Battle Builds Over Tobacco-Settlement Funds

Ventura County supervisors’ court battle with a private hospital over who will control a $260-million tobacco settlement could be a precedent-setting case with potentially dire effects on local government across the state, legal experts and county officials say.

Supervisor Frank Schillo said any local treasury could be raided by special interest groups if the county is unable to block a proposed initiative that would transfer control of its tobacco money to seven private hospitals in Ventura County.

“If this passes, it would be very easy for anyone to get people to vote to take away money from cities’ and counties’ general funds,” Schillo said. “They should be very anxious about what’s going on here.”

The county filed a lawsuit Tuesday that seeks to invalidate the Community Memorial Hospital-sponsored initiative as an illegal grab of public funds. The suit was filed against Michael Bakst, the hospital’s executive director.

In doing so, the county became the first local government in the state to turn to the courts in an effort to hang onto its share of the national settlement by tobacco companies over the costs of treating smoking-related illnesses.

Legal experts say several questions are at the center of the litigation:

* Can voters dictate through the initiative process how their county’s or city’s share of this settlement and future windfalls from lawsuits can be spent?

* If this initiative is upheld, will the tobacco settlement essentially disappear as a supplemental funding source for general government programs?

* Would enactment of this initiative signal an open season not just on the tobacco settlement but on entire government treasuries by special interest groups?

The last question has county leaders most concerned, and with good reason, said Erwin Chemerinsky, a constitutional law professor at USC.

“It’s a disaster scenario,” he said. “If it turns out the initiative process can control local government spending, there’s no reason it should be limited to windfall from lawsuits. It could be expanded to control all revenues. Whatever group doesn’t like the way money’s being spent, they’d start initiatives to try to control it.”

In its lawsuit, filed in Superior Court, Ventura County argues Community Memorial’s measure is unconstitutional.

Attempts to wrest control of tobacco dollars are also a concern in other parts of the state. An initiative to be put before Orange County voters this fall would require that county to spend the majority of its tobacco settlement on health care, much of which is contracted through private providers.

In Los Angeles, meanwhile, officials earlier this year drew criticism for a proposal--later scuttled--to spend settlement dollars on lawsuits resulting from the Rampart police scandal.

And with $21.3 billion in tobacco settlement funds at stake in California over the next 25 years, legal experts say elected officials throughout the other 57 counties and four largest cities should be watching Ventura County’s case, even if they aren’t worried about an immediate challenge to their tobacco settlement funds.

In San Diego County, where supervisors already have earmarked tobacco settlement dollars for health care programs, County Counsel John Sansone said there is little concern a private interest would use the initiative process to redirect the funds.

But Sansone shares Chemerinsky’s concern on the broader reach that special interest groups could have if Community Memorial’s proposal were upheld by the courts.

“It would essentially turn inside-out the state Budget Act,” Sansone said. “The implications in my view are that tough decisions [reserved for elected officials] could be decided by special interest groups with the wherewithal to get their message out.”

Orange County Counsel Laurence Watson echoed the same concerns in a recent interview.

“If local group A can do it,” he said, “then what’s to stop B through Z from coming in with their own initiatives? And then, how does the organization function when competing special-interest grabs for money exceed what’s available?”

Lawyers for Community Memorial defend the initiative, saying the notion their plan would drain government budgets is ridiculous.

Meanwhile, Community Memorial lawyers say, if a court does strike down the initiative, it could simultaneously invalidate popular state and local initiatives enacted in recent years, including a Ventura County ordinance requiring supervisors to increase public safety agencies’ budget each year and a statewide tax on cigarettes.

“It would mean that when public safety groups attempt to qualify initiatives dedicating a portion of the revenue to meet public safety needs, they’ll no longer be able to do that,” hospital attorney Steve Merksamer said. “Because they’re [the county] trying to argue the public cannot allocate the revenue through the initiative process, only the supervisors can.

“That would have terrible consequences for public safety and law enforcement, certainly in Ventura County and in other places.”

Richard Martland, another lawyer for the hospital, said the county should be criticized for refusing to put the initiative on the ballot, rather than placing it there as the state Election Code requires and then filing a lawsuit arguing it should be taken off.

“While the litigation is going on, you can’t get it on the ballot,” Martland said. “Even if you prevail, you’re forced onto the 2002 ballot.”

But on Wednesday, Chief Administrative Officer Harry Hufford defended the board’s move, saying it was made in the interests of protecting the public.

“Nobody’s going to jail, there’s no contempt of court,” Hufford said. “We’re asking a judge for permission to keep it off the ballot.”

If a judge does require the initiative be placed on the ballot, county leaders will at least have shown residents how strongly they feel against the initiative, Hufford said.

And if the courts agree and keep the measure off the ballot, Hufford argued, it would save voters the potential frustration of having the measure thrown out by the courts after it is passed.

Fred Woocher, a Santa Monica lawyer advising the county, said while opponents may take issue with the county’s move, in reality it becomes moot once the case goes before a judge.

“It’s very hard for a judge to say, ‘I’m not actually going to look now and see whether the measure is valid,’ ” said Woocher, who typically represents citizens’ groups working against local government to get a measure on the ballot.

“I’ve toyed with the idea of trying to persuade a court not to even look at it until they put it on the ballot. But . . . the court says, ‘Well, we’re here, it doesn’t make sense to send it away, because it will just come back.’ ”