How Wall Street Tobacco Deals Left States With Billions in Toxic Debt

Updated on

Lockyer in the past has referred to CABs used by school districts as the equivalent of “payday loans” because of their ability to pile up future debts. Asked why California sold tobacco CABs under his tenure, Dresslar said Lockyer had just entered office in 2007 and the bond deal already was in the works.

The debt is much easier to manage in states that avoided CABs. Last October, Washington refinanced the tobacco bonds it sold in 2002, selling $334.7 million of new, lower-cost debt. Arnone led that deal as well, which netted $2 million in fees for Barclays and other firms. As before, the state avoided CABs.

Washington now expects to repay its tobacco debt two years earlier, by 2023. At that point, 100 percent of its tobacco dollars will again flow to taxpayers instead of investors.

“The money from the tobacco settlement was supposed to go into research and education to prevent people from getting into smoking and, of course, we want that to happen,” said Kim Herman, who heads the state’s tobacco securitization authority.

Smoking’s toll, after all, was the reason states fought Big Tobacco for the money in the first place. But when the final legal settlement was signed in 1998, it did not require states to spend at least some money on smoking prevention.

“That was a mistake,” said Iowa Attorney General Tom Miller, who helped lead the settlement negotiations and is still in office. Miller said he did not oppose securitizing a large slice of Iowa’s proceeds, 78 percent, as long as it still left a portion remaining for tobacco prevention programs.

But Michael Moore, who as Mississippi’s attorney general filed the initial lawsuit that led to the settlement, says the states that securitized made a “sucker bet” that diverted the winnings of the fight away from their intended purpose.

“The people making the decisions think that this money fell out of heaven,” Moore said. “No. This money was related to a public health battle, probably the biggest public health battle in our nation’s history, trying to combat the No. 1 cause of death and disease.”

The Centers for Disease Control and Prevention estimates that to make a real dent in smoking states should collectively be spending $3.3 billion a year on anti-tobacco programs.

The Campaign for Tobacco Free Kids, a smoking-prevention group, said tobacco companies spend $8.8 billion a year on marketing. By comparison, states together spent $481 million on prevention in their most recent fiscal years, the campaign’s latest report said.

The state that spent the least?

New Jersey.

Update: Official statement from the New Jersey Treasury Department.

Additional research contributed by Claire Kelloway, ProPublica.

Leave a Comment