By Jonathan Shorman
March 10, 2016
Citigroup boasted to Kansas officials of its expertise in tobacco securitization, documents show, as child advocates charge Gov. Sam Brownback’s administration is pursuing a sale of future tobacco settlement payments to help close the budget deficit.
A copy of the 26-page presentation, provided by Kansas Action for Children, says Citi “pioneered the tobacco bond market” and dives into which states have securitized. It highlights the benefits of using Citi to securitize.
KAC alleged during a Tuesday hearing the Brownback administration was contemplating selling future tobacco settlement payments to generate upwards of $400 million in one-time cash. Administration officials said there is no deal, but discussions had taken place.
“Tobacco securitization bond proceeds have been used for a variety of purposes; capital projects, working capital, endowments and pension funding,” the presentation document says.
The document was first reported on by Debtwire Municipals, a wire service focused on municipal bonds. The presentation is dated Oct. 27, 2014. Kansas Action for Children said the date is a misprint and that the actual date was Oct. 27, 2015. The governor’s office confirmed the meeting took place in October 2015.
The often-technical document, which was prepared for the Kansas Development Finance Authority, said the tobacco securitization market is a $64 billion market. In it, Citi boasts of maintaining a consistent and broad-based tobacco securitization team and having the most recent and relevant tobacco experience.
“The market for tobacco securitization bonds has been robust in the last year and secondary market tobacco bonds is an important sector of the municipal high yield market,” the presentation reads.
Lawmakers are mulling over legislation that would shift special revenue funds, including the state highway fund and Children’s Initiatives Fund into the state general fund. Proponents argue Senate Bill 463 would offer greater transparency and accountability over the use of the funds, but opponents say the ultimate purpose is to allow for the securitization of the tobacco funds.
“This development indicates that Senate Bill 463 is not about transparency or prioritizing, as budget director Sullivan suggested,” said Shannon Cotsoradis, CEO of Kansas Action for Children.
“Rather, it is a gateway to a much more reckless budget strategy,” Cotsoradis said. “This proposal could decimate Kansas’ early childhood system indefinitely and wreak even more havoc on the state’s already poor fiscal health. Despite the administration’s claims, it is now apparent this option has been on the table for months.”
Brownback spokeswoman Eileen Hawley on Thursday night said KDFA president Tim Shallenburger, along with Rebecca Floy and Jim McMurray of KDFA and Sullivan attended the presentation.
“There is no deal or pending legislation to sell tobacco settlement money,” Hawley said Tuesday. “Several months ago, a presentation was made to state officials about securitization of future tobacco settlement money to Kansas.”