Sun Nov 08 2009
COLUMBUS (AP) -- Gov. Ted Strickland is willing to take a $5 billion up-front payout from Ohio's share of a landmark settlement with tobacco companies and not regret it later.
The Democratic governor, who released his first budget proposal last week, called for taking the lump sum and using it to pay for the construction of new schools.
It's a lot of money but less than the estimated $18 billion that Ohio would get over 40 years of installment payments from the settlement agreement, according to the state's Office of Budget and Management.
Ohio would be the 19th state to take a lump sum through a process called securitization -- where the state would sell the right to its future payments to investors in return for an immediate influx of cash. California, New York and Michigan are among the states that have already used the strategy to plug budget holes. But at least one state is having second thoughts.
Wisconsin Gov. Jim Doyle, a Democrat, said in January that he will try to refinance a deal made before he took office in 2003, when the state took an up-front payment of $1.6 billion instead of an estimated $6 billion in future tobacco settlement funds.
Doyle said he wants to recover whatever money he can to use for public health and other anti-smoking programs, which is what the 1998 tobacco settlement with 46 states was intended to do.
During his last four years in office, former Ohio Gov. Bob Taft, a Republican, approved taking about $570 million from the state's initial settlement payments to meet budget shortfalls.
Strickland's plan goes further.
State Rep. Bill Seitz, a Republican from Cincinnati, said he likes the idea of Ohio selling off its future tobacco payments. Settlement funds are tied to the tobacco industry's revenues -- which may fall over the next few years -- so it makes sense to get what you can now, he said.
But Seitz questions whether the state can raise billions of dollars in time for the start of a two-year budget cycle scheduled to begin July 1.
Strickland said he's confident that investors will pay for securitized tobacco bonds and that the current market will generate $5 billion.
Tax collections are expected to decline by $40 million over the next two years -- in part because of recent Republican-sponsored tax cuts -- and Ohio has to find money to pay for new schools that the state has already approved, he said.
By not borrowing money for school construction projects, the state will save millions in expected debt payments, which Strickland said he'll use to give seniors a property tax cut.
"I think securitization of tobacco funds makes sense," Strickland said. "I think what we're going to do with those resources is very defensible, and I think this is going to be an easy sell."
Michael Renner, executive director of the Ohio Tobacco Prevention Foundation, which was created with settlement money, said if the GOP-controlled state legislature agrees with the governor's plan it will signal the end of his agency.
Proceeds from an existing endowment could keep the foundation going until about 2017. "But after that, it's over," he said.
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