Strickland loses fight over $200 million in tobacco settlement money

2/10/2009

COLUMBUS The state of Ohio cannot confiscate more than $200 million in tobacco settlement funds that had been dedicated for anti-smoking programs, a Franklin County judge ruled Tuesday.

Common Pleas Court Judge David Fais issued a preliminary injunction preventing Gov. Ted Strickland from using $230 million of the cash that he had been banking on to help underwrite $1.57 billion economic stimulus package he and the General Assembly passed last year.

The intended beneficiaries of the trust will suffer an increase in tobacco-related disease and mortality, and suffer significant additional tobacco-related health care costs if the endowment fund is depleted and the scope and impact of the types of tobacco prevention and cessationm programs that the foundation formerly funded are reduced or discontinued, Judge Fais wrote.

The injunction goes beyond the $190 million that the now defunct Ohio Tobacco Prevention Foundation voted to transfer to a non-profit, Washington-based organization with a similar anti-smoking mission rather than allow the state to take the money in the name of economic development.

In all, there was $270 million in the fund at the time the state abruptly shut it down in the wake of that vote. A small portion of that money has been released in the meantime to the Department of Health to meet some of the state foundation s legal obligations as well as to continue some of its programs on a dramatically smaller scale.

The Washington organization, the American Legacy Foundation, claims it has a binding contract for those funds. Judge Fais will hold a full trial on that issue at a later date. In the meantime, all the money remains frozen unless the court agrees to release more of it to continue the state s anti-smoking programs.

The Democratic governor struck a deal with Republican legislative leaders last April on the package, instructing the independent foundation to turn over $230 million of its $270 million endowment balance. That would have left the foundation with about $40 million, less than its annual budget for its massive stand anti-smoking campaign targeting youths and grants for smoking cessation and treatment programs across the state.

The Ohio foundation s trustees balked and instead voted to transfer the funds to the Legacy Foundation in exchange for a promise the money would be spent to further anti-smoking efforts in Ohio. That prompted an uncharacteristically swift reaction from the governor and General Assembly, who enacted a law dismantling the foundation and confiscating the rest of the funds.

The Ohio foundation was created nine years ago with ongoing checks from Ohio s multi-billion-dollar share of a national settlement with major tobacco companies like Philip Morris and R.J. Reynolds. The idea was for payments to build an endowment in excess of $1 billion, generating enough investment earnings to keep the foundation operating in perpetuity.

For a short time, the state kept to the path. But when the economy turned sour a few years later, lawmakers began routinely diverting the settlement checks to pay for other health programs and such things as tailpipe emission testing in the Cleveland region.

Mr. Strickland permanently cut off the settlement spigot when he championed the idea of selling off future checks for an upfront $5.5 billion in bonds that are being used to directly accelerate school construction projects and indirectly underwrite property tax cuts for senior citizen and disabled homeowners. That left the Ohio foundation with the $270 million left in its bank account.

The confiscation of these last remaining funds marked the first time that the state had come after the funds after they d reached the foundation. That raised the legal question of whether the state could negate al legal contract entered into by an agency it had specifically designed to be independent body.