FEDS CLOUD MONEY FROM TOBACCO CASES

Now that all 50 states have reached settlements with the tobacco companies to the tune of $246 billion, there are still many questions to settle. For most states, deciding how to spend the money will be among the biggest political issues this year, and perhaps for years to come.

But most states aren't rushing to spend all the money -- not yet, anyway. The reason is the federal government's interest in claiming some of the money. This claim is based on the fact that the states sought repayment of Medicaid costs related to smoking illnesses in their lawsuits against the tobacco companies. The Clinton administration reasons that, because the federal government funds about half of those Medicaid bills, it should get some of the settlement money.

But the states -- through their attorneys general -- take just the opposite view. It was the states that took on the legal burden of the lawsuits. Legislation is being drafted in Congress to make sure all the tobacco money goes to the states, not the federal government.

Meanwhile, President Clinton announced in his State of the Union address that he had instructed the Justice Department to file a lawsuit to seek repayment of tobacco-related health-care costs. The announcement further clouded the administration's position on the tobacco settlements reached with the states. On the one hand, the administration's estimates of future budget surpluses include some $18 billion dollars it thinks the states owe Washington out of the $246 billion pot. Others say half the $246 billion ought to be forwarded to the U.S. Treasury. On the other hand, the announcement that Justice would also sue the tobacco companies indicated the feds don't want the states' money.

Until these issues are resolved, states will be reluctant to spend money from the tobacco settlements for fear they will have to fork over some of it to Washington. The signals so far from the White House have only added to the confusion.