State treasurer warns against tobacco settlement sale plans _lowres

State Treasurer John Kennedy

State Treasurer John Kennedy wants the Jindal administration to rethink the sale of the rest of the state’s tobacco settlement to generate cash to fill budget hole.

It’s the same bad fiscal policy that’s created the current $1.6 billion “structural deficit” in the state budget, Kennedy said Wednesday.

The administration proposes sale of the remaining portion of a 1998 tobacco settlement in order to generate $750 million for spending.

Commissioner of Administration Kristy Nichols said Kennedy doesn’t understand what’s being contemplated.

“The only way we will consider this is if it creates recurring revenue for TOPS” over a seven- or eight-year period, Nichols said, adding it all won’t be spent in one fell-swoop.

But Kennedy said he does not think that TOPS funding is the administration’s objective at all. “It’s another scheme to generate cash so they can spend it,” he said.

Known as the Taylor Opportunity Program for Students, TOPS is a popular, taxpayer-funded program that has been around since 1998. It provides scholarships to Louisiana high school students who complete a certain curriculum and who meet grade-point average and college entrance test score requirements: at least a 2.5 gpa and a 20 on the national ACT test.

The tobacco dollars would not be legally dedicated to TOPS no matter what Nichols says so there would be no funding guarantee, Kennedy said. “I hope the Legislature does not go along with it,” he said.

The settlement stems from tobacco companies’ settlement of lawsuits over states’ smoking-related health care costs. Louisiana and 45 other states participated. Louisiana’s share of the settlement was an estimated $4.6 billion over the first 25 years with payments continuing as long as tobacco products are sold within the state.

In 2001, Kennedy pushed for sale of 60 percent of the state’s tobacco settlement income stream to investors as a hedge against the possibility of tobacco companies declaring bankruptcy. The money went into a trust fund that earns money for health care, education and TOPS.

Now, the administration is proposing sale of the remaining 40 percent.

“My fear is that all $750 million of this money will be spent. Everyone will want a piece of the pie,” Kennedy said. “That will only add to our structural deficit, and, besides, what will we do next once the money is gone?”

Kennedy noted the administration’s chronic use of one-time cash to plug budget holes, including state property sales, depleting the Medicaid Trust Fund for the Elderly, “taking money out of the state employee health insurance claims fund” and embarking on numerous tax amnesty programs.

What’s resulted is a $1.6 billion structural budget deficit, he said. He noted that Moody’s and Standard & Poor’s bond rating agencies have put Louisiana on negative credit watch.

“Any farmer knows it’s a bad idea to sell your seed corn because then you can’t plant next year’s crop,” Kennedy said. “By selling the rest of the tobacco settlement, we’ll be adding to the structural deficit in the budget. We should fix the budget, not sell off yet another taxpayer asset like a junkie selling his TV or smartphone to buy another fix.”

Nichols said the tobacco settlement sale proposal is an idea worth exploring. She said it would have to be approved by a series of entities, including the Tobacco Settlement Financing Corp., the Legislature and the State Bond Commission.

She said nine years from now, the bonds on the other securitized portion will be paid off and the tobacco settlement revenues will come back to the state.