LANSING – A bill that would sell three-quarters of the state’s annual payments from the national tobacco settlement in exchange for an immediate $3 billion lump-sum payment that would be used to fund technology start ups, Merit Awards and the state Medicaid Benefits Trust Fund was introduced Wednesday in the Michigan House.

The bill (HB 5048) is part of the House Republican plan that would be put into a new Michigan Tobacco Settlement Securitization Authority, which would be governed by a board of directors consisting of the State Treasurer Jay Rising, the CEO of the Michigan Economic Development Corporation and three persons with a background in business/financial fields that the governor would appoint.

Currently, the state receives about $285 million a year from the tobacco settlement with those funds paying for the Merit Award and health care programs. Under securitization, investors would buy the rights to those annual payments by giving the state a lump-sum amount of $3 billion.

House Republicans have proposed spending $1 billion of the money on capital to lure cutting-edge businesses to the state, diversifying its economy; $1.5 billion to create an endowment for the Merit Award and $500 million on the Medicaid trust fund.

But health organizations argue securitization stinks as good fiscal policy and does not use the money as intended – stopping people from smoking.

The Center for Tobacco-Free Kids is one such health organization opposing the idea, which has been used in 16 other states. Aaron Doeppers, Midwest regional advocate for the center, said securitization is a terrible idea.

“It’s horrible fiscal policy,” he said. “If (our kids) are going to be saddled with debt, let’s not make it the debt with the worst return rate imaginable.”

When the settlement was announced in 1998, many officials and organizations assumed the money would go for health-related efforts, but former Gov. John Engler proposed the Merit Award program instead to provide college scholarships for performing well on the Michigan Educational Assessment Program. Doeppers said as a result Michigan ranks dead last in using the money for health purposes.

Doeppers said those uses of the money are fine, but the act of securitization is helpful mainly to bankers and the bond industry, which stand to make a lot of money. On the other hand, Michigan is looking for some way to ease the budget problems – it is said that when the U.S. catches a cold, Michigan catches pneumonia.

Some of the states that have securitized used the money to alleviate budget deficits, but there is no such proposal in Michigan, which could lead to a lower credit rating. Granholm has said she supports securitization for investing in the state’s economy and would not object to using the money for the Merit Award, but is wary about putting funds into the Medicaid Benefits Trust Fund.

The American Heart Association also remains opposed to securitization simply because the diverted money would not be used for its original intent.

“States can save lives now by investing in these prevention and cessation programs and that is a big investment in the future,” said Cindy Hawken, director of communications for the heart association’s Greater Midwest affiliate. “We must remain true to the intent of the settlement and fully fund programs to fight tobacco.”

Raymond Cox, chairman of the Department of Finance and Law at Central Michigan University, said lower return rates might be good because they would result in more upfront money. But he said securitization, if used to fix a budget problem, just delays hard decisions in how to operate a government because budget issues result from too many expenses and/or too little revenue.

“It’s just shuffling chairs on the Titanic,” said Cox on the intended uses for the money. “Securitization is, to a great extent, a gimmick.”

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