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The Lawsuits
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The Health Groups' Victory

On December 2, 1994, Superior Court judge Roger Warren heard the lawsuits against AB 816. The Attorney General argued that the medical programs to which funds had been diverted had a health education component and thus could legitimately be funded from the Health Education

Account. For example, the state argued that the diversion of funds to CHDP, a medical screening program for the poor, was appropriate because three questions about smoking were included on the forms and physicians were told to provide cessation advice.

Evidence presented by ANR and ALA/ACS, however, showed that CHDP and CPO were not legitimate anti-tobacco programs: 80 percent of CHDP health screens involved children under six years of age and only 0.4 percent of those eligible for the screens smoked.[21] All county CPO services were funded by Proposition 99 Health Education Account monies, and 86 percent of these funds were used to generate matching funds for federal money. Under federal guidelines, state matching funds could not be used for interventions to prevent smoking or interventions to stop exposure to smoke during pregnancy and after birth. It was therefore impossible for these funds to be used for anti-tobacco education.

On December 22, 1994, Judge Warren ruled that AB 816 illegally diverted $128 million from the Health Education and Research Accounts. He wrote, “In my view, one can't make a cat into a dog by calling it Fido or by putting a dog collar on it. …It seems to me that the legislature has called this component of the program an education program and has attached a tobacco-related education component to the health services program, but those two facts do not, in my view, convert this health services program into a tobacco-related education program.”[22] The court ruled that the Legislature had violated the specification in Proposition 99 that the funding allocations could be amended only by a four-fifths vote of the Legislature and then only for purposes “consistent with its purposes.” The court further ruled that the Proposition 99 ballot arguments assured voters that money allocated for tobacco education and research would be spent for these purposes and that the Legislature could not amend the allocation of revenues until Proposition 99's “finding of fact” (i.e., that tobacco is the number one preventable cause of death and disease and causes pain and suffering) changed. All use of the contested funds was to stop.

At the hearing, Judge Warren had requested that both sides advise him on how to tailor the relief to be granted ANR and ALA/ACS should they prevail. The Attorney General argued that, if no other fund source for the programs could be found, “a great many needy people with serious medical problems will find themselves without access to the health care they require.”[23] Alternative funding was a possibility, according to the state, but locating an alternate funding source would require at least

ninety days. If alternate funding was not found, it would require the state an additional sixty to ninety days after this fact was established to implement the cutoff of the programs. Based on this arithmetic, the state argued that the programs should be allowed to finish the fiscal year.[23]

Lawyers for ANR and ALA/ACS argued that the courts should order the state to cease and desist immediately from the illegal expenditures. They argued that the lawsuit had been brought promptly and that the state had been warned by its own Legislative Counsel—twice in 1991 and once in 1992—that the diversions were likely illegal.[24-26] Fred Woocher, ANR's lawyer, specifically argued that

Respondents [the state] were on full notice well before AB 816 was enacted that the diversions from the Health Education and Research Accounts were illegal, and that Petitioners [ANR] were prepared to challenge the diversions in court. Having elected to violate their legal duty nonetheless, Respondents simply cannot now be heard—much less in the name of equity—to complain that they must be permitted to continue their unlawful activities in order to avoid “confusion” or “disruption” to the other programs that they have chosen to fund with the Health Education and Research Account monies. Any such confusion and disruption is solely the result of Respondents's [sic] own wrongdoing, and they cannot be permitted to use that as a justification for violating the people's will under Proposition 99.[27] [emphasis in original]

The fact that a lawsuit had not been filed before 1994, when the CHDP diversion had begun in 1989 and the CPO diversion in 1991, the lawyers argued, should not affect the cease and desist order because the health groups “did everything that they could do to prevent the health education diversions short of litigation.”[27] The groups filed suit as soon as “AB 816 increased the diversions from the Health Education Account and gutted the Research Account [and] petitioners saw that there was no recourse short of litigation.”[27]

The health groups also argued that the state's claims of harm needed to be balanced against the harm caused by underfunding the health education campaign. This assertion was based on work done at the University of California at San Francisco by Stanton Glantz, who prepared an estimate of the health impact of underfunding. One of the state's arguments was that immediate harm would be experienced by those who relied on the state for health care, while those served by the Health Education and Research Accounts would not experience immediate harm. Glantz demonstrated that, especially in the case of heart disease, there was immediate harm. Among individuals who stop smoking, the cardiovascular system starts working better by the next day; the excess risk

of a heart attack is halfway back to that of a nonsmoker in a year. Similarly, if a woman quits smoking even two-thirds of the way through her pregnancy, the chance that she will have a low-birthweight baby is substantially reduced. Based on the quit rates achieved by the Proposition 99 programs before they were cut under AB 816, Glantz figured that the short-term hospitalization costs of the additional cases of disease caused by funding the program at 12 percent instead of 20 percent was approximately $28 million in fiscal year 1994-1995. Moreover, this estimate did not include physician fees, subsequent hospitalizations, outpatient care, rehabilitation, disability costs, lost tax income, or the costs associated with passive smoking or fires. California government paid about one-third of this amount, or $9 million.[28]

At a hearing on January 19, 1995, Judge Warren granted the plaintiffs' request for an injunction against further illegal diversions in the 1994-1995 budget. The ruling was memorialized in a written order on January 23, 1995. The court ruled specifically that the $64 million in expenditures for medical services from the Health Education and Research Accounts authorized for 1994-1995 by AB 816 were illegal.

The degree to which the state was allowed to spend money that was illegally appropriated had to be established. Similar diversions that AB 816 authorized for 1995-1996 were also found illegal and enjoined. Judge Warren entered different judgments in the ANR and ALA/ACS lawsuits. In the former case, the state was allowed to spend $83,000 in CPO funds; in the latter, $4.25 million. The ANR ruling blocked all CHDP expenditures, and the ALA/ACS ruling allowed $18.5 million to be spent on CHDP. Thus, the ANR judgment blocked spending of $128 million while the ALA/ACS judgment blocked $105 million. The judge gave ALA and ACS the opportunity to sign on to the ANR judgment, but they declined on the grounds that they sought only prospective relief, following through on their assurances to legislators who agreed to be plaintiffs in the suit. Further, the ALA/ACS lawyer advised them that since ANR was asking for the full amount, they “would not really lose anything if there is a good strategic reason for asking for less” and the lesser judgment might have a better chance of not being stayed by the Court of Appeal.[29] The governor appealed Warren's decision, and the California Medical Association (CMA) and Californians for Smokers' Rights filed friend of the court briefs supporting the state.

On May 24, 1995, the Third District Court of Appeal denied the state's request to issue a stay of the lower court's ruling. A stay would have unfrozen the illegally diverted funds and allowed the governor to spend

the money as authorized by AB 816 while the appeal was in progress. The plaintiffs successfully argued that if Judge Warren's order was stayed, the contested funds would be lost forever.

The governor tried to avoid complying with the ruling. In response to the injunction, DHS verbally instructed counties to proceed with business as usual in terms of spending money on health services. The administration claimed it wanted to keep the programs alive while a new source of funds was found for CPO programs. In fact, the state waited three months (until April 21, 1995) before it mailed notices to the local health departments formally notifying them that they could not rely on AB 816 appropriations to fund CPO services.[30]

The state returned to court late in 1995 to request that it be allowed to spend an extra $3.1 million on CPO services in 1994-1995. This move was in response to the portion of the ANR judgment that restricted the state to spending $83,000 on CPO but allowed the state to ask for more. On January 30, 1996, ANR protested the state's application. Specifically, ANR pointed out that the state had not advised the counties in a timely manner to stop using funds for illegal purposes and had not used rollover funds from previous years to fund CPO services. The state, in fact, had used “new” AB 816 monies in 1994-1995 before using rollover funds from the previous years. Using the new money was prohibited by the court while using the rollover funds was not. ANR further pointed out that the state had sufficient funds to reimburse the counties for illegally spent monies. The court denied the state's request to use $3.1 million from AB 816 monies to fund CPO services.

The governor's May revision of his proposed 1995-1996 budget included a request to use $36.7 million in General Fund monies to replace the funds lost because of the lawsuits, although he made it clear he was not giving up on new attempts at diversion of Proposition 99 Health Education and Research Account funds during the 1995-1996 fiscal year.[31] While Wilson sought to keep the medical services programs funded from the General Fund, he did not seek permission to spend the contested funds for anti-tobacco education and research. He was happy to let the money sit in the bank pending appeal. Money in the bank, after all, would not hurt the tobacco industry.

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