One of the fundamental questions a state asks before selling bonds to get money for a project is whether the project will outlive the payback time on the bonds. This is not asked out of mere frugality but because the assumption

is that the project – a new school, a prison, environmental cleanup, highway repair – is essential, and so would have to continue to be undertaken should the current project cease to exist.

That would leave one group of taxpayers paying for both the project that had ended and the project that was required to replace it, an unfair burden by most measures and one the public is unlikely to support. Maine should use a similar caution as it considers whether to sell the state’s rights to its tobacco settlement money: Will the benefits from an upfront cash payment it would receive provide a benefit that exceeds in scope and longevity what it is getting now?

Public Financial Management of New York has been hired by Maine to see whether it is possible for Maine to use the tobacco money as an asset to raise cash. The King administration hired PFM to do this before the current state revenue drop occurred and properly has shown no interest in using the sale of the settlement – a process known, unfortunately, as securitization – to close the midterm gap on the biennial budget, a gap that will show up again next year unless tax revenues rebound or lawmakers cut expenses this winter. Maine could decide what percent of the tobacco fund and

for what period it wanted to securitize the settlement, and the financial maneuver could bring in a single payment as high as several hundred million dollars while removing the risk – if, in fact, there is any – of waiting for the annual payments, now at around $55 million.

To propose a swap of the annual payments for the lump-sum money, the administration would have to demonstrate that the projects it had in mind, such as paying off a portion of the unfunded liability on the state retirement account, provided long-term, substantial benefits to Maine, benefits that exceeded the value of the annual tobacco payments. This is not a simple calculation because the retirement-account liability, for instance, includes assumptions about the cost of living, longevity, health-care expenses, etc., that certainly will be adjusted over the years. Other types of debt relief pose similar complications, as does the necessary trust fund that would be established from the freed-up revenue to pay for the health care programs currently covered by the settlement.

Seventeen other states have or are considering securitization of their tobacco settlements, some for good reasons, many for reasons Maine shouldn’t get anywhere near. Before this state does anything, someone needs to suggest a big-bang project that saves Maine a considerable amount of money and protects current health care programs. Until then, no thanks.