WICHITA EAGLE: Kansas officials heard plan to sell off tobacco settlement on bond market

By Bryan Lowry
March 11, 2016

Kansas officials reviewed a plan in October to sell off the state’s share of a settlement with tobacco companies on the bond market, documents show.

The state receives an annual payment as part of the settlement. It uses the money from the settlement to fund children’s programs, such as Early Head Start and Parents as Teachers. Last year’s payment was more than $62 million.

Banking giant CitiGroup gave the Kansas Development Finance Authority, which handles Kansas bond issues, information on using the settlement to issue a securities bond last year, documents provided to The Eagle by an advocacy group show.

The company oversaw a $621 million bond issue for Rhode Island last year and partnered with Barclays on a $1.7 billion bond issue for California.

“Citi pioneered the tobacco bond market,” states the presentation, which calls tobacco securitization a $64 billion market.

Proceeds from tobacco securitization bonds have been used for capital projects, working capital, endowments and pension funding, the documents say.

The state is short on working capital and faces a nearly $50 million budget hole for this fiscal year.

‘No deal’

The idea that Gov. Sam Brownback’s administration was looking to sell off the proceeds of the tobacco settlement for a lump sum was raised earlier this week by Kansas Action for Children, a group that advocates for children’s programs, during a hearing on SB 463, a bill that would move the Kansas Endowment for Youth and Children’s Initiative Fund into the state’s general fund.

Two of the governor’s top staffers rejected that idea on social media.

“Despite rumors, there is no deal or pending legislation to sell tobacco settlement money,” Brownback’s communications director, Eileen Hawley, posted Tuesday on Twitter.

The governor’s budget director, Shawn Sullivan, poked fun at the controversy, responding to Hawley’s Tweet by saying, “Why are there black helicopters circling my office? Are they here to drop off this secret deal?”

Hawley confirmed in a Friday e-mail that Sullivan attended the October meeting, but added, “No action was taken as a result of that meeting.”

A ‘gateway bill’?

Kansas Action for Children says the presentation shows that SB 463 is meant to enable the governor to sell off the tobacco settlement as a bond.

Haley Pollock, spokeswoman for the advocacy group, pointed out in an e-mail that the CitiGroup presentation states, “On multiple occasions, the State has used the CIF to supplement monies in the State General Fund” and that “Sullivan used this phrase verbatim during his committee testimony on SB463.”

“Plugging quotes from the securitization presentation into his testimony for SB463 strongly implies the impetus for SB463 is to start the securitization process, not to increase transparency or prioritize children’s programs, as he suggested,” she said. “This is confirmation that SB463 is a ‘gateway bill’ to a more reckless, temporary budget bandaid.”

Rep. Mark Hutton, R-Wichita, a lawmaker who played a key role in blocking a previous attempt by the governor to sweep money from the Children’s Initiatives Fund, called selling off the tobacco settlement as a bond an “absolutely terrible idea.”

“I think he’s getting desperate. Isn’t he?” said Hutton, who has been an outspoken critic of the governor on tax and budget issues. “I mean, when you start selling your receivables, that’s a sign that you’re on the verge of bankruptcy.”

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