Tobacco funds eyed to help state budget

By JoAn Bjarko
North Forty News

Whether Colorado should take $800 million now for its part of the national tobacco settlement, or wait to collect $2.1 billion over 17 years, is one of the many fiscal debates facing state legislators this year.

The Colorado General Assembly opens Jan. 7 in a budget climate that some fear is working its way toward disaster. Nevertheless, lawmakers from northern Larimer County think it unlikely long-term solutions will be found this year. At best, major financial fixes could be put before voters in November.

Gov. Bill Owens' proposed budget for 2004-05 depends on securitizing tobacco payments now, but local lawmakers are divided on taking that step. Those who agree say it avoids the risk of never getting the full settlement. Those opposed say it's a one-time solution for a long-term problem.

Owens has proposed a general fund budget of $5.87 billion ($13.4 billion in all funds). According to the Colorado Fiscal Policy Institute, three actions have to take place for the governor's general fund budget to balance.

• The state must delay transferring $138.2 million to the controlled maintenance trust fund. The money was borrowed in 2001.
• Instead of a $101.8 million transfer to the capital construction fund, the amount cannot exceed $4.4 million.
• The state would need to take $80 million from securitized tobacco funds to cover general fund operations.

State Sen. Steve Johnson, R-Fort Collins, opposes tampering with the tobacco settlement. "The state will lose a lot of future revenue that I think should go to health programs," Johnson said. "I voted against it in the past and plan to in the future."

The Republican who has Johnson's former house seat, Kevin Lundberg of Berthoud, disagreed. "It's more prudent to securitize it today rather than gamble on the health of the tobacco industry," he said.

To securitize the funds, the state would sell its future revenue stream to investors willing to take a risk on the payments. In exchange, the state would get a single, up-front payment of about $800 million. Owens' proposal would put $80 million into the budget for next fiscal year, with the balance going into a "rainy day" fund.

According to the National Conference of State Legislatures, 14 states have securitized tobacco settlement revenue. Colorado is expected to receive about $90 million in tobacco funds this year if nothing changes. The money comes from a national settlement reached in 1998 by states that had filed lawsuits against tobacco companies.

Rep. Bob McCluskey, R-Fort Collins, said he agrees that the state should securitize the tobacco settlement, but he is undecided on the governor's ideas for using the money. McCluskey noted the governor and state treasurer disagree over legal use of the funds, and legislators may need an opinion from the attorney general to resolve the dispute.

The county's two Democrats in the state legislature oppose the idea of securitizing tobacco funds. "It's a short-term fix for a long-term problem," said Rep. Angie Paccione of Fort Collins, noting that the settlement funds should go to healthcare and tobacco cessation programs.

Paccione added that she thinks a rainy day fund is a good idea, but it should not be funded with tobacco money.

"I think for us to give up a revenue steam that would bring the state of Colorado over $2 billion--in exchange for $800 million or less up front -- is not a good business deal for the state," said Sen. Peggy Reeves, D-Fort Collins.

She noted, for example, that the tobacco money this year provided $15 million for tobacco education, prevention and cessation. Money also went to health care, higher education, the Read to Achieve Program and veterans' trust fund.

"Where would you get money for continued funding for these programs?" Reeves asked.

The county's community health services director, Avie Strand, also opposes the idea of securitizing tobacco funds. "It's a very poor idea to use short-term money to balance the budget one time," Strand said. She added that if health programs now funded with tobacco money are lost, they will not come back.

Johnson contended that Owens' idea doesn't solve any problems. "We've raided a lot of cash funds already to balance the budget," he said. "People want us to go down there with a certain amount of revenue and balance our expenses, not sell off the assets of the state to keep up our spending habits."

Looking at the bigger picture of state budget woes, some caused by conflicting constitutional amendments, Paccione said she thinks legislators have time to put some comprehensive proposals together for voters to decide on in November.