Budget-gap questions deserve answers

Missouri's governor, Bob Holden, is spending a lot of time and energy trying to convince legislators to quickly approve the sale of bonds to cover an anticipated funding gap in the current state budget that ends June 30. There are lots of reasons to proceed carefully, despite threats from Holden to cut state aid for public schools.

The bonds in question would be repaid with money the state gets from its settlement with tobacco companies. Last year, the legislature appropriated $50 million in the current budget to be spent using the bond proceeds. Now the governor says the budget gap may widen to $350 million, which would require the legislature to appropriate another $300 million in spending.

And there has been another major change in the bond scheme. Under the plan approved last year, the bonds would be repaid entirely from tobacco-settlement payments. But even though the multibillion-dollar settlement sounded like a windfall at the time it was made, the fact is no one knows for sure how much money Missouri will get.

Because of the risk to bondholders, the interest rate on the original bond sale to raise money for a shaky state budget was very high -- in effect reducing every tobacco-settlement dollar by as much as 70 percent.

So the state has tried to negotiate a better deal on the bond sale. The only way to do that is to guarantee those bonds so bondholders are protected even if there are fewer tobacco-settlement dollars than expected. This makes it easier to sell the bonds and lowers the interest rate. But the state still would get only about 50 cents of every tobacco-settlement dollar.

And there are obvious consequences of such an arrangement. First, other state revenue could be placed in jeopardy if the time ever came that there weren't enough tobacco-settlement dollars to pay off the bonds.

And some legislative leaders, including Majority Floor Leader Jason Crowell of Cape Girardeau, believe this new arrangement turns the proposed bonds into general-obligation bonds which require voter approval, not just legislative authorization.

In addition, bond experts say the proposed bonding scheme would have the likely effect of lowering the state's bond rating, making it more difficult to sell future bond issues and probably resulting in higher interest costs and fees. This would affect things like local school bond issues, whose ratings also would be lowered.

One question that has come up recently is whether or not the governor's estimate of a $350 million shortfall is accurate. What if the gap is only $150 million? If the legislature authorizes double that amount in bond sales, what happens to the remaining bond revenue?

And there are other questions too: Is the tobacco-bond plan the only way to raise stopgap revenue? How will those dollars be replaced in next year's state budget? If it comes to cutting more spending in the current budget, does it all have to come out of public education?

These are questions that have to be considered -- and, we hope, adequately answered -- before the legislature takes any final action on the tobacco-bond scheme.

Governor Holden is waving a big stick. He says he will have no choice but to cut state aid for public schools unless the legislature acts by Feb. 15. That means there are two weeks left for the governor to work with legislative leaders to reach the most workable plan.