Independent Student Newspaper Since 1969

The Badger Herald

Independent Student Newspaper Since 1969

The Badger Herald

Independent Student Newspaper Since 1969

The Badger Herald

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Wisconsin uses tobacco bonds to pay deficit

A new report shows Wisconsin may be paying higher interest rates to attract buyers for its $1.6 billion tobacco bond.

The report released Thursday by Bloomberg news service said Wisconsin offers higher yields than other states because of the lack of investor interest.

The Bloomberg report showed Wisconsin bonds yield up to a non-taxable 6.6 percent, while other 30-year municipal bonds yield only 5 percent.

Tobacco settlement money could play a large role in eliminating the state’s $1.1 billion deficit.

State Senate President Fred Risser, D-Madison, said Wisconsin acquired $31 million more than anticipated by selling part of the tobacco settlement money in bonds.

“We sell bonds that will be paid back with future tobacco settlement payments,” Risser said. “The budget conferees are in the process of eating up the money.”

Wisconsin expects to pay off tobacco bonds with $6 billion of future tobacco settlement money. Bonds allow the state to sell the risk of an uncertain cash flow in exchange for a definite, lump sum payment.

The Badger Tobacco Asset Securitization Corp. sold Wisconsin’s bonds. Using tobacco settlement money as a one-time source of funding to fix the budget deficit created controversy among lawmakers.

Tobacco bonds are secured through payments from tobacco companies and sold by special corporations.

Andrew Reschovsky, UW-Madison professor of public affairs and applied economics, said $794 million of the state’s tobacco settlement money is in the Assembly and Senate bills.

“That money fills the largest part of the deficit. If we didn’t do that, we would still have to solve the budget problem,” Reschovsky said. “We would either have to raise taxes or cut government programs.”

Using the money to relieve the budget deficit would reduce the funding for tobacco prevention programs and related health care programs, he said.

Rep. Mary Ann Lippert, R-Pittsville, said she believes the tobacco settlement money should not be used to repair the state’s budget deficit.

“The temptation for legislators will be to use these additional funds on everything except tobacco prevention. I am urging my colleagues on the conference committee to seize this opportunity for agreement and use these funds for their intended purpose — to reduce the burden of tobacco for taxpayers and families in Wisconsin,” she said. “Let’s agree on this one.”

Risser said the tobacco settlement money should be used for health care and efforts to reduce tobacco usage.

“The tragedy is we are giving up $6 billion of expectancy in 25 years, in return for $1.5 billion right now,” he said. “The state wants the money right now. It’s giving up future expectancies for immediate recovery.”

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