Economists cautious on borrowing against tobacco fund

The state budget deal brewing between Gov. Mark Dayton and Republican legislative leaders involves a lot of debt, including perhaps borrowing $700 million by tapping future tobacco settlement payments.

That approach concerns some people, such as state economist Tom Stinson, who doesn't feels it could hurt the state's credit ratings and raise its borrowing costs.

"It certainly doesn't do the state's credit reputation any good. The lower your bond rating, the lower your credit reputation, the higher the interest rates you have to pay," Stinson said.

However, Minnesota is not alone in the approach.

Fifteen other states have borrowed against tobacco settlement money. And there was consideration for doing that in Minnesota when during Tim Pawlenty's term as governor.

But Tom Hanson, Pawlenty's former finance commissioner, warns that tobacco money spent now won't be available in the future.

"The problem with, or the dilemma with tobacco bonds is it's money that's here for the current biennium, '12 and '13," Hanson said. "But it's not money that's going to be there in '14 and '15. And if they're going to build-in spending that's continuing into '14 and '15, you're going to have to find another revenue source two years from now."

Minnesota has been getting about $160 million a year from tobacco companies, as part of a 1998 deal to compensate states for treating people with smoking-related illnesses. It is unclear how much it will cost to utilize those payments or how it will affect the state's credit rating.

Before you keep reading ...

MPR News is made by Members. Gifts from individuals fuel the programs that you and your neighbors rely on. Donate today to power news, analysis, and community conversations for all.