Gov. Bobby Jindal’s proposal to sell Louisiana’s remaining share of a massive tobacco settlement to help generate a few years of short-term cash has stalled, with little support from key state officials.
Treasurer John Kennedy has refused to put it on the Bond Commission agenda, though commission approval is needed for a sale.
Legislative leaders also are showing resistance, looking instead for other ways to solve state budget problems.
Jindal’s top budget architect, Commissioner of Administration Kristy Nichols, said Friday the sale isn’t dead, and she blamed Kennedy for slowing down its movement.
“We are continuing to work with the Legislature on the proposal. We’re disappointed that the treasurer is not following the statutorily-directed process,” Nichols said in a statement.
The proposal involves Louisiana selling the tobacco settlement for an estimated $750 million, with $150 million earmarked for coastal projects and the rest paying for the TOPS free college tuition program through 2023.
That would help generate new money for next year’s budget, to help lessen cuts. But the state would trade $1.2 billion in annual settlement payments for the $750 million lump sum.
Kennedy, chairman of the Bond Commission, calls the sale a “bonehead move” by the Jindal administration, a budget gimmick that would cost taxpayers hundreds of millions of dollars for a quick fix to state financial problems.
But he said he’d put the idea up for Bond Commission consideration if legislative leaders on the panel were clamoring for a sale. They aren’t, he said.
“I’ve talked to a number of legislators. I think most of them would rather drink weed killer than do this,” Kennedy said Friday. “I don’t plan on wasting the Bond Commission’s time if the Legislature has no interest in it, and so far the Legislature has indicated no interest.”
Senate President John Alario, R-Westwego, agreed that legislative leaders haven’t sought to move ahead with the sale, saying he’d rather consider other options for helping to close a $1.6 billion shortfall in the fiscal year that begins July 1.
Of the tobacco settlement sale, Alario called it “a worst-case scenario” to be used only if lawmakers can’t negotiate other ways to generate cash for next year’s budget.
“I hope we don’t get there,” he said.
Nichols describes the sale as a good hedge against the declining use of tobacco.
Louisiana is one of many states that settled lawsuits for claims of smokers’ deaths and health costs against tobacco companies in 1998 in return for installments of money each year. The annual payments extend as long as the companies involved in the settlement are viable.
Tobacco settlement sales involve bond sales to investors for upfront cash. The state pays the bond debt over decades with interest from the annual stream of money received from the tobacco settlement. After the debt is paid, the state regains the revenue stream.
The state sold 60 percent of its settlement to investors for $1.2 billion in 2001. The dollars were placed into a trust fund, with only interest earnings spent annually.
The Jindal administration proposal to sell the remaining 40 percent would be structured differently. It would spend all the dollars within a few years — eliminating the yearly $55 million revenue stream after that, until the bond debt is paid off decades later.
The sale would need approval from the Bond Commission, the joint House and Senate budget committee and the full Legislature.