BATON ROUGE, La. (AP) — Louisiana Gov. Bobby Jindal's administration moved ahead Tuesday with a plan to sell the state's remaining share of a massive tobacco settlement, despite criticism the move would waste a valuable asset for a quick fix to budget problems.
A board that oversees the settlement agreed to the idea, though several more approvals would be needed before any sale. Treasurer John Kennedy objected, saying Jindal's plan is driven by desperation to find money for a budget awash in red ink.
As the Republican governor has stuck to a pledge against raising taxes, Jindal and lawmakers have refused to match the state's spending to its yearly revenue. They have plugged budget holes with short-term financing like money from property sales, legal settlements and trust funds, creating continued shortfalls year after year.
Kennedy, also a Republican, called the tobacco settlement plan more of the same maneuvering, as the state faces a $1.6 billion budget gap next year.
"This is about the last savings account that we have left that we haven't taken money from," Kennedy said of the tobacco settlement. "You never make a financial decision this important when you're under this much financial pressure."
Commissioner of Administration Kristy Nichols said the Jindal proposal doesn't involve a one-year cash infusion, but $750 million that could be spent over eight years, mainly to pay for Louisiana's free college tuition program, called TOPS.
"The administration is specifically looking for a long-term revenue stream for TOPS. That is our interest," Nichols said.
Nichols said the administration wouldn't support spending all the money in one lump sum. Kennedy questioned whether lawmakers would comply with such restrictions.
"You dangle $700 million in front of the Louisiana Legislature now, and it's going to be spent as fast as green grass goes through a goose," the treasurer said.
Louisiana is one of many states that settled lawsuits for claims of smokers' deaths and health costs against tobacco companies in 1998 in return for installments of money each year. The annual payments extend as long as the companies involved in the settlement are viable.
Tobacco settlement sales involve bond sales to investors for upfront cash. The state then pays the bond debt over decades with interest from the annual stream of money received from the tobacco settlement. After the debt is paid, the state regains the revenue stream.
The state sold 60 percent of its settlement to investors for $1.2 billion in 2001, rather than risk tobacco companies going belly-up later and not making their settlement payments. The dollars were placed into a trust fund, with interest earnings used annually to help fund TOPS, along with other health and education programs.
The Jindal administration proposal to sell the remaining 40 percent would be structured differently. It would spend all the dollars that are received over seven to eight years — eliminating the yearly $55 million revenue stream after that, until the bond debt is paid.
The state would pay off the debt over 20 to 25 years, depending on how the deal is structured, meaning the state could trade as much as $1.3 billion over the life of the deal for $750 million in a lump sum.
The sale would need approval from several committees and the full Louisiana Legislature.
The Jindal administration describes the sale as a good hedge against the declining use of tobacco, which it says threatens the long-term value of the settlement.
House Speaker Chuck Kleckley, R-Lake Charles, supported advancing the tobacco settlement sale, saying the structure would be thoroughly vetted through the legislative review.