Tobacco money going up in smoke

Los Angeles' proposed misdirection of the settlement funds may be blatant but it's not unique.

Editorial. March 13, 2000.

Few things inspire a politician's imagination as much as what to do with a pile of ready cash.

A recent proposal by Los Angeles Mayor Richard Riordan is a particularly discouraging case in point. He wants to use the city's share of tobacco settlement funds to pay for the expected civil litigation payments stemming from a massive police corruption scandal in that city.

This is money from tobacco companies -- $300 million in L.A.'s case -- that was supposed to make up for Medicaid money spent on tobacco-related illness. It should be returned to serve the public's health and, especially, for programs that combat tobacco.

The proposed misdirection of the settlement funds, still subject to a vote by L.A.'s city council, may be blatant but it's not unique (as it is, part of the money is already slated for disabilities access). Tobacco settlement money is going for scholarships in Michigan, public employee insurance in West Virginia and school bonds in New York City. One anti-tax group in Massachusetts wants to dump settlement money into Boston's cost overrun-ridden "Big Dig" highway project. Many other states haven't said how they will spend the money -- not a good sign.

The L.A. solution also reveals a little-known threat to the full disbursement of the tobacco settlement money. To get access to ready cash immediately on what would normally be a 25-year payout requires using future payments to post a bond issue. What that means is that to raise $100 million for L.A. today, L.A.'s full $300 million will be paid to bondholders over the years. L.A. is one of a reported 20 government units considering that option to get their hands on the money now. An additional motivator behind taking the money now is the fear that the tobacco companies will declare bankruptcy sometime in the 25-year settlement payout window and the settlement agreement will become worthless.

The big winners are the tobacco companies. They got a bargain in the settlement itself, and now they can see money go for things other than tobacco control. Even Big Tobacco's sneaky reputation is working for it, prompting some communities to cut their take rather than take their chances.