Minnesota sells the good china

As part of the quick-fix solution to Minnesota’s budget shortfall, lawmakers last spring decided to sell the state’s tobacco settlement — the windfall it made from its lawsuit against the tobacco industry in 1998 — in the form of bonds. The state has now sold its windfall.

Basically, the state is playing the part of the people yelling out the window.

Anytime you sell future earnings, you’re going to lose in the long run. The companies that bought the “bonds” have agreed to give the state a pile of cash now, in exchange for the state giving them two piles of cash later. The state will apply $640 million of the sale to erasing part of the state’s budget deficit. For that, it will pay over $1.2 billion over 20 years, MPR’s Tom Scheck reports.

Almost from the time the tobacco case was settled, politicians have fought over how the money would be used. Originally, Gov. Ventura and DFLers wanted to set up a public health endowment with $1 billion. The Republicans wanted to give it to taxpayers with a one-time tax cut.

The payments were to come from the tobacco companies into perpetuity and go into the state’s General Fund. The first payment was about $100 million. By halfway through the last decade, it was estimated to be twice that. The state got about $169 million in 2011.

There were also six one-time payments between September 1998 and January 2003. They were to go to two endowment funds and one legislative account. They funded the Tobacco Use Prevention and Local Public Health Endowment, the Medical Education Endowment, and an Academic Health Center Account within the Medical Education Endowment, according to the House Research Department.

Over that time, adult smoking in Minnesota dropped from about 22 percent immediately after the tobacco settlement, to about 17% in 2007.

  • krj

    Irresponsible political maneuvering.

    Instead of hearing a message of “Don’t bury our future under a mountain of debt”, the politicians have heard “Mortgage our future to pay for the now”.

    Ask any competent financial planner if selling a structured settlement makes sense for your long term financial future and you will find out how horrific this can be.

    What’s next, using a check cashing service to cash checks from the federal government?

  • tboom

    >>Anytime you sell future earnings, you’re going to lose in the long run.

  • Bonnie

    There is steam coming from Mike Ciresi’s ears, no doubt.

  • Jamie

    Indeed, Bonnie. Mine too. This is horrendous, a lot worse than I imagined back when they were acting on this.

    // “How can so many people with so much education make such an irresponsible decision?” //

    It wasn’t “so many” people, tboom. It was a bunch of intransigent Republican legislators, especially the two leaders, forcing this on us so that they could protect their rich and greedy friends and campaign donors from paying their fair share in taxes — amounts for each of them that were tiny drops out of their income buckets.

  • DanA

    Thanks for reporting on this case of politically motivated fiscal mismanagement. Unfortunately too few Minnesotans seem to care about such things to hold politicians accountable.

    For a model of how prudent governments manage such windfalls refer to Norway’s sovereign oil fund. A country with a population roughly equal to Minnesota’s accumulates $500B for investment in the future. That’s what forward thinking political action looks like.

  • Bob Moffitt

    Tim Pugmire called me for my thoughts on this idea back in 2009, when it was first floated by then-Gov. Pawlenty. This is from the story:

    “The trend is alarming for tobacco opponents. Bob Moffitt of the American Lung Association of Minnesota said the tobacco settlement money is supposed to fund programs that help state residents quit smoking. Under the governor’s plan, Moffitt said, the state would give up too much money for too long.

    “The opportunities for Minnesota to invest in tobacco cessation programs and youth prevention programs at the levels that the Centers for Disease Control recommend are very unlikely,” he said. “And we think that’s a big mistake.”