Keating Tobacco Sell Out to Cost State Billions, Pro Tem Urges Thorough Scrutiny of Plans for State Nest Egg

Saying his "sell out" strategy may not be in the best interest of the state, the leader of the Oklahoma Senate is questioning Governor Keating's plan to cash in the state's tobacco settlement share immediately for a discounted amount.

Under the national settlement, Oklahoma stands to receive $2.4 billion in tobacco funds over the next 25 years, but the Governor has proposed "selling" the state's share to New York bond dealers for an immediate pay off. Estimates indicate such a pay off would net Oklahoma only $1 billion.

"Getting 40 cents on the dollar may seem like a great horse trade to Governor Keating, but I think any common sense Oklahoman would argue that we're getting the short end of the deal. The tobacco settlement money could serve as a nice nest egg for the people, but the Governor is apparently bent on breaking open the piggy bank today, even if it means our taxpayers will lose billions of dollars," said Senate President Pro Tem Stratton Taylor.

The Governor first proposed the idea on Tuesday, three-and-a-half months into the four month special session.

"I don¹t see why we should be in such a hurry to cash in the biggest chunk of money our state has ever seen, without even earning a day of interest on it. I think it would probably be a good idea to slow this train down a little bit and take a good long look at it before we make a bad decision that may end up costing taxpayers millions and millions of dollars," said Senator Taylor.

"If this is such a great idea today, it'll be an even better idea next year after we've had time to give it thorough study. It's not like the money is burning a hole in our pocket."

The tobacco settlement is supposed to be distributed to the state in annual payments over the next 25 years, with those payments being adjusted for inflation each year.

According to calculations by the Senate staff, the $2.4 billion tobacco settlement would accumulate to $10.5 billion in the next 25 years if the state simply placed the annual payments in an interest-earning trust fund. If the state spent approximately $40 million of the annual payments each year and placed the rest in a trust fund, it would still have approximately $5.2 billion in its savings account at the end of the settlement period.

"We're looking at a sizable nest egg that could do great things for the people of Oklahoma. I don't think we should sell out to the first New York bond dealer who comes down the block with a proposal," said Senator Taylor.

"I can understand Governor Keating's temptation to jump at the first offer and be the one who gets to spend all the money, but I don't know if that's in the best interest of the state. Maybe we should leave some of those decisions to our future leaders."

Governor Keating has argued that it would be best to take a discounted amount of money up front because U.S. tobacco companies may not be in business for the next 25 years to make settlement payments. Senator Taylor disagrees, noting that tobacco companies are huge conglomerates with a variety of lucrative interests outside the cigarette market.

"Firms like Phillip Morris and RJR Nabisco aren't likely to fold anytime soon and the New York bond dealers know that. They're not offering this deal to the Governor out of the kindness of their heart. They'll charge the state and fashion a good business deal for themselves," said Senator Taylor.

"I'm certainly willing to listen, but at first blush, I'm not too enthusiastic about the Governor's sell out strategy."

Governor Keating wants to use the tobacco money on a higher education bond issue, but the Senate leader said he believes the Governor's first proposed financing mechanism - a cigarette tax increase - should still be considered.

"A user tax may be preferable to a proposal that taps a large share of the money we could be using to help all the people of Oklahoma. I'm certainly open to considering the use of a small amount of the tobacco settlement on a higher education bond issue, but I don't think it should carry the full weight," said Senator Taylor.

The legislative leader noted that several Senators have already proposed a distribution plan for the tobacco settlement cash. Under that program, half of the money would be placed in an interesting earning trust fund and the other half would be earmarked for a variety of education and prevention programs ranging from before and after school programs to teen counseling and violence prevention programs.