STATES COULD TAKE OVER CONTROL OF TOBACCO ISSUE

WASHINGTON - The attorneys general of 41 states who have sued the tobacco
companies have an urgent message for Congress: Pass comprehensive
anti-smoking legislation this summer, or the states will take the issue and
hundreds of billions of dollars away from the federal government.

Lawyers representing the states and the cigarette makers have secretly
discussed an alternative settlement plan that resembles a scaled-back
version of the $368.5 billion deal the two sides reached last June,
according to lawyers involved in the negotiations. The proposed settlement
would become effective if Congress fails to enact anti-tobacco legislation
this year.

Unlike the proposal in Congress, however, the settlement being discussed
would send all the money paid by the tobacco companies to the states and
none of it to the federal government, the lawyers said.

State officials said they still prefer the comprehensive national
legislation being debated this week in the Senate because it would grant
regulatory authority over tobacco products to the Food and Drug
Administration and possibly lead to the development of safer cigarettes -
something a settlement of the state lawsuits could never do.

However, Mississippi Attorney General Mike Moore said the new settlement
talks, which began in early April, were needed to give states that have sued
the tobacco industry a fallback position if national legislation fails.
Moore and others said the alternative plan also puts pressure on Congress to
pass comprehensive anti-smoking proposals or face having its legislation
made irrelevant by the states.

Washington state Attorney General Christine Gregoire said today that an
alternative plan has been a possibility since the national settlement was
reached last June.

"We have not negotiated anything," she said. "But we have . . . always said
that we would have to consider an alternative if Congress can't do it right
or do it at all."

The outcome is critical, she said, because the trial of Washington state's
tobacco lawsuit is scheduled in September.

Gregoire still hopes Congress will pass legislation this year, and she
downplayed the extent of talks on a scaled-down settlement.

Under one proposal being considered by the attorneys general, the states
would voluntarily dismiss their claims that the industry owes them billions
of dollars in reimbursement of Medicaid money spent on smoking-related
illnesses. Then the companies would agree to settle the remaining fraud and
deceptive-trade-practice issues in the lawsuits, said lawyers involved in
the discussions.

Because states receive much of their Medicaid money from the federal
government, they would be required to share much of their settlement money
with officials in Washington. If the Medicaid claims are dismissed, however,
the states would get to keep all the money, attorneys said.

"I'm not sure if that is a viable proposal or just meant to be a threat to
Congress to pay something now or risk losing the money," said Gary Black, an
analyst with Sanford C. Bernstein.

Last June, 40 states that had sued the industry for reimbursement of
smoking-related health-care costs joined with trial lawyers and many
health-care advocates in negotiating a historic agreement with the cigarette
makers.

The deal required the industry to pay $368.5 billion over 25 years, end
nearly all forms of tobacco advertising, submit to FDA regulatory control
and reduce teenage smoking. In return, the tobacco companies would have
received unprecedented protections from lawsuits.

The settlement, however, needed approval from Congress. In the eight months
that followed, the proposal took a beating from some public-health activists
who said it was too soft on the industry and from some Republicans who
labeled it as a big-government, big-taxation program.

Meanwhile, lawsuits by four states - Mississippi, Florida, Texas and
Minnesota - came due for trial. The industry settled those cases
individually for more than $36 billion combined. Lawyers said it is unclear
how the agreements in those states would be affected by either congressional
legislation or by a possible settlement with the remaining states.

Material from Seattle Times Washington correspondent James Grimaldi is
included in this report.

Checked-by: "Rolf Ernst"