Legal challenges threaten quick approval of tobacco settlement

New York, Arizona are among states where counties want a bigger share

While states have been defending their tobacco settlement against federal encroachment, some also have been guarding their flanks. In New York and Arizona, for example, suits by local governments have sought a larger share of the $206 billion awarded to 46 states and six other governments.

County and city governments are basing their claims to a larger share of the settlement pie on local contributions to state Medicaid coffers. Generally, states have used Medicaid expenditures to justify their suit against the tobacco industry and allocate the settlement amount among the states and territories.

Local suits could slow down the disbursement of tobacco settlement funds to all states, not just those in which the court cases have arisen. States in which all judicial hurdles to the agreement have been cleared will receive their funds no later than June 30, 2000, but that date could be earlier if enough of their colleagues get on the bandwagon. Tobacco funds will be available to states that have approved the agreement when the settlement is cleared in 80% of the states and other areas that also represent at least 80% of the tobacco payments.

Courts in virtually all jurisdictions covering the suit have approved the agreement, but that’s only the first step. States also must ride out all possible legal challenges to the approval before reaching what the agreement calls "state-specific finality."

New York state alone represents 12% of the tobacco settlement payments. New York City wants a larger share of the state’s annual payments—about 36%—than the 26.7% offered in the most recent proposal submitted for court approval.

Another dispute in New York state involves how the state is distributing the settlement’s "strategic contribution fund," $8.6 billion set aside to reimburse the states that bore the costs of bringing the tobacco suit to resolution.

Westchester County attorney Alan Scheinkman argues that when local governments in New York complied with state requests to suspend their own suits against the tobacco industry, New York state was able to draw down a larger share of the tobacco settlement than it would have otherwise. For that reason, local governments deserve to be compensated for their contribution to bringing the case to trial.

"Our argument is, the counties should have shared in the special fund all along," he says.

For Westchester County, a New York City bedroom community of about 900,000, the strategic contribution funds could mean $20 million to $40 million in addition to the hundreds of millions not at issue, says Mr. Scheinkman.

New York state officials have, to varying degrees, supported local governments’ claim to a share of the larger "annual contributions," reflecting local contributions to the state Medicaid budget, but have balked at dividing up the strategic contribution funds the same way.

New York City likewise wants a larger piece of the strategic contribution fund and also is challenging the way the state is carving up the annual payments.

All of Arizona’s counties except one have filed a motion in Superior Court to reopen and set aside the judgement in the state’s suit against tobacco companies. Counties are seeking assurances they will be reimbursed for bearing about 37% of the costs of Arizona’s Medicaid waiver program, the Arizona Health Care Cost Containment System, since the program was implemented in 1982.

The counties, including holdout Pima County, are at the same time trying to get the legislature to route some of the settlement money back to the counties. But they’re not putting their faith in such efforts.

"The governor has suggested that we all share," says Maricopa County spokesman Al Bravo, "but nothing’s written in stone."

There are some bright spots for the settlement. California, which represents about 13% of the settlement proceeds, reached what it considers state-specific finality, says Al Sheldon, supervising deputy attorney general.

Contact Mr. Scheinkman at (916) 285-2660, Mr. Bravo at (602) 506-7063, and Mr. Sheldon at (619) 645-2089.