A board — with a new majority recently chosen by Gov. Bobby Jindal — voted Tuesday to start the process of selling the remainder of the multibillion-dollar settlement from cigarette manufacturers in hopes of raising about $750 million.
The Jindal administration hopes the money could be used to provide funding for TOPS, a popular college tuition-paying program, for the next seven years or so, said Commissioner of Administration Kristy Nichols. The 12-1 vote sets into motion the efforts that would sell the settlement for cash that would be ready to spend for the fiscal year beginning July 1. There are still several steps in the process needed, including approval from the state Legislature.
But State Treasurer John N. Kennedy, the only member of the Tobacco Settlement Financing Corp. who voted against the proposal, expressed concern that — given the pressure Louisiana legislators are under to find $1.6 billion in revenues or make draconian cuts in services — the tobacco settlement monies would be quickly raided and used for other purposes.
“It will be spent as fast as green grass goes through a goose,” Kennedy said, adding that Jindal wants to spend the state’s last “pot of money we have left.”
He said it would be the second-largest financial transaction in state history.
The 1998 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. The Jindal administration fears that decreasing numbers of smokers could lower the annual amount paid in the settlement.
In 2001, Kennedy pushed for the state to sell 60 percent of its 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.
The administration is proposing the sale of the remaining 40 percent. Jindal appointed four new members to the panel that oversees the settlement monies on Friday and all of them backed the proposal.
Kennedy also opposed the proposal to forgo seeking competitive bids before hiring the private lawyers, advisers and underwriters — whose contracts will be worth millions — and instead retain the present professionals. That decision is necessary to meet the legal deadlines to sell the bonds by the end of June.
House Speaker Chuck Kleckley, a member of the board, said the process approved Tuesday would allow the public plenty of time for input. After Tuesday’s approval, the issue goes before the Bond Commission, which is chaired by Kennedy, then to the Joint Legislative Committee on the Budget, then through the full House and the Senate, before returning to the Tobacco Settlement Financing Corp. for final approval. During each step of the process, officials and the public will have any opportunity to analyze and discuss the idea before any decision is made, the Lake Charles Republican said.
“You have many obstacles, many hurdles, many hoops,” Kleckley said.
“I’m glad we’re doing this now,” said state Sen. Barrow Peacock, a Shreveport Republican who also is a member of the panel.
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.
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