the year. The eight remaining states are Alabama, Arizona, Arkansas, Missouri, New Jersey, Pennsylvania, Tennessee and Virginia.

California, the largest settling state, is entitled to 12.76% of the proceeds--about $25 billion over 25 years. California would get about $310 million of the first $2.4 billion anted up by the tobacco companies, according to Dennis Eckhart, deputy attorney general in Sacramento.

Half of California’s money would be allocated to localities throughout the state, with Los Angeles County getting $3.3 billion and the city of Los Angeles garnering $312 million. Orange County stands to get $835 million over the same period; San Diego County $865 million and Ventura County $230 million. Those amounts could decrease if cigarette sales decline substantially, which might occur because of price hikes levied by the industry and anti-smoking advertising campaigns that are part of the settlement.

The deal has been described in terms of a 25-year payout. In theory though, the settlement runs in perpetuity. Because of that, if the tobacco industry remains profitable, California and its localities could continue to share massive sums indefinitely.

Along with monetary provisions, the settlement restricts tobacco marketing through a ban on tobacco billboard ads and stadium and transit signs. It also requires cigarette manufacturers to spend about $325 million per year to fund a new foundation to do research on smoking prevention and provide grants to the states for anti-smoking ads and education programs.