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

the hook.

“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