These guys are total clowns - they should be recalled. We don't need another crisis Dec. 1 and we do NOT need a new football stadium.
Minn. burns future tobacco cash for budget fix now
Published:
Tuesday, 8 Nov 2011 |
ST.
PAUL, Minn. - Minnesota's government is about to give up $1.1 billion
in future payments from tobacco companies so it can get about half as
much money now for a temporary budget fix.
A
new state authority expects to finalize a bond sale late next week that
leverages a portion of Minnesota's 1998 tobacco lawsuit settlement. The
sale will free up $640 million to patch a near-term budget hole, but
the payouts to bondholders, with interest, will add to the budget woes
the state is projected to have for years to come.
Minnesota
isn't the first state to take such a step. Lawmakers could even go back
to the remaining tobacco money if another budget deficit surfaces in a
new economic forecast due Dec. 1.
"Once
you've already done it, it's something I'm sure everyone will be
looking at again," said House Taxes Committee Chairman Greg Davids,
R-Preston.
In an
interview last week, Democratic Gov. Mark Dayton said he "would be very
strongly opposed to it" but declined to take the option off the table.
The
arrangement was a key link to a summer budget deal that ended a nearly
three-week government shutdown. Both sides cast it as a default option
because Republicans refused to raise income taxes and Dayton balked at
deeper spending cuts.
But it comes at a high price.
Documents
supplied to potential bond investors suggest that the state is actually
selling $787 million worth of bonds. Almost $150 million of it is going
toward a debt reserve fund, set-up costs and other expenses that limit
the amount available for budget purposes.
Similar
to a home mortgage, the state receives an infusion of money but will
pay bondholders between $65 million and $80 million per year for the
next 20 years. The highest annual debt costs come toward the beginning,
when the state's budget is already anticipated to be in rough shape.
Under
the so-called tobacco securitization bond, the state gives up rights to
a big chunk of tobacco payments through 2031. Last year, the state
received about $170 million.
The
overall cost to the state won't be known until the sale is final
because interest rates could still fluctuate. But officials are
projecting $1.2 billion in total debt costs, all but about $100 million
coming from the diverted tobacco payments. The rest is from the new
reserve account.
The
major tobacco companies reached settlements with all 50 states in 1998.
The goal of states was to recover costs incurred from treating
smoking-related illnesses. Minnesota, which was one of four states to
negotiate its own deal, was counting on $6.1 billion over 25 years, with
payments continuing into perpetuity. So far, state records indicate
that Minnesota has collected $3.3 billion.
The
National Conference of State Legislatures says about 20 states have
borrowed against their settlement money, some more than once.
Democratic
Rep. Ann Lenczewski, a former chairman of the House Taxes Committee,
voted against Minnesota's tobacco bond sale. She criticized Republican
lawmakers and Dayton for agreeing to the arrangement, equating it to a
worker giving up future pay for money to pay household bills now.
"You
sell your salary to pay for something short-term, two years. The
problem is back and now you have no salary," she said. "It's an example
of politicians in both parties not wanting to take their medicine. If we
would have cut more it would be permanent. If we raise more (taxes) it
would have been permanent."
Dayton said he went along to end the stalemate that idled thousands of workers and darkened critical parts of state government.
"We had 20 days of shutdown. It was clear to me they weren't going to agree to a tax increase," Dayton said.
Republicans
said it was far from their favored approach. They spoke almost
apologetically about it when the bill authorizing the bond sale was
approved in July on party-line votes.
"There
are 201 of us plus a governor who wouldn't say this is their very first
choice about how to proceed," Senate Tax Committee Chairwoman Julianne
Ortman, R-Chanhassen, told colleagues at the time.
The bonds carry risks for investors because the future tobacco payments — not the state taxing authority — back up the debt.
According
to documents associated with the sale, tobacco companies face more than
10,000 lawsuits. Adverse outcomes would affect the viability of some
companies, and could possibly force some into bankruptcy. Public smoking
restrictions, increased tobacco taxes and general declines in smoking
rates could also drive down Minnesota's settlement proceeds, which are
based partly on cigarette sales volumes.
As
it stands, smoking rates are expected to drop by 3 percent per year,
according to modeling done by an economic forecaster working for the
state. It would take a smoking decline above 10 percent, year over year,
for bond holders to dip below a break-even point.
Copyright
2011 The Associated Press. All rights reserved. This material may not
be published, broadcast, rewritten or redistributed.
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