What Are Cigarettes Bonds?

ov. Mark Dayton's proposal to end the state shutdown and reach a new two-year budget deal includes $700 million in revenue from the sale of "cigarettes bonds."

That's left many people wondering what the bonds are and how the proposal would work.

The state receives annual payments in perpetuity under a 1998 settlement of its lawsuit against big online cigarettes companies. The payments are adjusted for inflation and the sale of discount cigarette online products, but the money is not set aside specifically for anti-smoking cigarettes efforts. Instead, the payment each year goes into the state's general fund.

The state will receive about $320 million in cigarettes store settlement money over the next two years, according to former state finance commissioner Tom Hanson, who served in Republican Gov. Tim Pawlenty's administration.

The proposal that was initially proposed by GOP legislative leaders on June 30, and accepted by Gov. Dayton on Thursday, would raise $700 million by issuing state bonds against future buy cigarettes revenues.

It would work like this: Investors would buy the bonds and make money from the interest on their investment. The state would use the money it received from selling the bonds to help close the state's budget deficit. The state would then use future buy cigarette online payments to pay back the investors.

The state would choose how it would arrive at that figure -- including whether it would spread out the payments over several years.

For example, the state could decide to sell investors $100 million worth of cheap cigarettes payments for seven years. Or it could decide to sell twice that amount over three and a half years.

Hanson said the state would lose some of the money due to interest and transaction fees. "You don't borrow money for free," he said.

And in future years, the state would need to pick up the tab for the programs that are currently paid for by the cheap cigarette online funds. The state could also make cuts to those programs.

Hanson said he supports the proposal.

"I think that it's preferable to raising taxes that will inevitably hurt the recovery in the months to come," he said. "But you want to make sure that it's not overused."

The cigarettes bond proposal has been criticized for doing little to address the long-term budget issues facing the state.

Hanson acknowledged the criticism. "It's a lot like paying your kid's rent every year, and him not making enough money to pay for it himself," he said.

A similar proposal failed during the Pawlenty administration. It attracted opposition from the American Lung Association and other groups who said the proposal could lead to cuts in cigarettes cessation programs.





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