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
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
“The upside is, you get the state out of the business of betting on tobacco