Gov. Pataki’s Proposal to Securitize Tobacco Settlement Funds Is a Raw Deal for New York’s Taxpayers and Kids

Washington, D.C. — Governor George Pataki's (R) proposal to securitize part of the state's tobacco settlement income is a raw deal for kids and taxpayers. This proposal would leave New York with just a fraction of its tobacco settlement money and make it virtually impossible for the state to use its tobacco settlement funds 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.

Selling 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. This one-time budget gimmick will leave the state with far less tobacco settlement money for tobacco prevention and other purposes in the future, would cash in the settlement for pennies on the dollar, and could cost New York taxpayers even more by harming the state's credit rating. According to a story in the November 29, 2002, issue of The New York Times, five states that have securitized their tobacco settlement proceeds have had their credit ratings lowered by the three main credit agencies or have been placed on alert about the possibility. A lower credit rating could cost New York taxpayers millions whenever the state borrows money. Selling off future tobacco settlement payments is a raw deal for New York taxpayers.

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.

Tobacco's toll is devastating in New York – 26.8 percent of high school students currently smoke, and 45,900 more kids become regular, daily smokers every year, one-third of whom will die prematurely. Smoking-caused health care costs New York and its taxpayers $6.6 billion a year. New York receives $955.8 million in tobacco settlement money in 2002. It also will receive roughly $1.4 billion a year in tobacco taxes in 2003. By using just some of this tobacco money to adequately fund tobacco prevention programs, New York can reduce smoking, save lives, and reduce tobacco-related health costs. The evidence is conclusive that these programs work.