BATON ROUGE, La. (AP) - Gov. Bobby Jindal's administration announced Tuesday that it has refinanced Louisiana's tobacco settlement bonds, though the state received nearly $60 million less than expected through the deal.
Commissioner of Administration Kristy Nichols said the state got $83 million in upfront cash from the refinancing, instead of the $142 million estimated when lawmakers and other state officials signed off on the plan a month ago.
Changing financial market conditions cut into the savings that were expected from taking advantage of low interest rates. Those interest rates had spiked higher in recent days amid signs of improvement in the national economy.
Treasurer John Kennedy had urged the administration to slow down the refinancing for further talks with lawmakers since the savings estimates had changed.
"I would have waited because I think the market was settling down, but I understand this is what happens when you get yourself in a position where you have to sell in order to balance your budget. I think they left money on the table," Kennedy said in a statement.
But Nichols didn't agree, saying the deal was still a good one for the state.
"By acting today, we took the prudent step to capture as much savings as possible and before a potential rise in interest rates," Nichols said in a statement.
The Division of Administration said the state's financial advisers supported the sale, to take advantage of a state marketing effort that had been completed and to get ahead of similar bond sales in the coming weeks that could compete with the refinancing deal.
If the refinancing had been postponed, it also could have created budget problems for the state and the Jindal administration. In the current fiscal year, $67 million from the bond deal is plugged into the TOPS free college tuition program.
"This is a smart financial deal for the state, generating substantial savings that can be used to help fund TOPS scholarships for Louisiana students," Nichols said in her statement.
Kennedy, a critic of the Jindal administration's refinancing structure, had suggested the deal should be revisited, saying it appeared to be driven by budget decisions rather than sound financial policy.
"This is a classic example of why you shouldn't balance the budget with smoke and mirrors," Kennedy said.
But he had no ability to stop the refinancing or slow it down.
As chairman of the Tobacco Settlement Finance Corp. board, Nichols was given sole authority over the transaction.
Louisiana is one of many states that settled lawsuits for claims of smokers' deaths and health costs against tobacco companies in 1998 in return for installments of money each year.
The state sold 60 percent of its settlement to investors for $1.2 billion in upfront cash through a bond sale in 2001, rather than risk tobacco companies going belly-up later and not making their settlement payments. The dollars were socked away into a trust fund. Interest earnings are used to help fund TOPS, along with other health and education programs.
It's those bonds that were refinanced, to take advantage of a lower interest rate for repayment of the borrowing debt.
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