N.Y. court fight may be key to tobacco money

Giuliani-Pataki tiff threatens to delay disbursement until 2000


ALBANY, N.Y. -- The court fight over New York's share of the national tobacco settlement -- a battle primarily between Gov. George Pataki and New York City Mayor Rudolph Giuliani -- threatens to delay distribution of the money for all 46 of the states involved, lawyers and advocates involved in the settlement say.

Under the settlement, the major tobacco companies agreed last year to pay the states -- including Maryland -- $206 billion over 25 years to cover the costs of treating tobacco-related illness. But no money can flow until most of the states, as defined by a mathematical formula, have had their plans for distributing the money approved by the state courts to avoid legal challenges.

California's plan is widely seen as likely to be held up for some time, making New York's role all the more important. And as long as both New York's and California's plans are uncertain, it is impossible to reach the mathematical threshold for releasing the money.

Most states have completed their plans, and several others are expected to do so soon. People who have followed the settlement say it is possible -- even likely -- that by later this spring, so many states will be on board that New York could put them over the top. Once the formula targets are reached, the first payments to the states will be made immediately, but if they are not reached, the first payments will be made on June 30, 2000.

"New York has probably become the key, the difference between getting there soon and waiting more than a year," said Peter Fisher, manager for state issues at the Campaign for Tobacco-Free Kids, a group based in Washington that tracks the progress of the deal.

The Virginia Legislature has already allocated its first-year installment of the tobacco money, and Fisher said several other states are expected to follow suit as they approve their 1999-2000 budgets.

Many states have made at least tentative plans to use the money to ease the burden of financing health care, to start new smoking-prevention and education programs, or to pay for wholly unrelated projects, all of which may have to be postponed for a year.

Some governments, including those of New York City and Nassau County, N.Y., have talked of selling bonds against the expected stream of revenue, an idea that now faces delay until next year.

New York Attorney General Eliot L. Spitzer, who is a central figure in the lawsuit, said, "I think the soonest we could get a resolution in the courts is in about six months, and it could be substantially longer."

Opponents of smoking and officials in other states stress that if the city and the state have a legitimate disagreement, they have every right to pursue it to its conclusion.

But for Pataki and Giuliani, a pair of Republicans with a long-running feud, the dispute threatens to fix blame on them for delaying delivery of the money, just as they are trying to raise their standings nationwide.

When the settlement was reached last year with the attorneys general of the states, Dennis C. Vacco, New York's attorney general at the time, decided that the state would keep 51 percent of New York's $25 billion allocation, with 49 percent divided among New York City and the counties outside the city. New York City would receive $6.7 billion under this formula.

Giuliani contends that the city is shortchanged under this plan, and at his direction the city has sued to challenge it. Westchester and Erie counties are also plaintiffs in the suit, but their complaints are different from the city's and, lawyers in the attorney general's office say, more easily resolved.

The city has raised three main arguments against the state's formula for distributing the money: that it is partly based on population, which does not reflect the actual health costs caused by smoking; that it omits the smoking-related costs of health coverage for government workers, retirees and their families; and that it is based on incorrect figures for Medicaid costs.

Vacco's lawyers contended that the formula was correct, and that other states had used population in their allocations. And in a ruling in December that the city has appealed, a state Supreme Court justice accepted the state's formula as fair and said that the city's share compared favorably with what it would receive in other states.

Pataki supports the plan, but its original sponsor, Vacco, a Republican, is gone, having lost the election to Spitzer, a Democrat, in November. Spitzer, with nothing invested in any side of the dispute, is trying to negotiate a settlement between the governor and the mayor.

Officials in Spitzer's office and opponents of smoking, speaking on the condition of anonymity, contend that the governor is intentionally stalling a possible settlement.

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