States to sell 'tobacco bonds'?

By Vin Suprynowicz
web posted May 8, 2000

Broadcasters have always been able to earn "public service" credit by airing advertisements that dissuade kids from taking up tobacco.

Instead, will we soon see our governors calling on the stations to air footage of Bogie and Bacall sharing a match on their Pall Malls, with a voice-over urging kids to "give cigarettes a try -- they're cool; they're sexy; and lots of smokers never get lung cancer"?

Following the successful 1998 legal extortion enterprise known as the "tobacco settlement," state governments are now counting on nearly a quarter of a trillion dollars flowing into their coffers from Big Tobacco over the next 25 years, supposedly to pay the costs of smokers' health treatment -- a responsibility not delegated to government under any known written constitution, but instead undertaken by our politicians via sundry ramshackle socialized medicine rackets in hopes of garnering the votes of that seemingly limitless mob gullible enough to want "something for nothing."

In fact, of course, "We'll use the money for sick smokers" can now be entered in the archives right next to "Of course I'll respect you in the morning." At least half the tobacco booty is now earmarked for programs not even remotely linked to health care -- from water projects to new jails to Nevada's "Millennium Scholarships."

Problem is, the public relations campaign to demonize smoking -- combined with a new 45 cents-per-pack price hike which effectively passes the settlement costs along to smokers themselves -- seems to be working. The Associated Press reports the 46 states which are party to the agreement "took a billion-dollar hit this month after their payments were decreased to reflect last year's 9 percent decline in U.S. cigarette shipments," under a "volume adjustment" clause of the settlement agreement.

Even worse, the states now worry payments could be delayed for years in the event of a crippling punitive award in a Florida class-action suit involving an estimated 500,000 sick smokers. Why, there's even talk of big tobacco firms seeking Chapter 11 bankruptcy protection!

And who would then fund our college scholarships for every Nevada kid able to complete 12 years of schooling without being sent up for a major felony?

Nevada state Treasurer Brian Krolicki confirms one of the tobacco payments recently received in Carson City was adjusted for a 14 percent drop in cigarette sales. But he insists Nevada "waited to see how much was in the bank" before allocating either the 50 percent of tobacco moneys earmarked for health care, or the 40 percent intended for scholarships to state schools.

The amount of money the state now has "in the bank, so to speak" from the tobacco interests is more than enough to support the scholarship program for its first four or five years, the treasurer says.

Still, Mr. Krolicki acknowledges the state could find itself in a risky position if the ability of Big Tobacco to make its promised payments starts to erode -- not to mention the slight discomfiture of all those "save-the-children" politicians now having to hope tobacco use doesn't slip too far. (Even before the settlement, Treasurer Krolicki points out, tobacco tax rates meant "Government makes far more money on a pack of cigarettes than Phillip Morris does.")

Therefore, Mr. Krolicki plans to present to the 2001 Nevada state Legislature a plan to "securitize these revenues, to sell bonds that are backed by these tobacco revenues.

"For Nevada to be relying on an industry which is subject to this kind of litigation is imprudent," he says. "Instead, we should find investors willing to buy that risk."

If Nevada's legislators go for Mr. Krolicki's proposal, the Silver State would join Florida, Virginia and Louisiana, where officials also talk of "selling some of their settlement" to investors at a discount, rather than "counting on the industry to stay fully afloat for 25 years."

"It would be imprudent for any state not to consider the best ways of protecting the annual revenues," agrees Martin Feldman, an analyst with New York-based Salomon Smith Barney.

Just as it would be "imprudent" for a second-story man to hold onto his stolen loot, rather than turning it over to his fence -- the much safer course, even if the original culprit does have to accept 20 cents on the dollar.

All of which leaves Pennsylvania Attorney General Mike Fisher as a lonely voice reminding the extortionists what their lawsuit was about in the first place:

"We shouldn't be concerned that the amount of cigarettes being sold is going down," Mr. Fisher told the AP last week. "It's a good sign and the primary goal behind bringing this litigation in the first place."

But try telling that to a lawmaker who's already busy in her mind pouring coffee for the big campaign donors, and slicing up that steaming hot pie.

Vin Suprynowicz is assistant editorial page editor of the Las Vegas Review-Journal. His book, "Send in the Waco Killers: Essays on the Freedom Movement, 1993-1998," is available by dialing 1-800-244-2224; or via web site

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