Nevada County Picayune and Gurdon Times Newspaper Archive

State Warned Against Issuing Bonds From Tobacco Settlement

MIKE ROSS

STATE SENATOR, DISTRICT 3

A financial consultant has warned against the state's issuing bonds with its share of money from a lawsuit against tobacco companies. His recommendation clears the way for a special legislative session, perhaps in the late spring, to consider the best ways to spend the revenues.

Arkansas is due to receive $1.62 billion over the next 25 years from tobacco manufacturers. The payments are compensation for the state's costs in treating people with tobacco-related illnesses.

Some members of the House of Representatives had supported a plan under which the state would have issued bonds, or similar financial instruments, in order to get a large lump sum immediately. The plan was known as "securitization," because it would have guaranteed the state a certain amount in revenues on the front end, with investment bankers and bond buyers assuming any future risks.

Supporters of securitization said that the plan would protect the state if tobacco companies go bankrupt or smoking trends decline significantly. If those scenarios occur, they will decrease the amount that state is to get in the tobacco settlement.

However, members of the Senate never securitization and the financial consultant said that the most practical method for the state to receive its share of the settlement was on a year-to-year basis. Each year, a portion of the payments should be put in trust. Opponents of securitization were pleased by the consultant's findings and by the fact that supporters of a bond issue appear to have changed their minds after analyzing the consultant's report.

Opponents had objected to the securitization plan because it would have cost enormous sums in interest. Issuing bonds is another form of borrowing money, therefore securitization would have required the state to pay hundreds of millions of dollars in debt service and fees. If bond buyers had to assume financial risks, they also would charge even higher interest rates.

Now that the issue of how to receive the money has been resolved, legislative leaders have turned their focus on how best to spend the money. There is a consensus that it should be dedicated to health programs. Numerous health care agencies, both public and private non-profit, have asked for a portion of the settlement money.

The governor, legislative leaders and state health care officials have endorsed a spending program that would allocate 29 percent of the tobacco payments to programs to help people quit smoking and to prevent young people from starting the habit. Prevention is crucial because nicotine, one of the key ingredients in cigarettes, is extremely addictive.

The spending plan calls for 27 percent of the settlement to go into expanded Medicaid coverage, providing greater numbers of Arkansans with health care coverage. Another 21 percent would go into research and 15 percent into education.

There may be disagreement over the details of spending plan. For example, some legislators would like to reduce the amount for research, others want more money for research and others want to increase the amount for expanding Medicaid eligibility.

Spending the tobacco settlement wisely is of particular importance in Arkansas because national surveys indicate that public health in the state ranks near the bottom in several vital categories. For example, according to some reports Arkansas is third in the percentage of adults who smoke and second in the incidence of lung cancer. Arkansas ranks fourth from the top in the ratio of residents suffering from heart disease.