Last Modified: Wednesday, July 10, 2013 5:53 PM
It looks like the state’s plan to refinance a tobacco-related legal settlement for quick cash has gone up in smoke.
Well, it’s not entirely bad news.
Gov. Bobby Jindal’s administration had hoped to generate $142 million in savings by refinancing the settlement. Instead, the state got $83 million because of a recent increase in interest rates. That’s a $59 million loss.
In another case of counting the chickens before they’re hatched, though, the state had already earmarked some of the money before the bank deal. Included in the $25 billion state spending plan for the fiscal year, which began July 1, was $67 million designated out of this refinancing deal.
Louisiana settled lawsuits for claims of smokers’ deaths and health costs against tobacco companies in 1998. The state sold 60 percent of its settlement to investors for $1.2 billion in up-front money through a bond sale in 2001, and those funds were put into a trust account. Interest earnings have been used since then to fund TOPS, the tuition-free program for qualifying students to attend universities in the state, along with other health and education programs.
Treasurer John Kennedy had urged the administration to reconsider the refinancing because the money was not as lucrative as expected.
“I would have waited because I think the market was settling down, but I understand this is what happens when you get yourself in a position where you have to sell in order to balance your budget. I think they left money on the table,” Kennedy said.
“This is a classic example of why you shouldn’t balance the budget with smoke and mirrors,” he said. “Sometimes the mirror breaks, and when that happens, funding for important priorities goes up in smoke.”
But Commissioner of Administration Kristy Nichols, the caretaker of the state’s portion of the more than $200 billion settlement, doesn’t agree.
“This is a smart financial deal for the state, generating substantial savings that can be used to help fund TOPS scholarships for Louisiana students,” she said. “By acting today, we took the prudent step to capture as much savings as possible and before a potential rise in interest rates.”
The Division of Administration said the state’s financial advisers supported the sale to get ahead of similar bond sales in the coming weeks that could compete with the refinancing deal.
If the refinancing had been postponed, it could have created budget problems for the state and the Jindal administration. But we tend to agree with Kennedy and those fiscal hawks in the state Legislature who have vehemently criticized the Jindal administration for its reliance on one-time money, which has caused painful, mid-year budget cuts when it hasn’t materialized.
This editorial was written by a member of the American Press Editorial Board. Its content reflects the collaborative opinion of the Board, whose members include Bobby Dower, Jim Beam, Crystal Stevenson and Donna Price.