By Jim McLean
March 11, 2016

A leading child advocate has obtained a document that she says confirms state officials are considering a deal to securitize the state’s tobacco settlement payments.

Shannon Cotsoradis, president of the nonprofit advocacy group Kansas Action for Children, raised concerns about a possible securitization deal earlier in the week in testimony to a Senate committee. At the time, she said a reliable source had told her that officials in Gov. Sam Brownback’s administration had discussed bonding future settlement payments in exchange for a one-time payment of $400 million.

Eileen Hawley, Brownback’s spokesperson, said that administration officials had listened to a presentation on securitization but no deal had been struck. She didn’t respond to requests made by the KHI News Service for more information about when the presentation was made and who participated in the discussion.

A copy of the presentation obtained Thursday by Cotsoradis from a national business reporter, shows it was made in October of last year. The pitch was made by representatives of Citigroup’s municipal securities division to officials from the Kansas Development Finance Authority.

State Budget Director Shawn Sullivan also participated in the discussion, Hawley told the Topeka Capital-Journal (http://cjonline.com/news/2016-03-10/citigroup-briefed-kansas-officials-selling-tobacco-settlement-payments-october). Repeating what she said earlier in the week, Hawley said, “There is no deal or pending legislation to sell the tobacco settlement money.”

Cotsoradis said Hawley’s carefully worded statement didn’t alleviate her concerns.

“This document underscores that there is an active conversation and there is the potential for this deal to be struck at any time,” Cotsoradis said.

Cotsoradis and others are concerned that bonding the tobacco settlement payments for money to address the state’s current budget problems could jeopardize future funding for children’s programs. Annual payments received since the settlement was reached in 1998 have been used to fund children’s education programs. In recent years those payments have averaged just above $50 million.

In their presentation, the Citicorp representatives touted their experience in the tobacco bond market, claiming that the company had orchestrated “59 tobacco bond transactions totaling over $28 billion in par (value), more than any other firm.”

The discussion of securitization surfaced during a debate on a controversial Senate bill that would redirect money that now flows into several special revenue funds into the state general fund. The proposed shift would affect sales tax receipts that now flow into the state highway fund and the tobacco payments that are deposited in the Kansas Endowment for Youth trust fund and then appropriated to the Children’s Initiative Fund.

Supporters of the measure – Senate Bill 463 – say it would increase transparency and promote accountability. But critics say it would put money intended for specific purposes at risk, particularly if the state’s budget problems continue.

The bill is in the Senate Ways and Means Committee, which could act on it at any time.

Read more from the Kansas Health Institute.