State officials agreed Monday to start laying the groundwork for possibly generating as much as $85 million by refinancing part of the state’s tobacco settlement.
The infusion of cash would come as state government faces a $1.3 billion shortfall in the money needed to pay for health care, education and other public services in the fiscal year that starts July 1.
During a meeting of the Tobacco Settlement Financing Corp.’s board, state Treasurer John Kennedy raised the concern that the impetus for the proposal is the state’s money problems.
Money generated from the refinancing would go toward the Taylor Opportunity Program for Students, or TOPS, which provides state-funded college scholarships. However that money, in turn, could free up dollars in the state general fund that otherwise would be used for TOPS.
According to the Division of Administration, $102 million from the state general fund went to TOPS in the current state fiscal year that ends in June.
“I want to make sure we’re not driven by a need to balance the budget,” Kennedy said.
Commissioner of Administration Kristy Nichols, the governor’s top budget adviser, said the refinancing of $823.1 million in tax-exempt tobacco settlement bonds would be in the state’s best interest, regardless of the budget situation.
“With interest rates at historical lows, it makes great financial sense to refinance,” she said.
The board gave preliminary approval to a resolution to pursue the refinancing.
First, professional advisers, including a financial expert, will be hired. The state Bond Commission and the Joint Legislative Committee on the Budget would have to agree to any refinancing.
House Speaker Chuck Kleckley, R-Lake Charles, asked if other states are refinancing their settlements.
Attorney Meredith Hathorn said everyone is taking advantage of low interest rates.
In 1998, the major tobacco companies agreed to pay states more than $200 billion to settle lawsuits filed over the health-care costs related to smoking. The money was to be paid over 25 years.
The state sold 60 percent of the future settlement in 2001. Tobacco settlement proceeds pay for several expenses, including the free college tuition program known as TOPS.
Kennedy said Monday that he agrees it is a good idea to refinance, given the drop in interest rates.
The real issue, he said, is how to spend the savings, which the Jindal administration estimated could range from $75 million to $85 million.
Kennedy compared the proposal to refinancing a 30-year mortgage, saying homeowners can shrink their payment window, lower their monthly payments or take the savings and buy a bass boat.
“The administration is pushing the bass boat option,” he said. “I want to do what’s best for the taxpayers over the long term and not just take all of the candy up front.”
Nichols said the Jindal administration’s financial expert advised that refinancing should be pursued, partly because the revenue stream is volatile.
“Today’s action was strictly about setting the stage for a financial deal that’s in the best interest of the state, regardless of the budget situation,” she said.