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Source:http://www.courierlifenews.com/,2010-03-22
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Gov. Jim Doyle has long criticized a decision by a past governor and Legislature to borrow money against future payments to the state from tobacco companies - a move that delayed by years the date the state will receive those hefty payments free and clear.
Now some Republican lawmakers and budget watchers such as the Wisconsin Taxpayers Alliance are questioning whether Doyle wants to do nearly the same thing.
That's because under a bond refinancing deal proposed by Doyle, the state could take an additional seven to 14 years to start receiving the tobacco company payments - worth hundreds of millions of dollars - according to figures from the governor's budget office.
Doyle wants to refinance the so-called tobacco bonds, receiving a lower interest rate and extending the payments, to pull out a lump sum of $600 million. He would use that money to create an endowment to help smokers quit the habit as part of a broader anti-smoking initiative.
Doyle has said his refinancing plan would neither cost the state money nor push back the original payoff deadline for the bonds - when the state will start to keep the yearly tobacco company payments instead of diverting them to cover the past borrowing.
So far, the state is on track to pay off the bonds far in advance of that original deadline of 2032. Doyle's plan would delay that early payoff.
Todd Berry, president of the Taxpayers Alliance, questioned whether the deal is a good trade-off for the state, saying the state would once again be borrowing against the future tobacco company payments - a move Doyle panned the first time around.
"In a very real sense, we're selling the money (again)," Berry said. "So tell me what the difference is?"
Berry and some Republicans say lawmakers might subvert Doyle's plan by raiding the $600 million endowment to balance the state's tight budgets - rather than spending it as Doyle proposes on anti-smoking efforts.
Doyle's budget director, Dave Schmiedicke, confirmed the proposed refinancing also would delay for years the date the state is likely to be able to keep future tobacco company payments, expected to be worth more than $200 million a year. That money could be used to improve health-care services, help smokers quit their habit or any other use state officials choose.
As attorney general, Doyle, a Democrat, helped win a settlement with tobacco companies over the costs of smoking. The settlement called for yearly payments to the state in perpetuity.
Under a plan authorized by lawmakers and then-Gov. Scott McCallum, the state in 2002 essentially borrowed against that future stream of tobacco company payments, receiving $1.6 billion upfront and diverting the annual payments - potentially worth more than $5 billion - to pay off the debt, the so-called tobacco bonds.
McCallum, a Republican, originally called for using part of the $1.6 billion to fight the effects of tobacco use, but in the end, it all went to plug a state budget hole.
Under the terms of that deal, the bonds have to be paid off by 2032. But Schmiedicke confirmed that the state has been paying off the tobacco bonds at a rate that could retire the debt by 2018. That, combined with lower interest rates, is what gives the state its refinancing opportunity, he said.
It's a situation, Schmiedicke said, that could be likened to having a 30-year mortgage on a house but paying it off 14 years early with higher payments. The state chose the 30-year bonds - a longer time period than needed - to get a lower interest rate and to have a hedge against the risk the tobacco company payments might fall short of expectations, he said.
"If those monies actually do come in, you're able to pay (the debt) off faster," Schmiedicke said.
Doyle said he wants to invest the $600 million from the refinancing in an endowment and use the interest to fund $30 million a year in anti- smoking efforts - an increase of $20 million a year over what the state now spends. Under Doyle's plan, the tobacco bonds would still be repaid by 2032, and possibly as soon as 2025, Schmiedicke said.
"Now is the time we can really use these resources to reduce smoking in the state," Doyle said. "I consider it a sweet irony that I'm in a position to restore that (anti-smoking) fund."
Doyle rejected the view that his plan is similar to McCallum's actions, vowing he would veto any attempt to use the $600 million for anything but smoking cessation.
But Berry said it is unlikely the money would stay in an endowment for many years, given state budget pressures.
"History shows that a pot of $600 million is simply too tempting" for state officials, Berry said.
Schmiedicke said the refinancing would likely lower the 6 percent interest rate on the bonds by at least one-half of a point, which would save the state money. Doyle doesn't need legislative approval to do the refinancing and take out the $600 million, but will need the Legislature's approval to spend the money.
The tobacco companies' payments to the state, which are currently going to pay off the tobacco bonds, totaled $383 million between 2004 and 2006, and should rise by at least 3 percent a year, Schmiedicke said. With expected increases, the payments should be more than $200 million a year by 2019.
Doyle's plan has the support of state anti-smoking groups.
Maureen Busalacchi, executive director of Smoke Free Wisconsin, said she thought it was worth it for the state to forgo that future money in order to pay for anti-smoking efforts today. The additional money would make Wisconsin one of a handful of states with anti-smoking spending that meets the minimum recommended by the U.S. Centers for Disease Control and Prevention.
"Let's help people quit now," Busalacchi said.
GOP lawmakers including Rep. Kitty Rhoades, R-Hudson, co-chairwoman of the Legislature's budget committee, said they're skeptical of the plan. It's not the kind of decision she and her husband would make with their own mortgage, she said.
"To me, that's not a great debate," said Rhoades, who would prefer to see the state pay off its debt sooner.
Schmiedicke said the refinancing wouldn't mean lost money for the state as long as state officials kept the $600 million in an endowment and only spent the interest.
But Berry said Doyle's proposal doesn't differ much from the original proposal made by McCallum and other state officials to sell the state's tobacco payments and use part of the money for an endowment.
"Within a year, they had financial problems and they grabbed it all," he said.
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