State lawmakers skeptical of tobacco bond approach

Friday, December 13, 2002

JEFFERSON CITY, Mo. -- Some lawmakers expressed skepticism Thursday about the state's newly proposed approach to selling tobacco bonds designed to ease pressure on the state budget.

Last week, the state Tobacco Settlement Financing Authority was advised that the state could save up to $150 million over the lifetime of the bonds if they instead were offered through the state Board of Public Buildings.

The savings would occur because interest rates are low and the state would not be required to make extra security payments on the bonds. Instead, the state would assume the risks of the bond issue.

A legislative advisory committee, in a draft report obtained by The Associated Press, said it is "concerned with this abrupt change in strategy and the lack of consultation with our committee and the General Assembly."

The draft report urges the settlement authority "to exercise the utmost caution as it moves forward."

The only voting members on the tobacco financing authority are Gov. Bob Holden, Lt. Gov. Joe Maxwell and Attorney General Jay Nixon. The same three people comprise the state Board of Public Buildings.

Holden spokeswoman Mary Still said the attorneys examining the proposed strategy change for tobacco bonds are "being very careful."

The legislative advisory panel said placing the entire risk of the bond issue on Missouri was worrisome, because the Board of Public Buildings has not issued bonds for projects other than the construction of state buildings and facilities.

Sen. James Mathewson, who helped craft the tobacco bond legislation and serves on the advisory committee, said Thursday that he had not seen the committee's draft report but had reservations about the proposed change of approach.

"My hope was that we would be able to use that (tobacco) securitization money to help balance this upcoming budget, but I never discussed with anybody using the state's borrowing power to guarantee bonds," said Mathewson, D-Sedalia. "But maybe that's what we have to do to try and raise some revenues."

The higher risk payments the state would have paid under the original plan for the bonds was due in part because of a tobacco lawsuit pending in the city of St. Louis.

That lawsuit, which is scheduled to be heard in 2004, seeks unspecified damages from tobacco companies for health problems caused by smoking.

Since the state already receives settlement money from tobacco companies, a legal victory by the city could mean that Missouri settlement money would be withheld from the state in order to pay St. Louis.

While the proposed bonding approach change is intended primarily to save money, the St. Louis lawsuit "may have contributed to that decision," Still said.

A state law passed in May limits the bond revenues to being used for one-time expenditures, to cover revenue shortfalls or for capital improvement projects. Bond revenues would be subject to appropriation, with surplus funds to be deposited in a trust fund.

No more than $175 million of net bond proceeds may be used in any one state fiscal year, according to state law.

Lawmakers authorized bond sales of as much as 30 percent of the $4.5 billion the state expects to receive over 25 years from a national settlement with big tobacco companies over the costs of treating tobacco-related illnesses.

By receiving the upfront payment from bonds, the state would forgo part of its future settlement payments.

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