Crosscutting Issues

Judiciary and Criminal Justice

A "Containment" Strategy for

Adult Sex Offenders on Parole

About half of the 7,300 adult sex offenders now under state parole supervision are considered to pose a high risk of committing new sex crimes and other violent acts. Very few of these offenders have received any treatment while in prison to curb their pattern of criminal activities, and only a fraction receive intensive supervision, treatment, and control after they are released into the community. Two out of three fail on parole by committing new crimes or parole violations. A program to address this public concern by sending such offenders to state mental hospitals is proving costly and is holding relatively few offenders.

In light of these concerns, we recommend the implementation of a more cost-effective strategy of "containment" of high-risk adult sex offenders. The containment strategy includes longer and more intensive supervision of high-risk adult sex offenders released on parole, regular polygraph examinations of sex offenders, and pre- and post-release treatment programs to help control the behavior of habitual sexual offenders.

Sex Offenders in Communities A Major Public Concern

Although felony sex crime rates have declined in California in recent years, the growing presence of adult sex offenders in the community remains a major concern of the Legislature and the public. This concern has prompted the state to take a number of steps to further the arrest and punishment of such offenders, tighten sex offender registration requirements, and notify the public when such offenders are paroled to their neighborhoods.

The Community Impact of Sex Offenders

Registration Requirement. About 80,000 persons are required by state law to register for life as sex offenders with their local police chief or county sheriff because they were convicted of felony or misdemeanor sex-related crimes such as rape, child molestation, sexual assault, indecent exposure, or possession of pornography.

About 7,300 of the adults subject to registration requirements are under state parole supervision, with about 6,800 of the nearly 15,000 sex offenders now held in state prison released to parole each year.

Reported Sex Crimes on the Decline. The presence of these adult sex offenders in the community, and the risk some pose to public safety, has been a concern to the public and to the Legislature. This remains the case even though the numbers of reported sex crimes and arrests in California for sex crimes have declined in recent years. The number of reported rapes, for example, dropped from 12,700 in 1990 to about 10,200 in 1997--a decrease of almost 20 percent. The number of adults arrested for felony child molestation was about 3,900 in 1990, but in 1997 was 3,200--a decrease of about 17 percent. Significant declines in adult arrests have also been documented during the 1990s for such misdemeanor sex crimes as indecent exposure, annoying children, possession of obscene matter, and lewd conduct.

Many Crimes Unreported. One cause of the continued public concern is that many serious sex crimes are never reported to authorities and thus result in no arrest or punishment of the offender. National data and California criminal justice experts indicate that sex offenders are apprehended for a fraction of the crimes they actually commit. By some estimates, only one in every three to five serious sex offenses are reported to authorities and only 3 percent of such crimes ever result in the apprehension of an offender.

Another cause of concern is the effects of sex crime upon its victims, whom statistics show are overwhelmingly women and children. Academic studies and California Department of Corrections (CDC) data confirm that a single child molester can abuse hundreds of children and that his crimes often go unreported and unpunished over many years.

A Different Criminal Profile. Sex offenders can be distinguished from the overall population of adult felons now supervised on parole in a number of significant ways. The CDC statistics indicate:

The State's Approach to Dealing With Sex Offenders

The public's concerns about sex offenders has prompted the state to take a number of steps in recent years, sometimes in concert with federal and local law enforcement efforts. The significant actions taken in California are outlined below.

More and Longer Prison Sentences. State laws now provide longer prison terms for certain adult offenders who commit sex crimes or have a criminal history that includes such crimes.

One such measure was the so-called "One-Strike" law (Chapter 14, Statutes of 1994 [SB 26x, Bergeson]), which requires sentences of at least 25 years to life for specified felony sex offenders with a prior sex offense. As of September 30, 1998, 172 one-strike offenders had been imprisoned under its provisions. The annual number of one-strike commitments has been growing and now exceeds 69 per year.

The "Three Strikes and You're Out" law, also enacted in 1994, has significantly affected adult sex offenders. That is because prior felony sex convictions on an offender's record often count as "strikes" that bring a longer sentence for any subsequent felony conviction. As of September 30, 1998, about 1,400 sex offenders had received second- or third-strike sentences.

Due in part to these sentencing laws, the number of offenders sentenced annually to prison for felony sex crimes increased by 27 percent during the 1990s. About 2,600 court-ordered prison admissions per year are now for felony sex offenses. Because the average prison sentences handed down by the courts for felony sex offenses are getting longer, the number of adults held in prison for felony sex crimes has grown even faster and now exceeds 10,000 inmates. In addition, another 5,000 offenders are now being held in prison whose principal commitment offense was not a sex crime, but who nonetheless meet the definition of sex offenders because they committed such an offense in the past.

Parolees who violate the conditions of their parole by committing new sex offenses are being returned to prison more frequently by the Board of Prison Terms (BPT). The annual number of parolees returned to state custody in this way has more than quadrupled during the 1990s, with about 2,600 parolees returned to custody for sex-related parole violations during 1997-98. While BPT revocations of parolees have grown significantly overall, revocations for sex crime-related parole violations have grown even faster. Some categories of offenders, such as those committing incest, are being returned for substantially longer periods of time.

Tighter Registration Requirements. Beginning in 1947, state law has required certain felony and misdemeanor sex offenders (and certain other offenders such as arsonists) to register at least once per year--more often if they change their place of residence--with the local police chief or county sheriff. A series of recent state laws has strengthened the registration requirements and those requirements are being more rigorously enforced.

For example, Chapter 864, Statutes of 1994 (AB 1211, Rainey) now makes it a felony for certain sex offenders to fail to register and mandates incarceration of repeat violators. Other measures have narrowed the time period when sex offenders are required to reregister after moving, required transients to register every 90 days, established preregistration procedures for offenders released from jail or prison, required offenders who change their names to reregister, and required them to provide blood and saliva samples that can be used for DNA matching to solve crimes. The proposed 1999-00 budget requests $3.9 million to collect DNA samples from offenders now held in state prison.

Community Notification Efforts. In conformance with a federal statute known as "Megan's Law," named after a New Jersey child murdered by a sex offender, state and local law enforcement authorities in California have implemented programs to notify residents when a high-risk sex offender is present in their neighborhood.

The state distributes CD-ROM computer discs to local law enforcement agencies and operates a "900" telephone hotline to provide the public with information on the community of residence and zip code of felony sex offenders. The Governor's budget requests $183,000 to update the information on a monthly instead of the present quarterly basis. The state provides detailed information to local law enforcement agencies prior to the release of high-risk sex offenders, and authorizes those agencies to provide specific warnings and information about such offenders to schools and individuals determined to be at risk from their presence in the community.

Sexual Predator Apprehension Teams. The state has established teams of Department of Justice special agents in Sacramento, San Francisco, Fresno, and Los Angeles to investigate and track predatory and habitual sexual offenders. The state also participates with local law enforcement agencies in task forces created in Santa Clara and Los Angeles Counties to focus on the arrest and conviction of persons committing violent sexual assaults. According to the department, its teams of agents have arrested 800 individuals for sex and nonsex felony crimes during its first three years of operation.

"Sexually Violent Predator" (SVP) Law. Following the lead of several other states, California has enacted legislation (Chapters 762 and 763, Statutes of 1995 [AB 888, Rogan and SB 1143, Mountjoy]) providing for the court-ordered civil commitment to state mental hospitals of any offender determined to be a SVP. The commitments are sought for state prison inmates as they approach their scheduled parole dates. We discuss the SVP program in more detail later in this analysis.

In addition, several hundred sex offenders who are prison inmates or parolees are receiving mental health treatment services at state mental hospitals or community-release programs operated by the Department of Mental Health (DMH). We discuss these treatment programs later in this analysis.

Other Actions Targeting Sex Offenders. State law has created self-disclosure requirements and other barriers to the employment of sex offenders at such places as schools, youth programs, and community care facilities. Parolees with a history of sex offenses are now required to disclose their criminal past. One recent measure (Chapter 96, Statutes of 1998 [AB 1646, Battin]) prohibits authorities from placing a child molester who is released on parole within one-quarter mile of an elementary school.

Courts were also authorized under state law (Chapter 596, Statutes of 1996 [AB 3339, Hoge]) to order sex offenders who have assaulted children to undergo medication treatments (so-called "chemical castration") intended to curb their sexual impulses. As of November 1998, only one sex offender had been ordered to submit to this procedure.

The BPT and the CDC are subjecting some sex offenders to electronic monitoring in a pilot project authorized by Chapter 867, Statutes of 1995 (AB 1804, Goldsmith), that requires a report to the Legislature by January 2000.

Weaknesses in the State's Approach

While the state is aggressively apprehending and institutionalizing adult sex offenders, it is doing relatively little to prevent high-risk sex offenders released on parole from committing new crimes. Almost two out of three sex offenders are failing on parole by committing parole violations or new crimes. Efforts to address this concern by sending such offenders to state mental hospitals or back to prison are proving costly and are holding relatively few offenders. Very few sex offenders released on parole received any treatment while in prison to curb their pattern of criminal activity, and only a fraction receive intensive supervision, treatment, and control after they are released on parole into the community.

A Flawed Parole System

In our Analysis of the 1998-99 Budget Bill (see page D-11), we concluded that there were major flaws in the state's adult parole system. We raised concerns about the way parolees were supervised and controlled in the community, and the inadequate resources provided for prison and parole programs that could assist offenders in reintegrating safely into the community. In our view, the cycle of parole failure and reincarceration resulting from the state's approach was driving up state costs while compromising public safety.

Our further analysis has identified similar problems in the way the state manages its population of sex offenders. A program intended to divert high-risk sex offenders released from prison into state mental hospitals is proving costly and currently holding relatively few offenders. Supervision and control of the vast majority of such offenders who are released on parole is inadequate. Few adult offenders are participating in pre- or post-release treatment--an approach proven effective in reducing criminal sexual activity--and tools such as polygraph examinations are not available to assist in their treatment and control.

Inadequate Supervision of Parolees

High-Risk Offenders Identified. The CDC has established criteria to help determine whether a sex offender who is being released on parole poses a high risk of committing a new offense. Those criteria include evidence that the offender has an established pattern of deviant sexual behavior. On the basis of these criteria, CDC has estimated that 48 percent of the adult parolees who are required to register as sex offenders--about 3,500 as of June 30, 1998--should be classified as high risk.

The CDC has established a specialized supervision program for the sex offenders it considers to be high risk. Under this program, each parole agent is assigned 40 high-risk sex offenders to supervise (less than half the average of 82 cases handled by parole agents). High-risk offenders remain on this special, more intense, caseload for two years and may stay on it longer if necessary.

However, CDC has established only 15 such specialized caseloads at seven locations around the state. As shown in Figure 4, only 600 of the 3,500 high-risk sex offenders on parole are receiving this more intensive level of scrutiny by parole agents. Most of the others are assigned to so-called "high-control" caseloads, in which one agent handles an average of 55 cases.

The differences in caseload greatly affect the number of contacts that regularly occur between a parole agent and a sex offender--the primary means of ensuring that a parolee is in compliance with conditions of his parole. The CDC indicates that an offender on a 55-to-1 high-control caseload must be contacted by a parole agent at least once per month, while a parolee on a specialized sex offender caseload of 40 to 1 must be contacted at least three times per month.

Supervision Period. The customary period of parole supervision for most high-risk sex offenders is established in state law as two years, but can be extended by BPT to three years "for good cause." Offenders now receiving life sentences under the One-Strike or Three-Strikes laws will be subject to parole supervision for five years, but none are likely to be released from prison for many years.

Many correctional professionals and experts on deviant sexual criminal behavior agree that a standard two- to three-year period of parole, as has been established in California, is insufficient for high-risk sex offenders. The likelihood that they will commit new crimes, particularly sex offenses, is believed likely to persist for much longer for some individuals, possibly for the rest of their lives. Some child molesters, we are advised, appear to have a pattern of reoffending within months of their discharge from parole, even though they may have stayed out of trouble during their entire parole period. Notably, other states, such as Colorado and Arizona, are subjecting selected groups of adult sex offenders to at least a minimal level of community supervision for the rest of their lives in an effort to deter future criminal behavior.

Few Offenders Receive Treatment

Control, Not a Cure. Correctional professionals and experts on deviant sexual criminal behavior are in general agreement that no treatment program can "cure" a person with criminal sexual tendencies. However, there is a growing body of academic evidence suggesting that some therapies, often referred to as "cognitive-behavioral treatment" or "relapse prevention," can enable some high-risk sex offenders in prison or on parole to learn how to curb their impulses to commit further criminal acts.

Experts on this subject indicate that, to be effective, such programs must (1) be tailored especially for sex offenders, (2) be structured to progress through multiple phases, (3) address individual problems such as addiction to drugs or alcohol that may be related to their pattern of criminal behavior, (4) be of sufficient duration and intensity to be effective, and (5) have a strong "aftercare" component to ensure there is not a return to criminality after their release to the community. Medication treatments that can reduce the intensity of an offender's sexual impulses are used in conjunction with relapse-prevention therapy for particular cases. (Informed consent and medical protocols have been used in these instances.)

Sex offender treatment programs containing some of these elements have been implemented for California's sex offenders in the past, but are rarely available now for either prison inmates or parolees. This is the case even if an offender's criminal record was deemed so serious that it resulted in his referral to DMH for evaluation as an SVP. In cases when a sex offender does not receive an SVP commitment, he ordinarily would be subject to intensive supervision in the community but probably will not participate in a specialized sex offender treatment program.

The Sex Offender Treatment and Evaluation Project (SOTEP) Program. The DMH operated a relapse prevention program known as SOTEP from 1985 through 1995. The CDC inmate volunteers were transferred to the state mental hospital at Atascadero for 18 months to two years for sex offender treatment, with one year of aftercare following their release on parole.

Some groups of adult offenders participating in SOTEP evidenced lower rates of committing new sex crimes after their release to the community, although in most cases the degree of improvement was not statistically significant. The DMH evaluators of the program believe SOTEP might have proven more effective if the treatment program were of a longer duration, if more emphasis had been placed on practicing offender self-control techniques and less on individualized therapy, and if the aftercare component had stronger parole supervision and treatment.

The Legislature approved a 1995 measure to extend the SOTEP program for three more years, but it was vetoed by the Governor. The administration said it rejected the continuation of SOTEP because it was "no substitute" for a program for civil commitment of SVPs. Although the Governor's proposal to establish a SVP program was later approved, authority to continue SOTEP was never restored.

Parole Outpatient Clinics. A minimal level of mental health services continues to be provided by CDC for sex offenders through its four Parole Outpatient Clinics (POCs), which are focused on evaluation, counseling, and treatment of parolees with serious mental disorders. The CDC's practice is to refer all parolees subject to sex offender registration requirements to a POC, regardless of their mental condition. This is the case even though only a fraction of such offenders--as few as 10 percent, according to experts on sex offenders--have a diagnosed serious mental disorder such as schizophrenia. At any given time, more than 5,100 sex offenders are on a POC caseload.

We are advised by CDC that few of the sex offenders sent to the POCs are receiving the type or intensity of specialized treatment provided in successful relapse prevention programs. Following an initial psychiatric evaluation at a POC, most are in contact with its clinical staff only about once every 90 days. That compares with relapse prevention programs providing a minimum of at least several hours of programmed counseling and therapy every week. We discuss a better approach to this use of POC resources later in this analysis.

The DMH Programs. The only comprehensive programming remaining for California adult sex offenders occurs within the state mental hospital system and within the Conditional Release Program (CONREP), its post-release aftercare program. As of June 30, 1998, 352 forensic patients were being held in state mental hospitals as a result of rape or child molestation charges. (Some were inmates or parolees previously incarcerated by CDC, while others were sent to the hospitals directly by the courts and were never held in prison.) Another 123 forensic patients originally held as a result of rape or child molestation charges have been released to the community and are now participating in CONREP.

The more intensive services provided through CONREP have been proven effective in reducing recidivism of sex offenders. A DMH evaluation indicated that sex offenders who received treatment in the state mental hospitals and subsequently in CONREP have a very low reoffense rate--less than 4 percent annually. However, except for SVP commitments, access to such programs is limited to sex offenders with serious mental disorders.

Even as California has been scaling back its sex offender treatment programs, such as SOTEP, a number of other states have been expanding such programs for their prison inmates and parolees. Relapse prevention programs have proven successful in reducing the rate of sexual reoffending of sex offenders in the States of Alaska, Washington, Arizona, and Oregon, as well as in Canada.

Polygraph Controls Absent

Technology Has Multiple Uses. In a number of other states, but not in California except on an experimental basis, polygraph examinations are increasingly being used to improve the treatment and control of adult sex offenders. A 1992 nationwide survey indicated that 25 percent of treatment programs for adult male sex offenders involved use of the polygraph. The examinations have proven useful chiefly because sex offenders, as a group, often have strong motivations to lie about their past and current behavior.

Clinicians in prison or parole sex offender treatment programs use the examinations as a tool to confront offenders who deny their history of assaultive sexual behavior. The threat of a polygraph prompts many offenders to disclose past criminal activity. One Colorado study documented how a group of 97 sex offenders initially admitted to a combined total of 227 victims. Faced with a polygraph examination of their criminal history, the same group of offenders subsequently admitted to more than 10,000 victims. Once a pattern of criminal history has been divulged, treatment providers can use that information to break down an offender's denial of culpability and convince the offender that he or she will be held accountable for future criminal activity.

Parole authorities can use such disclosures about past sexual misconduct to determine whether a parolee should be classified as a high-risk sex offender who should be subjected to closer scrutiny. The polygraph examinations also may help authorities determine whether special conditions of parole should be imposed on a particular offender. For example, if an examination prompted admissions that children from a certain age group was a favorite target of the offender for sexual assault, the parole conditions could specify that an offender avoid particular locations where such a victim group was often present.

Checking on Parole Compliance. After an offender has been released on parole, continued regular polygraph examinations--usually twice per year--can be used to help evaluate whether a sex offender is continuing to comply with conditions of parole and avoiding criminal activity. While an offender's failure of a lie-detector test is not used as grounds for criminal prosecution or revocation, such a result may alert authorities to investigate, confirm, and punish ongoing criminal behavior.

Some states, including Texas, Arizona, and Colorado, have developed or are now developing written protocols that govern the way polygraph examinations are used for "forensic" (that is, for criminal justice-related) purposes. Some states have established regulatory standards or credentialing requirements for the individuals or firms conducting forensic polygraph examinations.

Last year, the state Department of Justice received funding to hire forensic polygraph examiners to assist local law enforcement authorities in the apprehension and prosecution of sex offenders. Except on an experimental basis, however, California authorities have not relied upon the polygraph for either the treatment or control of sex offenders.

Few Held by Costly SVP Program

Three-Year-Old Effort. The state began its program to seek the court-ordered civil commitment of SVPs to state mental hospitals in January 1996. The SVP commitment effort is similar in some respects to a civil commitment program for mentally disordered sex offenders (MDSOs) struck down by the courts and then repealed from state law in 1981. (Some MDSOs remain under the jurisdiction of the DMH.)

The SVP program was ruled constitutional last month by the California Supreme Court. The program targets prison inmates nearing release to parole who have been convicted of a violent sexual offense against two or more victims and who have a diagnosed mental disorder increasing the likelihood that they will engage in sexually violent criminal behavior.

The CDC and BPT work together to screen inmates to determine if they meet the criteria set forth in the SVP law. Those cases are referred to DMH for an evaluation to see if the inmate's mental condition fits additional criteria set out in the law for commitment. If a county district attorney or county counsel then decides to seek an SVP civil commitment, and a judge issues such an order after a civil trial, male offenders are sent to Atascadero State Hospital and female offenders to Patton State Hospital for treatment for at least two years. Further two-year commitments may be sought indefinitely until the offender is deemed to no longer pose a danger and is released to community supervision.

Few Commitments to Date. So far, the program is resulting in significant state costs but relatively few state hospital commitments of SVPs. As shown in Figure 5, DMH, district attorneys, and the courts have determined that many sex offenders referred for commitments fail to meet the criteria set forth in the SVP law at every stage in the process.

As of the beginning of October 1998, CDC and BPT had screened the records of more than 24,000 sex offenders and referred about 2,300 cases to DMH for evaluation. As of that same date, only 129 of these sex offenders had been committed to state mental hospitals as SVPs with another 494 cases in process by DMH, prosecutors, and the courts. If present trends hold, only 335 of those 24,000 sex offenders screened by CDC and BPT--or less than 2 percent of the original total--would eventually end up being sent to Atascadero or Patton with a SVP commitment.

Program Costs Growing. Meanwhile, the support and capital outlay costs of the SVP program are growing significantly. That is partly because the cost to the state of holding and treating one SVP at Atascadero or Patton is estimated to be about $107,000 annually, much more than the $21,000 per year cost of incarceration in a state prison. Because the SVP law mandates local government participation in the SVP commitment process, it is anticipated that the state will owe tens of millions of dollars to counties for the cost of adjudication of hundreds of SVP cases. We estimate that by June 2000, the state will have spent a cumulative total of $214 million for state and local government activities related to SVPs. These costs--averaging more than $450,000 per person--include facilities to hold persons committed by the courts as SVPs, as well as those held in mental hospitals and county jails while their cases are evaluated and adjudicated.

We anticipate that the annual cost to the state for the SVP program is likely to grow further as local government agencies file claims against the state for reimbursement of their costs and as the state adds needed space to the mental hospital system. The DMH has already received about $5.5 million in initial funding and is requesting $16 million more in 1999-00 to plan and design a $300 million high-security facility dedicated to the treatment of 1,500 SVPs. That is equal to the cost of building a new state prison that could house 5,000 offenders. (Our analysis and recommendations regarding this project are discussed in our DMH analysis in the Capital Outlay chapter of our Analysis.)

Our analysis indicates that DMH has been significantly overbudgeted for the costs of evaluating inmates referred for potential commitments as SVPs. This issue and our recommendations are discussed in our DMH analysis in the Health and Social Services chapter.

SVP Candidates Paroled to Community. Adult sex offenders who are not committed under the SVP program are released on parole, sometimes without providing complete documentation to parole agents of the factors which led to their consideration for commitment to a state mental hospital. We are advised by BPT that CDC does not always prepare an investigative report documenting these factors. Moreover, DMH does not ordinarily provide reports on the outcomes of its evaluation of candidates for SVP commitment to CDC's parole division. Both the BPT and the CDC parole division believe this information could help identify additional high-risk sex offenders, ensure that those who are identified are subjected to appropriate conditions of parole, and assist in their successful treatment in the community.

The BPT had sought to continue to hold some of these offenders in prison by declaring them seriously mentally disordered and revoking their parole. But in July 1998, a state appellate court determined that the practice of revoking someone's parole before they had ever been released on parole was illegal. The court decision resulted in the release of 118 sex offenders to parole, with 34 since arrested and returned to custody for parole violations.

A Failing Approach

Recidivism Rate High. Lacking effective programs to curb their criminal behavior, as well as inadequate supervision and control in the community, many sex offenders are committing new crimes and violating parole and subsequently being returned to state prison. Because of these and other concerns, the BPT has advised us that it intends to develop new guidelines for the management of sex offenders.

According to CDC data, 850 sex offenders on parole were returned to prison during 1997-98 with a conviction by a court for a new crime, while another 4,335 were returned to state custody by BPT for parole violations. This means that almost two out of three sex offenders annually are failing on parole, resulting in additional crime and contributing to the steady growth in state costs to build and operate additional prison space.

The adult parole population as a whole has a somewhat higher parole failure rate than sex offenders. However, sex offenders are almost nine times more likely to return to prison for a parole violation involving a sex crime-related offense. Many had failed to comply with sex offender registration requirements. However, others were returned for rape, child molestation, and other crimes.

Links to Substance-Abuse Addiction. Correctional experts, academic studies, and CDC data on sex offenders have all documented a strong relationship between the offender's criminal activity and substance-abuse addiction. As of June 30, 1998, 709 of the California adult sex offenders under parole supervision last went to prison for a drug- or alcohol-related crime--almost as many as the 781 who had last served time in prison for rape. For sex offenders on parole, substance abuse remains a leading factor in their return to prison for parole violations. About 28 percent have been revoked for parole violations such as illegal drug possession, use, sales, or driving under the influence.

LAO Recommendation: "Containment" of High-Risk Sex Offenders

We recommend the implementation of a strategy of "containment" of California's population of high-risk adult sex offenders. The containment strategy includes longer and more intensive supervision of high-risk sex offenders released on parole, regular polygraph examinations of sex offenders, and pre- and post-release treatment programs to help control the behavior of habitual sexual offenders. We believe this promising approach would result in an increase in state expenditures in the short run amounting to about $9 million annually. We believe that a state investment in such a strategy would yield significant benefits, including net savings to the state in the long term, potentially ranging into the tens of millions of dollars, as well as an improvement in public safety.

The Containment Model

A Promising Approach. The National Institute of Justice, a research arm of the U.S. Department of Justice, sponsored a nationwide survey in 1994 of the way different states managed their populations of adult sex offenders. Based upon this research, Colorado public safety officials have proposed and are now implementing what they have termed a "containment" approach that incorporates the most effective methods now being practiced across the country.

This approach is intended to "contain" or prevent a sex offender who has been released on parole from committing new sex crimes. Conceptually, the sex offender is placed in the middle of a triangle of supervision surrounded by (1) the parole agent, (2) a treatment provider, and (3) a forensic polygraph examiner. The approach emphasizes collaboration among these three parties, making the safety of the community and past sex crime victims a high priority, and calls for individualized case management of sex offenders that addresses the specific supervision, treatment, and controls needed to reintegrate them safely in the community.

Based upon our discussions with prison and parole experts here and in other states, as well as our review of academic research into effective sex offender programs, we believe the containment approach is promising. For example, Maricopa County, Arizona, has had a containment approach similar to Colorado's since 1986. This approach has proven to be highly effective in preventing sex offenders who have been released to the community on probation from committing new sexual assaults. A study determined that only 1.6 percent of 1,700 offenders participating in the program from April 1993 through April 1998 were committed for new sex crimes. Maricopa County found that such offenders ordinarily are recommitted for sex crimes at a rate of about 14 percent.

The Next Logical Step. Last year, the Legislature approved, but the Governor vetoed, legislation (SB 2116, Schiff) authorizing a three-year pilot program in one California county to implement a similar program for sex offenders released on state parole. However, California authorities have already experimented extensively with several key elements of containment, including relapse prevention treatment programs, forensic polygraph examinations, and intense supervision of high-risk sex offenders. A parole unit in Redding in Shasta County has tested several elements of a containment approach with positive results, including below-normal recidivism of its high-risk sex offenders.

Thus, we believe the logical and appropriate next step is for the state to expand these pilot efforts into a comprehensive and more cost-effective system of containment for California's population of high-risk adult sex offenders. We offer specific recommendations below, which are summarized in Figure 6, to ensure that such an approach is properly tailored to fit California's criminal justice and correctional systems.
Figure 6
Proposed Program for Containment of Sex Offenders
Intense supervision for offenders released to parole.
More background information for parole agents.
Longer period of supervision for offenders posing the greatest risk.
Specialized treatment programs.
Voluntary medication treatments for selected offenders.
Pilot program of in-prison treatment for high-risk offenders.
Regular polygraph examinations.

Intensify Supervision

Focus on High-Risk Sex Offenders. We recommend the adoption of legislation directing the CDC to establish more intensive and specialized supervision caseloads for adult sex offenders it determines to pose a high risk of committing new crimes. In effect, the 40 to 1 caseloads now established for 600 such offenders would be extended to as many as possible of the other 2,900 offenders that CDC has concluded pose a significant risk to the community but now receive less intensive supervision.

Consistent with a recommendation our office offered to the Legislature last year, we recommend that the cost of intensifying high-risk sex offender caseloads be offset by eliminating or shortening the period of active supervision of other adult parolees who are not violent offenders or sex offenders, and who have been determined through a classification process to pose little risk to public safety. We are advised that, if this new classification system were implemented, an estimated 6,700 parolees--roughly 6 percent of the parole population--would be considered suitable for alternatives such as direct discharge or minimum parole terms.

At the direction of the Legislature, CDC is nearing completion of a statistically validated parole classification system that will systematically identify such low-risk parolees. We recommend that these adult parolees be moved--either immediately upon their release to parole or after an abbreviated period of trouble-free supervision--to "banked" caseloads. The offenders on banked caseloads would not be required to be in regular contact with parole agents. However, these offenders would retain their status as parolees, making them subject to immediate search for contraband without court warrants and subject to revocation for any violation of their conditions of parole.

In order to minimize disruption to the parole workforce that could result from removing some offenders from parole agent caseloads, we recommend that these changes be phased in over a two-year period.

We further recommend that DMH and CDC report to the Legislature by April 1, 1999, regarding the funding, personnel, and statutory authorization needed, if any, to ensure that background reports on offenders referred for commitment as SVPs, but who are able to avoid such a commitment to a state mental hospital, are prepared on a timely basis and made available to the parole agents who must supervise them in the community.

Provide Longer Supervision for Certain Offenders

Modify Statutory Limits Selectively. We recommend that state law be changed to establish a longer period of parole for the most dangerous adult sex offenders. Studies of sexually deviant criminal offenders provide strong evidence that a longer period of parole is needed to protect the public. Longer parole periods may result in some additional offenders being returned to custody for parole violations, but the pressure of extended supervision would likely prevent some of them from committing new crimes and being returned for long prison terms.

Accordingly, we specifically recommend that repeat sex offenders sentenced under the One-Strike law to 25 years to life (who in many cases caused great bodily injury, used a firearm, or harmed multiple victims during their crime) be subject to lifetime parole instead of the five years provided under current law. The CDC data show that the persons receiving one-strike sentences are younger and far more likely to commit violent crimes, including sex crimes, than other sex offenders.

The CDC would retain authority to determine the appropriate level of supervision needed for any adult sex offender. For example, if such an offender had performed well on parole for ten years, CDC would be authorized to move the offender to a banked caseload.

Based on our review of research and discussions with correctional professionals, we further recommend that offenders sentenced to state prison for the most serious felony sex crimes, particularly child molestation and rape, be subject to a five-year parole period rather than the three years now provided by law. All of these changes would take effect for offenders committing crimes after this change in the law and would not be applied to offenders now incarcerated in state prison.

Create Specialized Parole Treatment Programs

Establish Relapse Prevention in the Field. We recommend that the Legislature provide statutory authority and funding to CDC beginning in 1999-00 to establish specialized sex offender treatment programs. These programs would be based on the relapse prevention model for high-risk offenders who have been released on parole. The treatment programs would be targeted at the same group of offenders receiving more intense supervision by parole agents and would include referral to specialized services, such as substance-abuse treatment, for offenders needing such assistance.

In addition, medication treatments would be provided for selected offenders as determined by medical protocols to control their behavior. Unless ordered by a court, the medication treatment would be voluntary and provided with the consent of the sex offender.

A framework for the operation of such a program would be outlined in accompanying legislation. In order to make it easier for CDC to provide treatment services throughout the entire state parole system, we recommend that they be provided primarily through contracts with private vendors with the established expertise and credentials for conducting specialized sex offender treatment in a group setting. We recommend against providing these services by hiring additional state staff at the existing POCs because they lack the structure to successfully implement such a specialized new program, and because we believe POCs should instead focus on improving treatment of seriously mentally disordered offenders.

Under this approach, some high-risk sex offenders would participate in group-counseling sessions run by contract providers and some in sessions conducted by parole agents. Parole agents would receive training on how to run the sessions and to ensure they can work effectively with contract providers.

In order to strengthen the personal commitment of sex offenders to these treatment programs, we recommend the authorizing statute permit CDC to collect at least nominal fees from offenders to partly offset the cost of the treatment services. This practice has been implemented successfully in other states offering such programs to parolees. As discussed above, CDC would also be provided budgetary authority to spend these reimbursements.

End Unwarranted POC Referrals. Additionally, we recommend that CDC be directed through budget bill or statutory language to end the practice of referring certain sex offenders to the POCs. These sex offenders are those who do not have a diagnosed serious mental disorder or who do not exhibit signs of serious mental illness after being released to parole. This will avoid duplication with the sex offender treatment services provided to high-risk sex offenders, while doing away altogether with the provision of mental health services to low-risk sex offenders who neither need nor currently receive much assistance from the POCs.

We further recommend that the cessation of these referrals not lead to a reduction of POC staffing and resources, but instead to expanded and more intensive POC services for the seriously mentally disordered parolees remaining on its caseload. The POC system, which has received no significant funding increases during the 1990s, is currently so understaffed that there is only one clinician for every 143 parolees.

Start an In-Prison Treatment Program

Begin Pilot Project for Adult Offenders. We recommend that the Legislature provide General Fund resources beginning in 1999-00 to convert existing prison space to a 500-bed pilot program to provide sex offender treatment under the relapse prevention model in a state prison. This could be accomplished by transferring sex offenders incarcerated at various prisons to one location. We further recommend the enactment of a statute specifying a framework for the operation and evaluation of the pilot program. This should include specifications that the program be established in a separate prison yard segregated to the maximum extent that is practical from nonsex offenders. The measure would specify that admissions to treatment be targeted at adult sex offenders who (1) are within two years of being released on parole, (2) have been subject to a clinical assessment and a review of their criminal history indicating a high risk of committing new sex offenses, and (3) may be amenable to treatment based on clinical assessment.

The program would be implemented primarily through contracts with private vendors with appropriate professional credentials and experience in forensic sex offender treatment, using an appropriate mix of medical and nonmedical staff. Individualized treatment for substance-abuse addiction, anger management, and other risk factors would be provided as warranted. Medication treatments would be provided with the informed consent of an inmate according to medical protocols. Consistent with existing law, inmates who participate could earn credits to reduce their time served in prison (in most cases, by no more than 15 percent of their total sentence).

Sex offenders who demonstrated significant progress during treatment in a clinical reassessment would not be subject to referral by the CDC director for civil commitment as an SVP. However, upon parole, all such participants in the pilot program would initially be placed on a specialized, intensive parole caseload for high-risk sex offenders.

Require an Evaluation. Because the state has yet to demonstrate it can run a cost-effective in-prison sex offender treatment program, we recommend only a pilot program be established at this time. If the CDC program proved successful, it could be expanded later to include additional high-risk sex offenders. We recommend that DMH be directed to conduct an independent evaluation of the CDC program to determine if it is operating effectively, is having a positive clinical effect on sex offenders, and is cost-effective for the state.

Facilitate Use of Polygraph Examinations

Outline Specific Purposes in Statute. We recommend that the Legislature provide statutory authority and funding to CDC to incorporate the use of polygraph examinations as part of the treatment programs we have proposed. While we are advised that use of the polygraph for these purposes is already permissible under state law, we recommend that state law be amended to specify that CDC polygraph examinations would be used for specified purposes. These purposes are to facilitate sex offender treatment, ensure the appropriate classification of parolees, fashion the establishment of appropriate parole conditions, and determine ongoing compliance with those parole conditions and state law.

Limit CDC's Use of Polygraphy. Our recommended statute on polygraph usage would not authorize CDC to use polygraph examinations for the purpose of forcing adult sex offenders in prison or on parole to confess specific details of their past sex crimes. We believe such an approach would prove counterproductive because it would stifle the disclosure of harmful sexual activity by offenders--often the therapeutic key to making them confront and alter their patterns of illegal behavior. These polygraph-induced disclosures could provide critical information to parole authorities to prevent future victimization of women and children by rapists and child molesters.

The polygraph examinations would not be conducted in a fashion intended to elicit detailed confessions of past criminal activity constituting sufficient evidence for prosecution of additional sex crimes. It is possible that a particular inmate or parolee could volunteer such specific information during a polygraph examination. In that event, existing state law (which we do not propose to change) requires clinical professionals, including those providing sex offender treatment, to report to law enforcement authorities their knowledge of any specific admissions by offenders of illegal sexual activity. But inmates and parolees who avoided making specific incriminating statements would not be subject to prosecution for additional crimes based on the outcome of their polygraph examination.

Ensure Participation in Examinations. We further recommend that state law be changed to clarify the consequences that would be faced by sex offenders who refused to submit to polygraph examinations for the specific purposes such as treatment outlined above. Specifically, we recommend that state law be amended to specify that the CDC Director could punish an incarcerated offender participating in a sex offender treatment program with the loss of previously earned work and education credits upon that offender's refusal to submit to a polygraph examination. We further propose to amend state law to clarify that the refusal of a sex offender on parole to submit to such an examination could constitute grounds for the parole revocation and reincarceration of that offender by the BPT.

Establish Professional Standards. Finally, we recommend that CDC be directed to establish clear professional standards of work experience or accreditation for any persons or firms hired by the state for forensic polygraph work. The CDC should also be directed to establish written protocols that parole agents, treatment providers, and polygraph examiners must follow whenever polygraph examinations are used.

Short-Term Fiscal Effect

Treatment and Supervision Costs. Our proposal would shift the deployment of parole agents from low-risk offenders to high-risk sex offenders at no additional state cost. Thus, the short-term costs primarily result from the establishment of prison and parole treatment programs as well as the use of forensic polygraph examinations and medication treatments.

Based upon programs established in other state prison systems and the California Department of the Youth Authority, we estimate that the operation of a 500-bed pilot program at an existing prison could cost about $3.8 million annually at full implementation, not counting unknown costs for DMH evaluation, medication treatments, polygraph, and any capital outlay needed for supplemental program space at the facility selected for the program.

We anticipate that the cost per offender of providing specialized sex offender treatment services would be significantly lower for parolees, based in part upon the Redding parole unit that experimented with a containment approach. We estimate the full statewide cost to operate such a program at about $4 million annually. If the department charged sex offenders going to contract-provider counseling sessions a nominal fee, these costs could be partly offset by about $400,000 in fee revenues. Thus, the net cost to the state would be about $3.6 million annually at full implementation. The cost of medication treatments for selected sex offenders who consented to the procedure is unknown, but could amount to hundreds of thousands of dollars annually. We estimate that the use of polygraph examinations as we have proposed would eventually cost $900,000 annually.

We estimate that the overall cost of implementing a containment approach with both in-prison and parole programs would be less than $4.5 million in 1999-00, increasing to about $9 million in 2000-01. Our plan also generates short-term savings by removing sex offenders who are not seriously mentally ill from POC caseloads, but our plan redirects those staff resources toward improved services for mentally ill parolees.

Long-Term Fiscal Effect

Longer Parole Period. Lengthening the statutory period of parole for adult sex offenders would eventually increase the costs of supervision. We estimate that the fiscal impact would not be significant until at least six years after such a change were enacted. If longer parole terms were the rule for all sex offender parolees under supervision today, the state would be spending about $10 million more annually.

Lengthening the period of parole supervision could also result in additional sex offenders being returned to state custody for parole violations. These offenders are not subject to parole revocation following their discharge from parole. Under the LAO proposal, many of them would now be subject to such sanctions for an additional two years of parole supervision and, in the case of one-strike felons, for a lifetime period of supervision. This would increase CDC's operating costs.

Our projected costs for the supervision and treatment of sex offenders released on parole could also increase in the future to the extent that the use of polygraph examinations results in the identification by CDC of a larger number of high-risk sex offenders. This could be the case, for example, for a sex offender who admitted during an in-prison polygraph examination to numerous sex crimes victims for which he had never been prosecuted. Such an individual might have been placed on a regular parole caseload in the past, but under our approach would now go into a containment program involving more intense and more costly parole supervision and treatment. In-prison treatment costs for adult sex offenders could also grow if the pilot program we recommend proved to be clinically effective as well as cost-effective.

Net Savings Likely. Our analysis also indicates, however, that the short-term and long-term costs to the state outlined above would be more than offset by other factors.

First, we anticipate that retaining these high-risk sex offenders on parole for longer periods of time under a containment approach would likely result in fewer recommitments to prison for new crimes or for parole violations. Other states and CDC's own Redding parole unit experiment have demonstrated significant reductions in recidivism as a result of tighter supervision and effective treatment of high-risk adult sex offenders.

Given the longer prison terms now facing repeat sex offenders, there could be significant dividends from keeping more sex offenders safely in the community on parole. Every adult sex offender the state prevented from committing a new crime, and then being returned to prison with a one-strike or three-strikes sentence, would save the state as much as $500,000 on prison operations and construction costs over the long term. If a containment strategy were able to prevent just 100 sex offenders from receiving a new, lengthy prison commitments of the type mandated by these sentencing laws, the state would save more than $50 million in the long term.

The state would also achieve significant savings to the unknown extent that sex offenders who demonstrated progress during in-prison treatment programs were diverted from SVP evaluations, adjudication, and civil commitment and aftercare in the CONREP program.

These savings could also be considerable. As we noted above, SVP program costs are likely to rise further as more cases are processed and more commitments are completed to the state mental hospital system. The annual treatment cost of one SVP has been estimated at about $107,000. Cases must be retried if a commitment is to be continued beyond the original two-year period, creating additional state and local costs. Then, once an SVP is released from treatment, state law mandates that they be placed in the CONREP community aftercare program. The CONREP has average annual cost per patient of $21,000, with the average costs for supervising SVPs likely to be much higher. The SVPs released to CONREP will likely remain under this intense supervision for at least three to five years.

Finally, to the unknown extent that a containment program is successful in preventing additional violent sex offenses, the state and local governments would have lower criminal justice system costs and lower costs for providing medical, counseling, and other assistance to crime victims.

These factors are the basis of our conclusion that effective implementation of a containment approach for high-risk adult sex offenders would result in net state savings in the long run, potentially in the range of tens of millions of dollars annually.


An Investment in Crime Prevention. Based upon our analysis, we are concerned that the way the state currently manages its adult parole population of high-risk sex offenders does not represent a cost-effective "purchase" of public safety using the taxpayer dollars that are available.

After three years of effort, the increasingly costly SVP program has resulted in the civil commitment of about 129 offenders. Meanwhile, thousands of high-risk sex offenders are being paroled to the community each year without intensive supervision and treatment, with a resulting high incidence of recidivism for parole violations and new crimes, even though this situation could be improved at a comparatively modest cost.

Benefits of a Containment Strategy. Figure 7 (see next page) summarizes the benefits of our recommended approach. We believe the investment of additional state funds in a containment strategy for sex offenders would result in significant net state savings. Additionally, we are convinced that the change in approach we propose is also warranted based on the beneficial impact its effective implementation would have on public safety.
Figure 7
Benefits of the LAO Containment Approach
Improved public safety including a reduction in new crimes and parole violations by sex offenders on parole.
Better use of state parole resources with more intense efforts for a longer period of time to supervise high-risk offenders and less focus on low-risk offenders.
More and better information for parole agents to identify the sex offenders who pose the greatest risk to the public and impose appropriate conditions of parole to reduce such risks.
Better use of Parole Outpatient Clinic resources with more focus on the assessment and management of seriously mentally ill offenders.
Significant long-term net savings to the state and local government potentially in the tens of millions of dollars annually, due primarily to lower costs for the prison and mental hospital systems, the criminal justice system, and for assistance to crime victims.

Our plan does not contemplate the elimination of the SVP program. Rather it calls for a shift in strategy toward the cost-effective treatment of high-risk sex offenders before they complete their prison terms instead of their treatment in state mental hospitals after completion of their prison sentences at five times the cost. Our approach incorporates longer and more intensive parole supervision, continued treatment, and forensic polygraph examinations to control the thousands of high-risk offenders who will continue to be released into the community despite the SVP program.

The Tobacco Settlement

The attorneys general of most states and the major U.S. tobacco companies have agreed to settle more than 40 pending lawsuits brought by states against the tobacco industry. In exchange for dropping their lawsuits and agreeing not to sue in the future, the states will receive billions of dollars in payments from the tobacco companies and the companies will restrict their marketing activities and establish new efforts to curb tobacco consumption.

The settlement is projected to result in payments to California of $25 billion through 2025, which will be split equally between the state and local governments. The 1999-00 Governor's Budget assumes the receipt of $562 million in the budget year, which is equivalent to the first two payments to the state.

Although the settlement does not require action by the Legislature, we recommend that the Legislature (1) recognize the uncertainties surrounding the amount of funds the state will receive, especially in the long run, and not dedicate the settlement monies to support specific new ongoing programs, (2) consider the settlement revenues that will accrue to local governments when considering future local government fiscal relief, and (3) monitor new national antitobacco programs in order to complement existing state efforts.

Summary of the Settlement

On November 16, 1998, the attorneys general of eight states (including California) and the nation's four major tobacco companies agreed to settle more than 40 pending lawsuits brought by states against the tobacco industry. The settlement agreement calls for financial payments to the states, the creation of a national foundation to develop an antismoking advertising and education program, and the establishment of certain advertising restrictions to benefit public health. Figure 1 (see next page) summarizes the key features of the agreement, many of which are discussed in more detail below.

Figure 1
Key Features of the

Tobacco Settlement

Payments to States. Requires the tobacco manufacturers to make payments to the states in perpetuity, with the payments totaling an estimated $206 billion through 2025.
National Foundation. Creates an industry-funded foundation whose primary purpose will be to develop an advertising and education program to counter tobacco use.
Advertising Restrictions. Places advertising restrictions on tobacco manufacturers, including bans on cartoons, targeting of youth, outdoor advertising, and apparel and merchandise with brand name logos.
Corporate Sponsorships of Events. Restricts tobacco companies to one brand name sponsorship per year.
Tobacco Company Affiliated Organizations. Disbands the Tobacco Institute and regulates new trade organizations.
Limit on Lobbying. Prohibits the tobacco manufacturers and their lobbyists from opposing proposed laws intended to limit youth access and use of tobacco products.
Access to Documents. Requires the tobacco companies to open a website which includes all documents produced in smoking and health-related lawsuits.

How Many States Are Part of the Agreement? Nationally, the attorneys general of 46 states and various territories have now signed on to the settlement proposal. The remaining four states--Florida, Minnesota, Mississippi, and Texas--had previously settled their cases with the tobacco industry.

What Companies Are Part of the Agreement? The four major tobacco companies that negotiated the agreement are Brown & Williamson Tobacco Corporation, Lorillard Tobacco Company, Philip Morris Incorporated, and R.J. Reynolds Tobacco Company. These four manufacturers account for more than 95 percent of the total sales of cigarettes nationally. Since the release of the settlement, most of the remaining smaller tobacco manufacturers have joined the agreement, so that the market share of the participating tobacco companies accounts for about 99.7 percent of total national sales.

Does the Settlement Require Validation? Under the terms of the settlement proposal, the courts in each participating state must approve the agreement. The settlement does not require that any explicit action be taken by the state legislatures. As we discuss later, however, the Legislature may wish to consider several actions related to the settlement.

In California, on December 9, 1998, the settlement agreement was approved by the San Diego Superior Court, where the state's case was being litigated. The settlement will become final in California if there are no appeals within 60 days of the court's decision. California was the nineteenth state whose court has approved the agreement. So far no court in any other state has rejected the settlement.

Monetary Provisions of the Settlement

The settlement agreement requires the tobacco companies to make payments to the states in perpetuity, with the payments totaling an estimated $206 billion through 2025 nationally. These funds will be divided among the states based on allocation percentages negotiated by the attorneys general. These allocation percentages are based on a variety of factors such as population and cigarette sales within the state. These state allocation percentages will not change over time. In order to pay for the settlement, the tobacco companies have raised the price per pack of cigarettes by 45 cents.

How Much Money Will California Get? California is projected to receive an estimated $25 billion through 2025, or about 12.8 percent of the total monies allocated for the states--the highest percentage of any of the states participating in the agreement. While the average annual payment to California is estimated to be approximately $925 million, as can be seen in Figure 2 (see next page), the estimated amount of funding per year changes considerably over time. California's share of the 1998 payment is estimated to be $306 million and there is no scheduled payment in 1999 under the terms of the settlement. New York has the next highest allocation percentage, an amount that is very close to California's allocation percentage.

Figure 2
Estimated Annual Tobacco

Settlement Payments to California

1998 Through 2025

(In Millions)

Year State Local


1998 $153 $153 $306
1999 -- -- --
2000 409 409 818
2001 442 442 884
2002 531 531 1,061
2003 536 536 1,071
2004 through 2007b 447 447 894
2008 through 2017b 456 456 912
2018 through 2025b 511 511 1,022
Totals $12,503 $12,503 $25,007
a Includes all counties and the Cities of Los Angeles, San Diego, San Francisco, and San Jose.
b Each year.

Who Gets the Money? Several California jurisdictions, including Los Angeles County and the City and County of San Francisco, had filed their own lawsuits against the tobacco companies. On August 5, 1998, the Attorney General entered into a Memorandum of Understanding (MOU) with the local governments to coordinate their lawsuits with the state's suit and provide for the allocation of any monies recovered. The terms of the MOU include an even, 50-50, split of the financial recovery between the state and the local governments that sign onto the deal. Thus, the estimated $25 billion to be allocated pursuant to the tobacco settlement would be split between the state and local governments with each receiving $12.5 billion.

The local share will be further split between the counties and specified cities. Under the terms of the MOU, the state's 58 counties will receive 90 percent of the local share, or $11.25 billion. These monies will be distributed to the counties based on population. The remaining 10 percent, or $1.25 billion, will be split equally among four specified cities--Los Angeles, San Diego, San Francisco, and San Jose. The MOU limits the recovery to these cities who could have filed an independent lawsuit pursuant to a specific provision of the Business and Professions Code.

Assuming that all of the local governments join in the settlement, we estimate that Los Angeles County will receive the largest amount of money--about $151 million by June 30, 2000 and $3.4 billion through 2025. (For our estimates for the individual counties and cities, please see Appendix 1 in our recent report, The Tobacco Settlement: What Will It Mean for California?)

Local governments do not automatically receive the funds unless they join the settlement and agree to its terms. To the extent that a county or city chooses not to participate, the monies that they could have otherwise received would be redistributed to the state and local governments.

What Does the Governor's Budget Assume? The 1999-00 Governor's Budget assumes the receipt of $562 million to the state's General Fund in 1999-00--the state's share of the 1998 payment ($153 million) and 2000 payment ($409 million).

How Can the Money Be Spent? The tobacco settlement agreement places no restrictions on the use of the monies by the states. Similarly, California's MOU with local governments contains no restrictions.

Many of the state and local lawsuits (including California's) had sought recovery from the tobacco companies of the tobacco-related health care costs (such as Medi-Cal) incurred by states and local governments. The settlement agreement and California's MOU with the local governments do not specify that any of the financial payments by the companies are to reimburse state and local governments for such costs.

Absent specific action by the Legislature, the funds received by the state from the settlement would be deposited into the General Fund. Because the money is not a proceed of taxes, it would not be counted as revenues for purposes of calculating the minimum guarantee under Proposition 98.

Does the Settlement Money Count Towards the VLF Trigger? As part of the 1998-99 budget package, the Legislature and Governor agreed to certain cuts in the state's vehicle license fee (VLF) in future years if specified revenue forecasts (or "triggers") are reached. We believe that the additional General Fund revenues from the tobacco settlement would be counted toward the triggers. Based on our most recent revenue projections, however, revenues from the settlement would not be enough by themselves to pull a trigger and generate an additional cut in the VLF. However, the settlement monies would bring General Fund revenues closer to the levels that would activate the trigger and, if revenues increase beyond current projected levels, could result in an additional VLF cut in the future.

When Will the Money Be Available? The settlement agreement sets forth a payment and distribution schedule for the monies to the states. The tobacco companies will make payments into an escrow account. However, none of the money would be distributed to the states from the escrow account until there is a "final approval" of the agreement.

"Final approval" is defined in the agreement as the earlier of (1) June 30, 2000 or (2) when 80 percent of the states, representing 80 percent of the allocated distribution, obtain approval of their consent decrees and all challenges and appeals are heard by their state courts. Currently, it is unknown when final approval will be achieved, but it is likely that it will occur before June 30, 2000 (within the state's 1999-00 fiscal year). As part of the settlement, the tobacco companies will make a total of $12 billion in "up-front" payments. The first payment of $2.4 billion was paid to the escrow account by the end of 1998. Additional up-front payments of $2.4 billion will be made each January in 2000, 2001, 2002, and 2003. Annual payments will begin on April 15, 2000.

Uncertainties Regarding the Amount of Money California Will Receive

Our review finds that there are a number of factors that could have an impact on the amount of dollars available to California, especially in the long run. Most of these uncertainties would result in the state receiving less money than projected or receiving money with restricted uses, although two of the uncertainties could actually result in the state receiving more money.

Actions of the Federal Government That Could Offset Payments. The agreement has provisions to reduce the payments to the states in the event that the federal government takes certain specified actions against the tobacco companies by November 30, 2002. Specifically, if the Congress enacts legislation that provides for payments by the tobacco manufacturers (whether by settlement payment, tax, or other means), which the federal government then makes available to the states for health-related, tobacco-related, or for unrestricted purposes, the tobacco companies could offset their payments to the states by that amount. Under this scenario, the state might receive the same overall amount of money it would have otherwise received, but with the federal government setting the priorities or with significant strings attached. Neither the Congress nor the President have announced any intention to take such actions at this time; nevertheless, such actions remain a possibility in the future.

Actions of the Federal Government to Seek Reimbursement for Health Care Costs. The federal government shares with the states the costs of the Medicaid Program (Medi-Cal in California). Although the settlement with the states is not based on reimbursing states for costs of treating tobacco-related illnesses under Medicaid, federal law generally requires federal agencies to seek reimbursements for the federal share of any Medicaid costs. As a consequence, it is possible that the federal government could seek reimbursement for its tobacco-related Medicaid costs, either by seeking a share of the states' settlement funds or by taking legal action against tobacco companies in federal court. To the extent that federal authorities are successful in obtaining part of the settlement funds, this would reduce the amount of funds retained by the states. In addition, to the extent that a federal court action results in a large payout by the tobacco companies to the federal government, the companies may become less solvent and less able to make the payments to the states as specified in the states' settlement.

Federal authorities have recently indicated their intention to sue the tobacco companies, but have not indicated whether they plan to seek a share of the states' settlement monies. However, in response to a previously proposed settlement, they had indicated that they would seek a share of the funds.

Drop in Cigarette Sales. The settlement agreement contains provisions that allow the tobacco companies to decrease the amount they pay to the states if the nationwide sales of cigarettes decrease. Specifically, each year the amount of the payment to the states will be adjusted based on the volume of cigarettes shipped within the U.S. for sale. To the extent that this volume drops, the payments to states will decrease over time. The tobacco companies have raised their price per pack by 45 cents in order to pay for the settlement. To the extent that the increase in the price per pack reduces the amount of cigarettes consumed, the payments to the states would decrease over time.

This volume adjustment is based on nationwide sales, not just sales within California. This could minimize any negative financial impact on California since tobacco sales are more likely to decline faster in California than in the rest of the country due to (1) the additional 50 cents per pack tax placed on cigarettes beginning on January 1, 1999 as a result of Proposition 10 (discussed in greater detail below), and (2) the existing antismoking campaign that already exists in California that is funded from Proposition 99 monies.

Lawsuits by Nonparticipating Local Governments. If a local government does not join in the settlement but rather continues with a lawsuit against the tobacco companies, the local government would not receive any funds from the settlement. The share that they would be eligible for under the terms of the MOU would be divided by the state and the other participating local governments. However, any award, judgment, or settlement won by a nonparticipating local government would be offset against tobacco companies' payments to the entire state. At this time, based on informal discussions with local governments, it seems likely that most, if not all, local governments in California will participate in the state settlement.

Tobacco Company Bankruptcy. The tobacco settlement was entered into with the U.S. manufacturing subsidiaries of the tobacco companies. As a consequence, the parent companies are not responsible for payments to the states should one of the subsidiaries go bankrupt. Bankruptcy by one or more of the tobacco manufacturers is a possibility given that the manufacturers still face potential lawsuits from individuals and class actions. For example, there is currently a class action case in Florida against the tobacco manufacturers seeking $200 billion.

Should one or more of the tobacco companies declare bankruptcy, the amount of money going to the states could decrease significantly. The remaining companies would not be responsible for paying the obligation of the bankrupt companies.

Reduction in Market Share of Settling Companies. Over time, the payments of the participating manufacturers can decrease if they lose market share to nonparticipating manufacturers. Under the terms of the agreement, the states can protect themselves against a reduction in payments by passing a "model statute" included in the agreement that would require nonparticipating manufacturers to put funds into escrow accounts for 25 years equivalent to the amounts paid by the participating manufacturers.

This possibility of reduced payments due to a decline in market share is probably not a major concern. This is because, as indicated earlier, most of the smaller tobacco manufacturers have now agreed to the deal. Under the terms of the deal, the public health provisions of the agreement will apply to these companies. Should their market share increase to a specified level, they will become responsible for making payments corresponding to those due by the original participating companies. States would not receive any additional monies, but the shares paid by individual companies would change.

Increased Payments From the "Strategic Contribution." From 2008 through 2017, the tobacco companies will provide a "strategic contribution" of $861 million per year to the states in excess of the other payments. How these funds are allocated among the states will be determined by a panel committee of three former attorneys general. The criteria for the allocation of the strategic contribution will take into account each state's contribution to the litigation. California was a relatively late entrant among states to the litigation, which may hurt the state's chances of receiving a significant portion of the strategic contribution. However, the fact that the California Attorney General was one of the eight attorneys general that negotiated the agreement and the sheer size of the state's case against the companies may offset any disadvantage.

Increases Due to Inflation Adjustments. The payments made by the tobacco companies will increase above the currently estimated amounts due to an inflation adjustment. The future tobacco payments will be adjusted annually by 3 percent or the national Consumer Price Index (CPI), whichever is greater. Thus, to the extent that the volume of cigarettes shipped within the U.S. does not decrease, the total payments to the states will increase.

Legal Implications of the Settlement

The tobacco settlement agreement likely brings to a close various state and local government litigation against the tobacco companies and has a number of legal implications.

What Happens to the State's Case as a Result of the Settlement? On June 12, 1997, the California Attorney General filed a lawsuit against the major tobacco companies in the Sacramento Superior Court containing four causes of action, as shown in Figure 3. By the time of the settlement agreement, two of the causes of action had already been dismissed by the court and two others were yet to be addressed by the court.

Upon approval of the consent decree in the state court, the state's case against the tobacco companies will be considered settled. As previously indicated, the San Diego Superior Court approved the consent decree on December 9, 1998 and the settlement becomes final 60 days later unless the court order is challenged during that period. The settlement agreement generally releases the signing tobacco companies from any future lawsuits by the state and local governments that participate in the settlement.

How Is the Settlement Different From a Resolution Resulting From a Trial? It is difficult to say with a high level of certainty how a trial on California's lawsuit against the tobacco companies would have ended. It seems unlikely, however, that a court would have ordered provisions related to public health that the tobacco companies subsequently agreed to in the settlement (for example, restrictions on advertising and corporate sponsorship). It is not clear whether the monetary provisions provided in the settlement agreement are greater than the state would have obtained if it had won its case in court. However, because the companies have agreed to the settlement, it is likely that money will flow to the state more quickly and easily since the companies would likely have appealed a court decision.

Figure 3
What California Alleged in Its Lawsuit Against the Tobacco Companies
Recovery of Tobacco-Related Medi-Cal Expenditures. The state sought reimbursement for health care services provided over the past three years to Medi-Cal beneficiaries who suffer from illnesses caused by tobacco products. This allegation was previously dismissed by the court.
Violations of State Antitrust Laws. Tobacco firms (1) conspired to not develop or market safer cigarettes and tobacco products and (2) conspired to not compete on the basis of relative product safety. This allegation was awaiting action by the court.
Violations of State Consumer Protection Laws. Tobacco firms conducted deceptive, unlawful, and unfair business practices by (1) making misrepresentations and deceptive statements to sell their products, (2) targeting minors to buy cigarettes, (3) manipulating levels of nicotine without adequate disclosure, and (4) improperly suppressing evidence about the health impacts of the product. This allegation was awaiting action by the court.
Violations of State False Claims Act. Tobacco firms improperly sealed certain documents and records which would otherwise have been available to inform California authorities of the companies' wrongdoings. This allegation was previously dismissed by the court.

Can Californians File Lawsuits as Individuals or in Class Action Lawsuits Against the Tobacco Companies? While the settlement places restrictions on future lawsuits by governmental entities, lawsuits by individuals and classes of individuals against the tobacco companies could still go forward.

How Will the Settlement Be Enforced? The agreement provides the state courts with jurisdiction over implementing and enforcing the settlement. The state or the tobacco companies may apply to the court to enforce the terms of the agreement. If the court issues an order enforcing the agreement and a party violates that order, the court may order monetary, civil contempt, or criminal sanctions to enforce compliance.

On March 31, 1999, the tobacco manufacturers will pay $50 million which will be used to assist the states in enforcing and implementing the agreement and to investigate and litigate potential violations of state tobacco laws. Additionally, the National Association of Attorneys General will receive $150,000 per year until 2007 for oversight costs associated with monitoring potential conflicting court interpretations involving the settlement, and assisting states with inspection and discovery activities conducted to enforce the settlement.

Public Health Provisions of the Settlement

The settlement includes a number of provisions agreed to by the tobacco companies that are designed to reduce smoking and thus improve public health. Figure 4 (see next page) summarizes the major public health-related provisions of the agreement.

It is unknown how effective these provisions will be. It should be noted, however, that some of the efforts that will be established as a result of the settlement, such as advertising and education programs to combat smoking, already exist in California and are supported with Proposition 99 funds.

Differences Between the Settlement and Previous Agreements

The current agreement is the culmination of efforts to settle state lawsuits against the tobacco companies that have been ongoing for several years.

The 1997 "Global Settlement." In mid-1997, the attorneys general of 40 states and the companies worked out the so-called "global settlement" agreement. Under this agreement, the companies would have made
Figure 4
Major Provisions Related to Public Health
Restrictions on Advertising
  • •Bans use of cartoon characters in advertising.
  • •Prohibits targeting youth in advertising, promotions, or marketing.
  • •Bans outdoor advertising including billboards, and placards in arenas, stadiums, shopping malls, and video game arcades.
  • •Limits size of advertising outside retail establishments to 14 square feet.
  • •Bans transit advertising.
Restrictions on Product Placement and Sponsorship
  • •Bans distribution and sale of apparel and merchandise with brand name logos, beginning July 1, 1999.
  • •Bans payments to promote tobacco products in movies, television shows, theater productions, live or recorded music performances, and videos and video games.
  • •Prohibits brand name sponsorship of team sports events or events with a significant youth audience.
  • •Limits tobacco companies to one brand name sponsorship per year (after current contracts expire).
  • •Bans tobacco brand names for stadiums and arenas.
New National Foundation to Combat Smoking
  • •Establishes foundation to develop programs to combat teen smoking and educate consumers about tobacco-related diseases.
  • •Industry will pay total of $1.45 billion for national public education campaign for tobacco control and $25 million per year to study programs to reduce teen smoking.
Other Restrictions
  • •Disbands certain organizations affiliated with tobacco industry.
  • •Prohibits tobacco firms from opposing proposed laws which are intended to limit youth access to tobacco products.
  • •Prohibits the industry from making any material misrepresentations regarding the health consequences of smoking.

major monetary payments to the states. These payments would be in exchange for certain enactment of laws by Congress which would have essentially halted much of the litigation against the tobacco industry and placed certain restrictions on future litigation against the industry, including no punitive damages, no class actions, and an annual cap on damage payments. Although federal legislation was introduced to enact the global settlement, as well as legislation that went far beyond that settlement, Congress did not pass any legislation. The current multistate settlement requires no legislative action by Congress.

The current settlement does not provide for payments as large as the global settlement. The global settlement proposed $368 billion over 25 years in payments to the states as opposed to the current agreement which is $206 billion over 25 years.

From a public health standpoint, probably the most significant policy difference between the two settlements is that the global settlement would have changed current federal law to allow the U.S. Food and Drug Administration (FDA) to regulate tobacco. In addition, the global settlement contained somewhat broader restrictions on the content of tobacco company advertising than the current settlement, although the current agreement contains broader restrictions on the placement of advertising. The global settlement contained so-called "look-back" provisions that would have penalized tobacco companies if youth smoking did not decline over time. However, only the current settlement includes establishment of a national foundation to study youth smoking and fund antismoking advertising.

Settlements With the Four Other States. As indicated earlier, four states (Florida, Minnesota, Mississippi, and Texas) all have previously settled their cases against the tobacco companies with conditions and provisions similar to those of the current settlement. The amount of money projected for California under the current settlement, on a per capita basis, is similar to the amounts projected for Florida and Texas. However in Mississippi, which was the first state to file a lawsuit, and in Minnesota, which settled just prior to the end of the trial, the per capita amounts were much greater than for California in the current multistate agreement.

Relationship of the Settlement to Proposition 10

Proposition 10, enacted by the voters in the November 1998 election, created the California Children and Families First Program. This program will fund early childhood development programs from revenues generated by increases in the state excise tax on cigarettes and other tobacco products. The measure increases the excise tax on cigarettes by 50 cents per pack beginning January 1, 1999, bringing the total state excise tax to 87 cents per pack. The measure also will increase the excise tax on other types of tobacco products (such as cigars, chewing tobacco, pipe tobacco, and snuff) beginning July 1, 1999.

Although both the tobacco agreement and Proposition 10 will generate substantial additional revenues to the state and local governments in California, their similarities end there, as shown in Figure 5. The major difference between the two is that Proposition 10 revenues can only be used for specified purposes allocated by local commissions, whereas there are no restrictions on the use of the tobacco settlement monies by the state or local governments. (For additional information on Proposition 10, please see our recent report Proposition 10: How Does It Work and What Role Should the Legislature Play in Its Implementation?)
Figure 5
Comparison of Tobacco Settlement and Proposition 10
Tobacco Settlement Proposition 10
Revenue $800 million to $1 billion annually, split 50-50 between state and local governments $690 million in 1999-00 declining slightly in subsequent yearsa
Use of funds No restrictions Restricted to child development programs


Significant uncertainty, especially in the long run Likely to decline slowly
Control of funds State and locally elected


County-appointed commission and state commission
How funds


Payments from tobacco

companies (passed on to consumer)

New state tax on tobacco


Effective date 1999-00 January 1, 1999
a Legislative Analyst's Office estimate.

What Should the Legislature Do?

As indicated previously, the agreement does not require any action by the Legislature in order to take effect. However, the agreement raises a number of issues that the Legislature will need to consider.

Recognize Funding Uncertainties in the Long Run. Despite the uncertainties outlined above, we believe that it is relatively certain that the state will receive the projected amounts of revenues from the settlement at least in the short run (the next three years or so). However, several of the uncertainties, such as potential declines in smoking and future actions of the federal government, make the long-term funding levels much more questionable.

Given the long-term uncertainties about the revenues, we recommend that the Legislature refrain from dedicating the tobacco settlement monies to support specific new ongoing programs. Rather, we believe that it would be more fiscally prudent to reexamine the settlement projections regularly and continue to deposit the money in the General Fund without specific earmarking for a particular program. Should the Legislature wish to establish new programs, such programs should compete for revenues from the General Fund with all other legislative priorities. Our recommended approach is consistent with the Governor's 1999-00 budget proposal.

Recognize Benefit to Local Governments. Since the property tax shifts of the early 1990s, the Legislature has taken many actions to bolster the fiscal condition of California's local governments. For example, the Legislature has acted to provide cities and counties: Proposition 172 sales tax revenues, relief from trial court funding reform, and programs to support local law enforcement. Combined, these revenues offset more than 60 percent of the ongoing revenue loss due to the property tax shift. For 1998-99, we estimate that the "net harm" to local governments associated with the property tax shift is about $1.4 billion.

As shown in Figure 2, the tobacco settlement is expected to provide to local governments $153 million in the first year, rising to about $500 million annually within a few years. In the case of some California cities and counties, these settlement revenues will restore (or improve) the locality's fiscal condition relative to the locality's fiscal condition prior to the property tax shifts. Other cities and counties, while still benefiting significantly from the cigarette settlement, will not find that these settlement revenues fully "make up" the fiscal hole caused by the property tax shift. As the Legislature contemplates proposals for local fiscal relief in the future, we recommend that the Legislature keep in mind these additional financial resources provided through the settlement.

Monitor New National Antitobacco Programs in Order to Complement Existing State Programs. The settlement establishes a national foundation to combat smoking and includes a total of $1.45 billion in payments from the tobacco companies for establishment of a national tobacco control public education campaign and $25 million per year to study programs to reduce teen smoking. It is not clear how these monies will be used at this time. However, it seems likely that such efforts could complement or supplement the state's existing efforts to curb tobacco consumption. For this reason, it will be important for the administration and the Legislature to closely monitor implementation of these provisions of the settlement and make adjustments to the state's programs as necessary.

Consider Adopting the Model Legislation Included in the Settlement. The settlement agreement includes model legislation that would protect the payments made to the state from decreasing as a result of loss of market share or entry into the market by new tobacco companies. In view of this fiscal issue, we believe that the Legislature may want to consider enacting the model legislation.

Conclusion. The tobacco settlement will result in significant additional resources to California's state and local governments. As the Legislature debates its approach toward utilizing these funds, it is critical that the uncertainties surrounding the level of funds the state will receive in the future be taken into account.

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