Big Tobacco is Too Big of a Risk  
By State Treasurer John Kennedy

               As your State Treasurer, I believe it is my responsibility to treat the state’s money – your money – as if I were caring for my very own.  For that reason, I have been a leading advocate for selling at least a portion of Louisiana’s tobacco settlement. 

                I believe it is the prudent, fiscally responsible thing to do, and here’s why:  We have no assurance that Big Tobacco will be able to meet its obligation to the state.

                Louisiana was awarded $4.6 billion as part of a national $246 billion tobacco settlement with the nation’s four largest tobacco companies.  That amount is to be paid in annual payments of about $180 million each year over 25 years.  The state legislature allocated the state’s first annual payment to balance the 1999-2000 budget, and the remaining $4.4 billion in payments were constitutionally dedicated.  They have been divided between the Louisiana Fund and the Millennium Trust, which is specifically dedicated to support health and education initiatives and the TOPS scholarship program.

                As many of you well know, a Florida jury recently awarded an astonishing $144.8 billion verdict against the tobacco industry. The judgment is the largest jury damage award ever, and considering its magnitude, the case is expected to be appealed and could take years to come to completion.  In the meantime, Big Tobacco has other legal challenges to contend with.  The tobacco industry is under fire from the federal government and over 100 private plaintiffs.  Even foreign governments are starting to sue the tobacco companies.  

                Moreover, cigarette consumption in the United States is down, and the state’s annual payments are tied to consumption figures.  In fact, payments are already below original projections.  At the time of the settlement, just three years ago, the state expected to get about $200 million per year, but this year’s payment was revised down to about $180 million, and next year’s payment could be scaled down further to $155 million.

                And, of course, there’s a moral dilemma of the state remaining financially dependent upon the tobacco industry’s success, while at the same time, state health officials are promoting “anti-smoking” campaigns.

                Knowing what we know today, I pose this question: If your rich uncle died and left you $4.4 billion, all invested in Phillip Morris stock, wouldn’t you diversify by selling at least a portion of that stock?  I contend that you would, and the state should respond no differently.

                By maintaining the status quo, we’re gambling on Big Tobacco’s future.  It’s too big of a risk!  We can’t afford to lose money that could be used for important programs in our state.  I believe the state should begin taking steps today to put into place a mechanism to lessen our risks by selling all or a portion of the state’s income.  The longer we wait the more risk we take.