State begins search for attorney to help in tobacco bond sales

JEFFERSON CITY, Mo. -- Now that a financial adviser has been hired, Missouri has begun its search for an attorney to help with the process of selling bonds against the state's share of the national tobacco settlement.

The Tobacco Settlement Financing Authority on Thursday gave its unanimous approval to hiring a legal counsel, who will help determine which portions of tobacco promissory notes could be considered tax exempt under Internal Revenue Service guidelines.

Among the criteria for the counsel is familiarity with the municipal bond market and knowledge of Missouri law, including the legislation authorizing the bond sale.

Applications must be received by the state before noon on July 10.

The state hopes to have $50 million in promissory notes issued before July 29 in order to meet the IRS tax exemption requirements.

Money from the sale of the notes will be used to fill holes in the state budget that goes into effect Monday.

The tobacco authority, created by legislation passed last month, is made up of three voting members: the governor, lieutenant governor and attorney general. There are also three non-voting members: the state treasurer, speaker of the House and president pro tem of the Senate.

Tight time frame

"We need a legal counsel to make sure that everything is done appropriately because we're on such a tight time frame and this is so important," Gov. Bob Holden said. "We need to have the right people in charge of financial services."

Earlier this week, the authority selected Public Financial Management of Iowa and Columbia Capital Management of St. Louis as the financial advisers to the state.

Their job is to provide advice on how to handle the sale.

Under the law signed by Holden, Missouri can sell a maximum of 30 percent of the $4.5 billion it expects to receive over the next 25 years from big tobacco companies under a legal settlement over the cost of treating tobacco-related illnesses.

That bond sale, which is likely to begin this fall, could result in as much as $600 million for the state, depending on market conditions.

By receiving the upfront payment from bonds, the state would forgo about $1.3 billion in expected settlement payments over the years.

The law also limits the bond revenues to being used for one-time expenditures, short-term revenue shortfalls or capital improvement projects.

Revenue would be subject to appropriation, with surplus funds to be deposited in a trust fund.