BATON ROUGE, LA – Members of the Tobacco Settlement Payment Options Task Force will hold their second meeting at 1 p.m. Monday, February 28, in Senate Committee Room A of the State Capitol to hear from legal experts on the viability of selling or securitizing the state’s portion of the $246 billion tobacco settlement.

Governor Mike Foster has charged the task force with exploring alternatives to optimize the state’s return and minimize investment risks on a projected $4.4 billion settlement, which is slated to be paid to Louisiana over the next 24 years. The original amount awarded to the state was projected at $4.6 billion over 25 years, but the state legislature used the settlements first-year payment, more than $180 million, to balance the 1999-2000 budget.

During the task forces first meeting, members heard from the state’s financial investment consultants, a bond attorney who helped New York City and two New York Counties sell their settlements, and three rating agency representatives who recommended that the state securitize a significant portion of the settlement for a lump-sum payment and avoid the long-term risk of an uncertain U.S. tobacco industry.

In order to securitize the settlement, the experts recommended that the state create a special nonprofit corporation and assign the proceeds of the tobacco settlement to it. The corporation would sell bonds and pledge the revenue stream from the settlement to pay off the bonds with interest. The state would be eligible to receive residual funds if available after the bond and interest payments were completed. The use of this procedure would remove the state’s risk if the tobacco companies defaulted.

Some members of the task force asked the state’s consultants to present the benefits of selling the settlement outright, rather than securitizing the settlement, at the next meeting.

State Treasurer John Kennedy, who co-chairs the task force with Commissioner of Administration Mark Drennen, said legal questions about how and what can be done with the settlement need to be answered before the task force proceeds.

In particular, while the state legislature allocated the state’s first annual payment from the tobacco settlement to balance the 1999-2000 budget, the remaining payments have been constitutionally dedicated. They are divided between the Louisiana Fund and the Millennium Trust, which is specifically dedicated to supporting health and education initiatives and the TOPS scholarship program. According to a constitutional amendment, which goes into effect July 1, 2000, the Millennium Trust will begin receiving 75 percent of the annual tobacco settlement payments in fiscal year 2002-2003.

I believe our actions should hold true to the will of the people – that at least 75 percent of the funds be placed in a trust for the purpose of funding education, TOPS and health care. Any effort to use the tobacco settlement funds to make-up for this years budget shortfall would be unconstitutional and wrong, said Kennedy. Drennen has also said Governor Foster is opposed to using the tobacco money as a stop-gap measure.

The people have already determined how the money will be spent; that most of it must be put in trust. Our goal is to determine whether its in the state’s best interest to receive these funds in lump-sum or have them spread out over the next 24 years, and what legal questions must be addressed in either scenario, Kennedy said.

Legal experts from the state’s Attorney Generals Office, the House of Representatives staff and the state’s independent bond counsel law firms are scheduled to make presentations on Monday.

Delia Taylor, Communications Director
(225) 342-0010