Tobacco funds getting tapped for budget gaps

JEFFERSON CITY, Mo. -- Gov. Bob Holden is seeking authority to take an upfront payment against Missouri's share of the national tobacco settlement in case the state's financial condition worsens.

The approach would allow the state to raise cash by issuing bonds guaranteed by the $4.5 billion that Missouri is expected to receive over 25 years from the tobacco settlement. A handful of states have already issued such tobacco revenue bonds.

"This means we will have the ability to take some of our settlement in one lump sum if we need it, rather than having it spread out over many years," Holden said in his State of the State speech Wednesday.

But while Holden wants the authority to issue the bonds, he is not planning to do so immediately, said state budget director Brian Long.

In the case of some unforeseen crisis -- a terrorist attack, a flood or natural disaster -- the governor would like to have the authority to implement security through the tobacco revenues, Long said.

With Holden also proposing to use $135 million from the state's rainy day reserve fund to plug budget holes, the tobacco revenue bonds could be a back-up funding source in an emergency.

House Minority Leader Catherine Hanaway of Warson Woods said Holden's approach would "literally mortgage the rainy day fund from tobacco money, and that's very shortsighted."

In December, Holden announced that he would use $63.5 million from the tobacco settlement to help cover a budget shortfall.

Last May, he redirected $82.5 million in tobacco funds because of the tight budget, and earlier in 2001 set aside $127 million in tobacco money to pay for the state's senior prescription drug tax credit, which had exceeded estimated costs.

For the budget year that starts July 1, Holden proposes to use $24 million in tobacco settlement funds for health-care programs.

Senate President Pro Tem Peter Kinder, R-Cape Girardeau, said he was concerned about the diversion of tobacco money from its intended uses but wants more time to study the issue.

"I'm not saying necessarily I'm flat out opposed to it," Kinder said. "It may be a diversion from what we were told we were going to do with tobacco revenue, and we have to scrutinize that very closely before we sign on."

Democrats, meanwhile, said Holden's approach was a good one considering the state of the budget.

Sen. Ken Jacob, D-Columbia, offered a similar bond proposal two years ago. Jacob said that if anti-smoking programs work and fewer people light up, then the amount of money the state receives from the settlement will decline over time.

"If we can leverage that stream of income today to take care of our problems today, I'll tell you what, I'd rather have $1 billion, $2 billion than a couple of hundred million dollars over the long term," Jacob said. "It certainly is a creative idea."