Lobby Targets Tobacco Payoff
AUSTIN–With Texas facing a $9.9 billion budget shortfall, the
head of the state’s largest business lobby is pushing what he calls
a sure-fire way to pay the bills without raising taxes.
Sell the future earnings on the state’s $17.3 billion settlement
with the nation’s largest tobacco companies for a lump-sum payment
of up to $5 billion, said Bill Hammond, president of the Texas
Association of Business.
“It’s like the cash-option on a winning lotto ticket,” said
Hammond, whose organization boasts 140,000 Texas employers. “You
take a lump sum upfront.”
But Peggy Venable, director of the equally conservative Texas
Citizens for a Sound Economy, calls Hammond’s suggestion a smoke
“This is not the time for smoke-and-mirror gimmicks,” Venable
said. “This is the time for lawmakers to get serious about making
the budget cuts we need to put the state back in the business of
providing the core services and look for ways to keep paying for
programs that might need to be re-evaluated.”
State leaders are scrambling for ways to bridge the massive
deficit for the two-year budget cycle that begins Sept. 1. The
state’s Republican leaders — Gov. Rick Perry, Lt. Gov. David
Dewhurst and House Speaker Tom Craddick — have handed down the
message that they would not support any new taxes. But they have
also said that they plan to protect what they call the state’s core
Dewhurst, who presides over the Texas Senate, acknowledged last
week that lawmakers are going to have to find what he calls nontax
revenue sources to avoid deep and painful cuts in social programs.
Texas’ 1998 settlement with Big Tobacco calls for the companies
to make annual payments to the state of about $500 million. The
exact number depends on a variety of factors, including the rate of
tobacco consumption in the state.
Hammond’s organization estimates that the state could bring in
as much as $5 billion by selling the future tobacco earnings.
Dewhurst said that lawmakers ought to take a close look at the
“That could be a possibility,” Dewhurst told reporters recently.
“I don’t want to get out front and prejudge where [lawmakers] might
end up. But in the numbers I have looked at [to balance the
budget], that has been included.”
Several states, including California, New Jersey and Washington,
have sold at least a portion of their tobacco settlements.
Wisconsin has sold its $5.9 billion settlement for $1.3 billion to
alleviate a severe cash crunch.
Texas lawmakers used the initial installments to establish a
variety of endowments for health-related projects and to combat
youth smoking. But the lion’s share of the tobacco money has been
earmarked for the Children’s Health Insurance Program, which
provides health coverage for children in low-income working
Joel Spivak, spokesman for the Campaign for Tobacco-Free Kids,
said that selling the settlement’s future earnings would undermine
those programs. And he rejected the comparison to a lump-sum
lottery payout, noting that someone who claims the million-doller
prize is set for life, while $5 billion would barely pay the
state’s bills for a month.
“We take a very dim view of it,” Spivak said. “You take a
short-term gain, for what? Pennies on the dollar. And once that
money’s gone, it ain’t coming back.”
Hammond said that if the Legislature chooses to raise taxes
instead of selling the tobacco settlement, Texans will always be on
“Economic downturns are temporary,” he said. “Tax increases are
Hammond argued that the state could sell just a portion of the
future earnings, or it could invest some of the proceeds in a trust
“You don’t have to spend it all,” he said. “You could spend some
and put the rest into an endowment. The earnings from the endowment
could be used in future years.
“The upside is, you get the state out of the business of betting
on tobacco consumption.”
ONLINE: Campaign for Tobacco-Free Kids, www.tobaccofreekids.com
Texas Association of Business, www.txbiz.org
Citizens for a Sound Economy, www.cse.org