By State Treasurer John Kennedy

By State Treasurer John Kennedy

In 2001, Louisiana sold 60 percent of its tobacco settlement in order to reduce the risk that tobacco companies may not make all of their annual payments to the state. At the time, pending lawsuits, new smoking cessation products, and other factors pointed to the fact that tobacco payments might one day be in jeopardy.

That day appears to have arrived. States participating in the 1998 Master Settlement Agreement (MSA) against major tobacco companies received $84.2 million less this year in annual payments than anticipated, according to a report from The Bond Buyer. Annual payments from the remaining 40 percent of Louisiana’s tobacco settlement totaled $57.5 million this year compared to an MSA projection of $63.2 million.

Annual payments to states were lower than projected partly because 11 small tobacco companies paid less money by claiming a significant loss of market share to companies who did not participate in the MSA. If large tobacco companies follow suit, annual payments to states could be even smaller next year.

Many states rely on their annual tobacco payments for annual budgetary expenses, and some even use the money for debt service. They will face serious problems if large tobacco companies follow the smaller companies lead and decide to reduce their payments.

For this reason, Louisiana is in a much better position than many states when it comes to our tobacco settlement proceeds. When we securitized 60 percent of our tobacco settlement, we sold bonds to investors. The investors who purchased the bonds now bear the risk if tobacco companies do not make all of their annual payments required by the MSA.

In addition, we were able to deposit roughly $900 million of the proceeds of our tobacco sale into the Millennium Trust Fund. The fund is now worth $1.2 billion and has earned $117 million for healthcare, education and TOPS.

It was smart to sell a portion of our tobacco settlement when we did. The money we put into trust can never be touched. It will always be there for our kids and grand kids and for their kids and grand kids. This money is guaranteed, even if annual payments from the tobacco companies are not.