Questions remain on tobacco bond deal to help budget

JEFFERSON CITY, Mo. -- Legal issues regarding Gov. Bob Holden's plan to fill a budget shortfall by borrowing against future proceeds from Missouri's financial settlement with the tobacco industry are expected to be resolved this week.

But even if those issues are settled favorably, the Legislature will still be left to decide if the proposal is a good idea for the state.

"There is obviously hesitation about doing this deal, serious concerns about taking proceeds that would otherwise be paid over 40 years and shrinking them into a five-month time frame," said House Speaker Catherine Hanaway, R-Warson Woods.

Holden says the only remaining option for balancing the budget for the fiscal year ending June 30 is to cut $350 million in education spending, mainly from local school districts.

Lawmakers authorized selling bonds backed by the tobacco proceeds last year but had anticipated using no more than $50 million in proceeds this year. They would have to pass a supplemental spending bill for the additional amount.

Under the original plan, the bondholders were supposed to assume liability should future tobacco payments be less than expected. However, that proposal was deemed too costly to be worth it because of high interest rates.

The current plan calls for the bonds to be backed by state revenue if tobacco funding proves insufficient to pay them back.

Some Republicans said that could make them general obligation bonds, which under the Missouri Constitution have to be authorized by voters. Hanaway and Senate President Pro Tem Peter Kinder, R-Cape Girardeau, asked for and received an opinion from Attorney General Jay Nixon on the issue. However, Hanaway said Nixon's response didn't clearly address their concerns. She and Kinder have requested a more precise opinion.

Jim Carder, the director of the Office of Administration's accounting division, said the current plan meets constitutional muster and that the state took a similar course a decade ago in selling bonds to finance the domed football stadium in St. Louis.

General obligation bonds are backed by the "full faith and credit" of the state. If the Legislature refuses to appropriate money to pay them back, the constitution authorizes the OA commissioner to pay the debt without legislative approval. If the state lacked the money to do so, the commissioner could unilaterally raise statewide property taxes.

Carder said these would be revenue bonds. Lawmakers could choose to default on the debt and the OA commissioner could not raise taxes.

However, that would be unlikely because it would make it nearly impossible for the state to borrow money for decades.

"During the Civil War we defaulted on some railroad bonds. We eventually paid them back, but that is still on our credit report," Carder said.

Senate Minority Floor Leader Ken Jacob, D-Columbia, sponsored the bond legislation last year. While circumstances have since changed, he sees no other options.

"It seemed like a lot better idea last year than this year," Jacob said. "But so far it seems like the only idea."

Holden set a Feb. 15 deadline for lawmakers to pass the needed appropriations measure, which hasn't yet been filed. State Rep. Carl Bearden, R-St. Charles, has the responsibility as House budget chairman to submit the bill. Bearden said he needs more information before he will do so.

Tax trouble

State Sen. Bill Foster, R-Poplar Bluff, landed in hot water last week for a proposal to reinstate the state sales tax on food.

Trouble is, Foster proposed no such thing.

The controversy was ignited by a St. Louis Post-Dispatch story the day after Gov. Bob Holden announced his withholding plan should the tobacco proposal fail.

The paper reported that Foster told a group of public school officials the Republican alternative was to reimpose the food sales tax, which was abolished in the 1990s.

First, Foster was talking about the budget for the upcoming fiscal year, which begins July 1. From a practical standpoint, there wouldn't be sufficient time to put the measure on the statewide ballot as required and, if approved, to implement collections quickly enough to help the current budget.

Second, Foster didn't call for a reimposition of the food tax.

Holden's plan to boost revenue for the next fiscal year hinges on voter approval of a 55-cent per pack increase in cigarette taxes -- a proposal shot down on the November ballot. Foster told school officials he didn't think it wise for the governor to offer only one option with shaky chances of passage. He offered examples of alternatives but endorsed none.

Nevertheless, anti-tax groups, the governor's staff and even Republican lawmakers took numerous shots at Foster for his "plan."

Religious freedom

Supporters from both ends of the religious and political spectrums last week testified in support of the Religious Freedom Restoration Act sponsored by Kinder.

The bill would require state and local governments to show a "compelling state interest" in order to enforce laws that impinge on religious freedom. Currently, officials must meet the much lower "rational basis" standard to impose restrictions.

Pastors and other supporters testified that under that standard common church activities such as candlelight vigils and serving wine to minors at communion are illegal in Missouri, though there is no evidence of government attempting to enforce fire codes or liquor laws to stop such actions.

At issue is interpretation of the Free Exercise Clause of the First Amendment.

The U.S. Supreme Court established the rational basis test on the clause in 1879, finding that while government couldn't punish citizens for religious beliefs, it could hold them accountable for their actions. This case involved the then-common practice of polygamy by some Mormons.

Courts in the 1960s and 1970s imposed the higher compelling state interest standard, and the court came full circle in 1990 by returning to the rational basis test.

mpowers@semissourian.com

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