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California and the West

Possible Loss of Tobacco Funds Concerns Officials


SACRAMENTO — Top state officials Monday said they are troubled at the prospect that a Florida lawsuit might cause the eventual unraveling of the massive tobacco litigation settlement and cost California billions of dollars.

The officials were reacting to a report in The Times that a huge damage award in the Florida class-action suit could prompt tobacco industry bankruptcies and cut the flow of settlement payouts to states like California and local governments.

"I'll be aggressive about defending state and local interests," said state Atty. Gen. Bill Lockyer. The possibility that the settlement could be undone is "worrisome," but it is too early to know for sure, Lockyer said.

Michael Bustamante, Gov. Gray Davis' press secretary, voiced a similar sentiment. "There is certainly reason for concern, but whether it comes to pass is another matter," Bustamante said.

Bustamante said he thinks it farfetched to believe that tobacco companies will go into bankruptcy.

California has received $294 million and is expecting another $210 million next month. The state is projected to receive $25 billion over 25 years.

The intent of the litigation that forced the settlement was to reimburse state and local governments for billions in health care costs resulting from smoking hazards.

At issue now is whether the Florida case will cut the flow of $246 billion in settlements reached in 1998 with the states. If the case goes against the industry, it could force one or more companies to file for bankruptcy. That, in turn, could reduce the money going to public agencies.

In Sacramento, the Davis administration has funneled settlement proceeds into the general fund. Critics have argued that the money should go into new spending for health care.

Davis has resisted those efforts. Bustamante said the threat posed by the Florida case shows the wisdom of the administration's approach. "Until you have [the funds] in your hand . . . you shouldn't count on it," he said.

While the companies have not said that they would seek bankruptcy protection, the threat of a massive judgment in the Dade County Circuit Court case could mean that punitive damages would reach into the hundreds of billions of dollars.

Some health care advocates questioned whether the threat of bankruptcy is real or merely a ploy. Steve Thompson, a California Medical Assn. lobbyist, doubted that the companies would really go out of business.

But, he said: "If the tobacco industry goes bankrupt and no longer produces cigarettes . . . that would be one of the best and most blessed events in America."

Half the settlement money due to go to California would be funneled to counties and four cities that filed their own lawsuits.

Daniel Wall, a lobbyist for Los Angeles County, said the county is examining what might happen if tobacco companies seek protection under the bankruptcy laws. He cautioned: "It may be too early for us to know that."



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