Texas Business Group's Proposal to Securitize Tobacco Settlement Funds Is a Raw Deal for Taxpayers and Kids

Washington, D.C. — The Texas Business Association's proposal to securitize all of the state's tobacco settlement income is a raw deal for kids and taxpayers. This proposal would make it virtually impossible for the state to adequately fund a comprehensive tobacco prevention program in the future. It is a nearsighted approach to the state's budget crunch that will cost taxpayers more in the end. To fix the state's budget gap, Texas leaders should instead enact a higher cigarette tax, which is a win-win-win solution proven to reduce smoking, raise revenues, and earn support from voters.

Selling all future tobacco settlement income to investors for a much smaller one-time lump-sum payment is not only unfair to future generations, but a bad deal for current taxpayers. Even the Texas Business Association admits their plan would only earn 40.8 cents for every dollar the state's treasury is scheduled to receive under the terms of the tobacco settlement. Like Enron shareholders, Texas taxpayers would get only pennies on the dollar. This proposal's only winner would be Wall Street bond brokers.

Securitization also makes it far less likely that any of the tobacco settlement money will be used as intended – to fund tobacco prevention programs that reduce youth smoking and save money for taxpayers by reducing smoking-caused health care costs. The best tobacco prevention programs are proven to save money by reducing health care costs by as much as $3 for every dollar spent on them.

This is a nearsighted solution to the state's problem that only makes the state's budget harder to balance in future years. Because it's a one-time payment, future annual settlement payments will end, which means the state will be forced to raise taxes or cut programs more drastically when budget deficits occur in the future.

The best solution for Texas lawmakers to balance the state's budget is to act on the recommendations of the state's public health advocates and increase the cigarette tax by $1.00 per pack. A cigarette tax increase is a win-win-win solution for Texas – a health win that will reduce smoking and the tremendous harm it causes, a financial win that will generate roughly $1 billion per year in new revenue, and a political win that was supported by 70 percent of Texas voters in a poll conducted last June. Texas leaders should act to join the twenty states across the country that have increased cigarette taxes in the past year.