Texas Business Lobby Urges Selling Future Earnings on Tobacco Settlement

Mar. 16-AUSTIN, Texas-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 screen.

“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 idea.

“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 families.

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


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 forever.”

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 fund.

“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