Will Washington once again turn to Big Tobacco to balance its state budget?
In 2002, Washington’s budget problems were only half as bad as the $3.2 billion deficit the state faces in the 2009-11 budget period. But the Democrat-controlled Legislature and then-Gov. Gary Locke decided to borrow $450 million to help plug a hole in the state budget and pledged part of money the state gets from tobacco companies to pay off that loan.
The state has the wherewithal to do it again. Washington receives between $125 million and $160 million a year from the tobacco companies. That’s the state’s share of the $216 billion nationwide settlement reached in 1998 in which tobacco companies agreed to pay states to settle dozens of lawsuits. Those payments are supposed to continue forever.
The state uses just $55 million of that each year to make payments on the 2002 loan. The question is, will the Legislature and governor borrow from the settlement money again?
“I would say it’s a possibility,” said state Rep. Hans Dunshee, D-Snohomish, vice chairman of the House Appropriations Committee. “I’m not saying it’s a probability. We’re in bad straits. We gotta think of options. Everything is going to be looked at in this process.”
“I guess that’s as far as I’d go, too,” Sen. Margarita Prentice, D-Renton, chairwoman of the Senate Ways and Means Committee, said of Dunshee’s remarks.
Sen. Lisa Brown of Spokane, who is now Democratic Senate majority leader, was chairwoman of the Senate budget committee in 2002 and sponsored the bill to borrow money from the tobacco payments.
“I don’t know about that,” Brown said Monday of another tobacco-secured loan. “It’s selling a piece of an asset. It would have to be compared with all the other options. None of them is going to be popular when they are spelled out in black and white – cuts or revenues or other. I guess this would be one of the ‘others.’”
Washington is one of 17 states that have borrowed money and pledged part or all of their tobacco settlements to pay back the loans. That practice is called securitization. California, Iowa and four other states have pledged 100 percent of their tobacco payments for the next 20 to 30 years.
Gov. Chris Gregoire, who was attorney general in 2002, opposed that first loan. Gregoire was one of the lead negotiators for states in the nationwide settlement. At the time, she said she was afraid Washington would get only a fraction of what the settlement was worth. She also wanted to keep a regular stream of money to pay for health-related projects, such as anti-smoking campaigns.
“She wasn’t a fan of it (the loan) then, and she hasn’t changed her mind,” said Victor Moore, Gregoire’s budget director.
Republican gubernatorial challenger Dino Rossi, who was a state senator in 2002, voted against the bill because he didn’t like taking on long-term debt to pay for short-term expenses. But the measure passed 25-24, with mostly Democrats who were in the majority.
Rossi still opposes the idea and says he would not borrow like that again.
“What they were doing was using the money for salaries and paper clips, which is about as irresponsible as you can get,” Rossi said Monday.
When the state borrows money for 30 years, it should use it to pay for things that last 30 years, such as buildings or highways, he said.
Locke wasn’t too keen on the idea, either – at least, not at first.
Senate Democrats had a couple meetings with then-Gov. Locke and then-Attorney General Gregoire.
“He was easier to convince than her,” said Marty Brown, who was Locke’s budget director in 2002 and is Gregoire’s liaison to the Legislature today.
Marty Brown and Lisa Brown, no relation, both said the turbulence of the financial markets today might make it difficult for the state to borrow any money.
In the 2002 legislative session, the state was facing a $1.6 billion shortfall. The Legislature made some budget cuts, closed some tax loopholes and raised some taxes. The $450 million loan allowed lawmakers to stave off even deeper cuts, Sen. Brown said.
That’s what got Gov. Locke on board, she said. “The alternative was cutting kids off health care,” she said.
The state set up a special Tobacco Settlement Authority in October 2002 to borrow the $450 million. It’s a 30-year loan, but the state has been making extra payments each year so the loan could be paid off by 2019 instead of 2031.
After making the loan payments, Washington still gets installments of about $85 million a year. That money is deposited into the Health Services Account. About $20 million a year is spent on quit-smoking programs, and the rest goes toward other programs, such as subsidizing health care for low- to moderate-income working families.
Just this year, Washington started getting additional payments for being one of the lead states in the nationwide settlement. That amounts to $35 million a year, for each of the next 10 years. Gregoire and the Legislature pledged that money to the Life Sciences Account, which intends to pay for biotech research in the hopes of finding cures for disease and promoting the state as a hub for such research.
Since 1999, Washington has received more than $1.3 billion from the tobacco companies, including $255 million that has been used to make payments on the state’s 2002 securitization loan.
Joseph Turner: 253-597-8436
blogs.thenewstribune.com/politics $120-$160 million
What state gets each year from tobacco lawsuit settlement
Portion of that money that’s used to pay off a $450 loan to balance the budget in 2002
About what’s left each year after the loan payment
Money the state uses to pay for stop-smoking programs. The rest is used for other health services.