Up in smoke

The crowd in the breezeway at the Palm Beach County Courthouse grew larger and more excited as the minutes ticked by. Most didn't know what was going on, but word spread that the governor was soon to arrive. So was the state attorney general, along with a cadre of other notables. They were going to address the populace, deliver important news to the people right then and there in the muggy summer morning.

It would be a memorable day in Florida's history: Aug. 25, 1997, the day the "agents of death" -- the name some politicians gave the tobacco industry -- promised to pay the state more than $11 billion, a sum that later would rise to $13 billion and change. Technicians rolled out a podium and a microphone to a sunny spot. A dozen TV cameramen set up their tripods. The men in the dark, well-tailored suits gathered up front near the mike, the scribbling reporters behind them, the curious hoi poloi in the back.

Gov. Lawton Chiles was ushered through the crowd by his aides. He strode to the microphone, smiling as widely as an old 'coon with a fat fish. Attorney General Bob Butterworth was with him, grinning, all but skipping along beside his boss.

Chiles spoke: We've won. The smoking dragon has been slain. The state's historic lawsuit against the tobacco company has been settled on the day the trial was to begin in Palm Beach County Circuit Judge Harold T. Cohen's courtroom. "This has been a war, a crusade for children," Chiles said, clutching a copy of the settlement agreement in his hand. "This is a victory for Florida's children."

Two years later, the jury is still out on exactly who emerged victorious -- children, the lawyers or the politicians.

So far, only a small portion of the tobacco settlement money has been spent, on a controversial but effective anti-smoking advertising campaign aimed at teen-agers (see Disarming the smoking guns, March 3, 1999). Even though the program has shown remarkable inroads in keeping kids off cigarettes, lawmakers slashed funding for it this year.

In addition, beginning in July 2000, a $1.7 billion endowment named for Chiles -- who died last year shortly before the end of his term -- will start paying for cancer research and health programs for children and the elderly.

But the rest of the money is up for grabs as it comes in.

Purists question using the cigarette winnings for anything beyond helping Medicaid patients made sick by tobacco -- the original goal of the state's tobacco lawsuit. Fiscal conservatives see dollars that can be used to relieve the burden on taxpayers. Critics see troubling signs of the shell game politicians played with the state lottery fund; in Tallahassee, it's called "cost shifting," as when lottery dollars pledged to education merely replaced the dollars that were taken away from education and spent elsewhere. They look at the 1999 state budget that gives a billion-dollar tax break to big businesses and homeowners, but leaves 850,000 children and 1.6 million adults in Florida uninsured. One anti-tobacco activist calls Florida's use of the money "a disaster."

Problems were starting to brew with the historic settlement even as Chiles basked in the glow of victory.

Palm Beach lawyer Robert Montgomery, who led the state's "dream team" of trial attorneys against Big Tobacco, stood well behind the crowd that hot August day. As the governor and his associates glad-handed and reveled in their big win, Montgomery looked like a man whose best friend had just spit him in the eye. He was stunned.

The way Montgomery saw it, the sudden settlement robbed him of a chance to bury Big Tobacco. He wanted to parade tobacco's "evils" before the public every day in court, and he had no doubt that his team would have prevailed. The trial team, including 11 private attorneys who became known as "The People's Lawyers," had spent more than two years preparing for the battle. Something else also put a keen edge to Montgomery's fierce loathing of the industry: His father died from emphysema brought on by years of smoking.

The settlement, hammered out in secret between industry lawyers, Chiles, Butterworth and a select group from the dream team, also did something else unforgivable in Montgomery's mind: It limited severely the amount Montgomery and the other attorneys would collect. The agreement was written to override the state's contract with the lawyers, which had guaranteed them a flat 25 percent cut of the win. "The fix was in," Montgomery later said of that eventful day. "I knew it then."

By the mid 1990s, the tide was turning against cigarette makers.

In 1994, Gov. Chiles finessed a piece of legislation that shocked and horrified many lawmakers when they realized what they'd done. The amendment Chiles slipped through, benignly entitled the "Medicaid Third Party Liability Act," passed without comment in the frenzied closing days of the legislative session. It even escaped notice by the tobacco industry's $1 million team of lobbyists.

What the law did was gut tobacco's traditional defense -- to blame the smoker, not the cigarettes -- in lawsuits that claimed death or disease was caused by smoking. It also allowed the state to sue the industry to recover billions of dollars in Medicaid for health problems related to smoking.

The tobacco industry filed a lawsuit challenging the constitutionality of the law. That didn't stop Chiles. He sued the cigarette makers in February 1995, making Florida the second state, after Mississippi, to do so. The State of Florida, et al., v. The American Tobacco Company, et al., would be heard in Palm Beach County, the most convenient place for Montgomery, the trial team's leader.

Enraged Republicans tried hard to overturn the law in 1996 and voted to repeal it. Chiles vetoed that. "We smote them with the jawbone of an ass," he said in celebration of winning the skirmish against tobacco.

By the time the trial date approached, Chiles' handpicked dream team already had started to hack away at the once-invincible cigarette makers, mining gold nuggets for the state's case. In depositions, industry executives acknowledged for the first time that smoking "might have" killed thousands of Americans. Industry renegade Bennett LeBow, chairman of the small Liggett Group tobacco company, agreed to settle with 22 states that by now were gunning for the cigarette makers. Almost as astonishing, LeBow said he'd turn over thousands of secret industry documents that would fuel the state's case (see Biting the hand that feeds you).

Nationwide, anti-smoking and health advocates were turning up the heat on Big Tobacco. The industry was talking about a "global" settlement, trying to fend off the dozens and dozens of lawsuits it then faced. Surveys in the summer of 1997 among potential Palm Beach County jurors showed the state "was about to murder Big Tobacco," Montgomery said. Talking with a zeal more earnest than you find on Sunday morning preacher shows, he said, "We had them right where we wanted them. And they knew it."

The night before jury selection was to begin, Montgomery and his wife, Mary, hosted the governor and the trial team at a dinner at Sans Souci, their oceanfront estate on Palm Beach. At dinner, Chiles stood up and announced the settlement. The next day, it was announced in public. Montgomery's shock still hadn't worn off. Shock turned to anger, and anger turned to lawsuits.

Montgomery and colleagues Robert Kerrigan of Pensacola, Sheldon Schlesinger of Fort Lauderdale, C. Steven Yerrid of Tampa and James H. Nance of Melbourne sued to force the state to adhere to its contract with them. They railed against the settlement, calling it a sellout to tobacco and the out-of-state lawyers who were helping Florida. Despite enormous public pressure -- their fee demands were condemned in Congress, and Judge Cohen called them "unconscionable" --the five wouldn't relent.

Montgomery, already one of the richest lawyers in Florida, took on the state with the same vigor and panache he had aimed at tobacco. He handed out copies of the children's book "The Pied Piper of Hamlin," in which the mayor hires the pied piper to lead the rats out of Hamlin, but refuses to pay when the job is done. The piper retaliates by leading the children out of town. Then the townspeople pay the piper, he brings the kids back, and the mayor is exiled with the rats. "The mayor is not an honest man!" the people cried in the book. Montgomery made his point.

Chiles argued that $250 million for each trial team member "was pretty damned good." Still, late last year, the Florida lawyers got what they wanted; the tobacco companies agreed to pay them a total of $3.4 billion over the next 25 years (see Who got what). For Montgomery's firm, which shelled out $600,000 to get the lawsuit going, that means $678 million. "Obscene," said Gov. Jeb Bush. The lawyers' fees don't come out of the settlement money, but they're contingent on the same central premise: Tobacco has to stay in business and keep earning a healthy profit if the payments are to continue.

Even with the lawyer vs. lawyer rancor, Florida's settlement with the cigarette makers was a momentous conquest. It followed Mississippi's $4 billion tobacco settlement a few months earlier.

But Florida's win was bigger -- much bigger. The tobacco industry promised to pay Florida $11 billion over the next 25 years, and more if other states settled for more. That happened in Texas, so Florida ended up with a promise of $13.6 billion from the industry. With substantial payments already received, the state can expect about $500 million a year for the next 25 years, unless the cigarette companies go out of business.

Florida also won important concessions that Mississippi didn't, such as limits on tobacco advertising. And Florida's win gave impetus to the growing national backlash against one of America's favorite vices, smoking. "The people have won on three important battlegrounds from which we waged this war: protecting Florida's children, making tobacco pay for the damage it has cost our taxpayers, and forcing cigarette makers to finally tell the truth," Chiles proclaimed that day.

Noble ideas and greedy schemes were hatched before Big Tobacco deposited the first check in the state's bank account. In Jacksonville, they wanted to use it to help disabled veterans. In Lee County, they wanted to use it to pay for picking up cigarette butts on the beach. Some legislators had other ideas, entirely unrelated to smoking or tobacco.

The perennial school overcrowding issue was a hot one in 1997. Chiles focused on it, traveling to leaky school trailers around the state. He wanted more money to build more schools and fix old ones. Republicans in the state Legislature suggested using the tobacco money, because they weren't about to raise taxes for schools.

The Democratic governor said no.

Chiles' priority with the first check was the anti-smoking advertising campaign aimed at teens. The tobacco winnings had the potential to make a tangible difference in the lives of Florida's poorest, sickest and youngest. Those groups don't generally have much clout in the capitol.

Rep. Debbie Wasserman-Schultz, a Democrat from Weston, tried hard in this year's legislative session but failed to pass a bill ensuring the tobacco money would go to new health-related programs (see Where the money went). Now she isn't optimistic about how the tobacco dollars will be spent. "I really think you will see the money spent on general revenue projects," she said. "Transportation, anything -- you name it. It will become like the lottery, the old bait-and-switch."

If so, the bait was set with the $1.7 billion Lawton Chiles Endowment Fund, signed into law earlier this year by Gov. Bush. The fund is designed to use part of the tobacco money to "enhance or support expansions in children's health-care programs, child welfare programs, community-based health and human-service initiatives, and biomedical research." Bush wanted $2 billion, but he settled for less. It was his idea that only the interest accrued from the fund -- $150 million a year -- be spent each year, leaving the principle to make money in perpetuity. The endowment would also "ensure the financial security of vital health and human-services programs."

That's where the "cost-shifting" could come in -- at least, that's the way it worked with the Florida lottery. Lottery proponents trying to get Florida to approve the state-sanctioned gambling said most of the money would go for education. Once the lottery was approved and the big bucks started rolling in, lawmakers used the proceeds for education, but not as new money -- as replacement money. Instead of beefing up the education budget, the "old" funds were simply diverted to other projects, the lottery money replaced them, and the education budget stayed pretty much the same.

Wasserman-Schultz and others see the same thing happening with the tobacco windfall. She said Bush agreed with her "in principle" that tobacco dollars shouldn't be spent on non-health-related projects. "But when push came to shove, he wasn't there," she said of her efforts to enlist Bush's support. "I just think the spending priorities of the leadership were extremely backwards. They gave a billion-dollar tax cut to big business. But when it came to helping children and improving the health and welfare of Floridians, they weren't going to pay for that."

This year, the Legislature appropriated $397 million of the tobacco funds for health and human-services programs. It's still unclear exactly how that money will be spent. Rep. Debby Sanderson, a Republican from Fort Lauderdale and chairman of the House Appropriations Committee, said the money will go to health and family programs, though the specifics aren't worked out. "The tobacco funds are mixed throughout the whole budget," she said. "Your readers wouldn't be interested in the details."

If they were, those details would be hard to come by. "The items are everywhere," said Mike Hansen in the governor's office of planning and budget. "I'm not sure anyone has gone through all the locations. They're literally all throughout the budget." That means the money could go to enhancing prenatal programs for poor women just as easily as it could go to buying a new copy machine for a state agency.

The H. Lee Moffitt Cancer and Research Center in Tampa is one beneficiary. In 1998, Chiles pledged $100 million for a new research tower at the center. The cash was to come from cigarette tax money collected by the state, which amounts to about $10 million a year. But Moffitt executive Nicholas Porter said the money will "ultimately" come from the lawsuit settlement, indirectly funneled through the general revenue budget. He can't think of a better way to spend the lawsuit money. Florida has the second-highest cancer rate in the nation. "It allows us to do research to save lives, to prevent cancer for future Floridians," he said.

State Rep. John Cosgrove, a Democrat from South Miami-Dade, is furious about the way the tobacco money has been scattered throughout this year's budget. "It's not being spent, it's being misspent," Cosgrove said. "The state seems to be dealing with the hard-fought tobacco settlement money with a smoke-and-mirrors policy being dictated by the merchants of death." He referred to the big funding cut Republicans made this year in the anti-tobacco ad campaign. "The rest of the money is being hoarded," Cosgrove said. "Rather than being spent on the health and welfare of the people of the state of Florida, that money is sitting in some bank account, when literally the lives of Floridians are at stake. It's deplorable."

Indeed, most of the money allocated is going to pay for things that stray far from the lawsuit's original purpose of repaying Medicaid for smoking-related health care. That seems true with tobacco settlements nationwide.

"Most tobacco settlement money has been promised to such programs as public works projects, scholarships or deficit reduction, or simply will go into the black hole of state general funds," says a June 21 editorial in the Journal for the American Medical Association. "It isn't evil; it's just not where the money rightfully should go." The editorial further says the same greed that blinded the tobacco industry from doing right in protecting the public's health seems to have infected state governors and lawmakers as well.

"It should go straight to Medicaid. It should fund the program that's going to deal with these poor bastards that are dying from tobacco-related illnesses. I wouldn't build a damn bridge with it," said Florida trial team member Kerrigan. "The Republicans and Democrats are as happy as pigs in mud, because they're earmarking the money for their pet projects. The poor citizens don't have a clue."

Up until July, the only tobacco money spent by the state was for the teens' anti-tobacco campaign. Depending on who you ask, that $70 million was either a waste of money or a real success.

Chiles' goal was to "put our tobacco victory dollars to work for the children of Florida immediately." The urgency, he said a few months after the settlement, stemmed from the 3,000 kids who start smoking every day. "For the first time ever, we'll have the resources to fight back using significant dollars and our most lethal weapon -- the truth."

With Chiles at the helm, the Legislature set up the teen anti-tobacco pilot program with $200 million from the settlement, including $70 million in the first year. Chiles sponsored a Youth Tobacco Summit to collect teens to help design the program. One kid from each of Florida's 67 counties was chosen to sit on an advisory council, which approves every ad, T-shirt, logo and message that comes out of the program. They called their campaign "Truth" and put forth a series of offbeat ads on TV, radio and billboards. One showed a pasty-looking old white man in a bikini, reclining poolside with a cigarette and the message, "No wonder tobacco executives hide behind sexy models." A TV ad went like this: It's the annual Demon Awards show and the red carpet really is blood red. Join us for the much-anticipated Most Deaths in a Single Year Award announcement. Our contestants have been killing people all year in preparation for this moment. The envelope, please ... .

Then this past spring, legislators began hinting at cutting the program. The howl from angry teens incited by the threat to the campaign was heard around the state. Several hundred went to Tallahassee to protest. "I had two groups of students actually storm my office," Sanderson said. "They shouted and screamed. That is not the way to get something done. That is not the way to comport yourself in a public building."

Sanderson said she was concerned about the lack of good data on the effectiveness of the campaign, and also about the campaign itself. "I have a background in fine arts and commercial arts," she said. "I looked at the message we were getting for this kind of money, and I wondered if it was working." She said she never intended to not fund the program. But she and her fellow Republicans did suggest severely cutting it.

In the melee following the teen demonstrations, program director Peter Mitchell was fired. "Marketing to teens poses a real problem for government," said Mitchell, who now does marketing for the nonprofit Academy for Education Development in Washington. "Government is not known for its edginess; the Department of Health is not known for its coolness." But Mitchell and the teens knew their ad campaign had to be different. They had to be hip, because the tobacco industry is. And they couldn't preach. So they put kids on a train through the state, talking the horrors of tobacco use. They engaged the health departments in every county and went into schools. They got people like Melissa Joan Hart, of "Sabrina, the Teenage Witch," and singer Antonio Sabado Jr. to sign promises saying they wouldn't smoke on film.

The true measure of the campaign's success, supporters say, came when the tobacco industry signed settlements with other states that specifically prohibited them from "attacking" the industry with ads. The very nature of the campaign -- youth-oriented and "in-your-face," as the teens describe it -- caused shock waves in Tallahassee. Many lawmakers wanted a more health-oriented program, similar to ads run by tobacco companies themselves that caution "smoking may be hazardous to your health."

Kids won't listen to that, Mitchell said. "It took a huge committee from the highest levels of government, namely the governor, to make this happen," he said. "Another governor might have shied away from such an aggressive campaign like the one we had," he said. "Gov. Chiles refused to bow to the industry."

And without Lawton Chiles there to shame them into it, legislators balked at backing the "Truth" campaign. They ended up funding it with $39 million, more than the $30 million Sanderson and fellow Republicans wanted but less than the $60 million the teens -- and Gov. Bush -- wanted. Bush didn't push for the program. With its funding cut, the anti-tobacco pilot program has lost half its staff -- marketing director Mitchell will not be replaced -- and half its ad budget.

"There is no bigger competitor than the tobacco industry," said Jeff Hicks, whose Miami ad agency worked on the "Truth" campaign. Florida will spend around $12 million this year on anti-smoking ads. The tobacco industry spends $14 million a day on marketing.

From Washington, D.C., the Campaign for Tobacco-Free Kids watches how tobacco settlements are being spent around the country. When the pilot program was fully funded, Florida got high marks. Not now. "It's a disaster," said Peter Fisher, the group's manager for state issues.

Fisher said some plans for spending are inarguably good. But those are programs that already get money. Funding a program whose sole goal is to keep kids from smoking is new, and it needs the windfall dollars from the tobacco settlement, he said.

But "this isn't just a windfall for anybody who wants it," lawyer Kerrigan fumes. "It's disgusting -- spending it on slick advertising when you have children in this state without insurance coverage and people dying from cancer."