By Rod Haxton
March 10, 2016
You’ve seen the commercials for JG Wentworth – “It’s my money and I need it now.”
Gov. Sam Brownback is about to become a company spokesman.
That’s the accusation being made by Shannon Cotsoradis, president and CEO of Kansas Action for Children, who says negotiations are taking place behind closed doors which would allow investment firms to buy up the remaining money owed to the state through the tobacco settlement and, in return, the state would get a one-time check in the amount of $400 million.
Cotsoradis didn’t divulge who had told her about the backroom negotiations while appearing before a Senate committee. And Republican lawmakers are playing dumb when confronted with the accusation, which is disturbingly easy for them.
However, Eileen Hawley, the governor’s spokeswoman, did acknowledge that several months ago state officials heard a presentation about “securitization of future tobacco settlement money to Kansas.”
In other words, the very thing that Cotsoradis is talking about.
It’s easy to imagine Gov. Brownback and Budget Director Shawn Sullivan sitting in front of the TV at Cedar Crest one evening watching “Naked and Afraid” when a commercial airs with an opera cast of Vikings and one of them belts out, “I have a structured settlement and I need cash now.”
Brownback and Sullivan immediately look at each other.
“Bingo,” says Brownback.
“I’m right on it boss,” replies Sullivan.
JG Wentworth (or someone similar, without the cast of Vikings) meets with administration officials and they hear a very familiar story.
“We have a structured settlement from the tobacco companies,” explains Brownback. “We’re due to get $57 million a year until 2025. That’s $513 million.”
“But we need cash now,” adds Sullivan, pointing out that, based on current revenue projections the state will finish in the red when the current fiscal year ends on June 30.
The JG Wentworth-type individual grabs his calculator. He punches a few numbers and says his company is prepared to provide $400 million in cash “right now.”
“I’m sure you can understand that being in this business, the $113 million in fees we would charge you is very reasonable. That’s a better rate than you’ll get for a title loan down the street,” said the company representative. “The important thing for you to focus on is the $400 million you get right now.”
“Right now,” says Brownback with a huge grin.
“Right now,” answers the JG Wentworth-type.
“That would mean no more guaranteed money for early childhood education programs in the state,” noted Brownback.
“But we’d get $400 million right now,” says Sullivan. “Besides, what do pre-schoolers need with $400 million or $500 million? Can we honestly say it will do them more good than us?”
Unfortunately, what Cotsoradis is accusing the Brownback Administration of considering – and possibly negotiating – isn’t new. In recent years, in order to meet cash flow problems, city and state governments around the U.S. have sold off building assets for quick cash, only to turn around and lease many of these same buildings.
“This is tantamount to selling the family china only to have to rent it back in order to eat dinner,” says economist Yves Smith, author of the business blog Naked Capitalism.
Brownback and Republican lawmakers are using similar fiscal shenanigans by borrowing more than $1 billion through the Kansas Department of Transportation’s T-Works program. This money is being used to close the ever-widening budget gap and keep state government operating.
This has led critics to make reference to the “Bank of KDOT.” Apparently that description disturbs Sullivan who said, “We need to get away from the ‘Bank of KDOT’ language.”
It’s not the practice of long-term indebtedness for short-term gain that bothers Sullivan – only the semantics.
Given this administration’s recent fiscal history, it makes the claim by Cotsoradis not only possible, but plausible.
The Kansas budget has become nothing more than one giant ponzi scheme in which money is shifted from one account to another in order to pay off creditors. Long-term debt is being acquired to meet immediate obligations and now we are quite possibly willing to sell off assets at a sharply discounted price in order to pay our bills.
There isn’t a banker in the country who would sign off on this if they had a customer walk into their office with a financial portfolio in similar disarray because of one simple fact.
None of what the state is doing addresses the real problem.
We have a tax policy that has destroyed our cash flow and is limiting the ability of government to do its job. The Brownback Administration and Republican leaders in the legislature might cobble together a patchwork plan that will get us through the end of the fiscal year – and possibly through the November elections – but what they’re doing is beyond unsustainable. It’s completely irresponsible.
They aren’t planning for tomorrow. In fact, they could care less about tomorrow.
They need their money and they need it now.