Panel selects firm to buy tobacco notes

JEFFERSON CITY, Mo. -- Missouri will receive just under $50 million to help shore up the current budget following a vote Tuesday to sell promissory notes that will be paid back later from the sale of bonds backed by the state's tobacco settlement money.

The state Tobacco Settlement Financing Authority voted to allow Paine Webber Inc. to purchase the short-term notes following a review of 10 bids received after the sale of the notes was approved by the panel two weeks ago.

The notes cost Paine Webber an estimated $49,835,000 plus an additional premium of $75,749.50. Paine Webber officials did not immediately comment on its selection.

The company was chosen by the panel because the interest rates it offered on the notes was 1.42249 percent -- the lowest of all the bidders.

"That's a very good interest rate in today's environment. We're very pleased," said James Carder, director of the division of accounting in the Office of Administration, which has been overseeing the bid process.

The money will be received by the state Friday, allowing the notes to be tax exempt under Internal Revenue Service guidelines. The state had until July 29 to qualify for tax exempt status.

The money from the promissory notes will be used to fill gaps in Missouri's budget until the state's first tobacco bond sale can repay the notes and supply a cash advance for future state spending.

The legislature in May authorized bond sales of up to 30 percent of the $4.5 billion the state expects to receive over 25 years from a national settlement with big tobacco companies over the costs of treating tobacco-related illnesses.

As much as $600 million

That could result in as much as $600 million for the state, depending on market conditions. But by receiving the upfront payment from bonds, the state would forgo about $1.3 billion in expected settlement payments in future years.

The board voted 2-1 to sell the notes, with Gov. Bob Holden and Lt. Gov. Joe Maxwell in support and Attorney General Jay Nixon opposed.

Holden and Maxwell have both embraced the tobacco bond sales as a budget-balancing move that avoids more cuts in state expenditures. Nixon, whose lawsuit led to Missouri's settlement windfall, has been reluctant to go along with the bond plan because of concerns that Missouri is losing future income.

Holden said he was relieved that a portion of Missouri's budget gap would be filled by the sale of the notes.

"I'm pleased with the progress we've been making," Holden said. "It's one piece of the puzzle that has been put in place."

The panel also voted in favor of hiring of two law firms to represent the state tobacco authority. They are Kutak Rock of Kansas City and White Coleman and Associates of St. Louis, which will be paid a maximum of $250,000 for their services.