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Tobacco Bonds Deliver a Lesson -- Decline in smoking hurts payment of state notes (CA-DUH!)
Los Angeles Daily News ^ | 3/15/2012 | Editorial

Posted on 03/15/2012 4:58:12 PM PDT by Mark

The percentage of Californians who smoke has dropped to an all-time low of 11.9 percent, the second-lowest in the nation behind Utah's 9.1 percent. That's good news for the health of Californians, but bad news for the state's budget and First 5 program, which funds local services for children up to age 5.

The decline in smoking was anticipated, but it has descended at a much sharper rate than predicted. As a result, California will face difficulty in funding $16 billion in bonds the state has issued since 2001. The bonds are supposed to be financed by payments from the 1998 Tobacco Master Settlement Agreement between big tobacco companies and 46 states, including California. However, the settlement payments are not fixed, but linked to tobacco sales.

Unlike many other states, California made the mistake of deciding not to take the annual payments from tobacco firms but instead borrowed money against expected receipts. Now that the payments are less, the state faces another fiscal problem.

California is one of only a few states that guaranteed some of those bonds with general fund revenue. If tobacco settlement money does not cover the debt, the state will have to pick up some of the tab. There are currently $2.9 billion in bonds outstanding that are backed by a state general fund guarantee.

To add to its fiscal woes, California went back to investors in 2007, when it issued $4.4 billion in 40-year tobacco bonds. To have sufficient revenue to pay back investors by 2047, the state assumes cigarette consumption will decline by about 1.8 percent per year. However, because of higher taxes, anti-smoking laws and health concerns, smoking has declined by about 3 percent, and sales have dropped much more quickly than predicted.

The First 5 program, initiated by Rob Reiner's Proposition 10, also has suffered considerable revenue losses that are not likely to be made up with other state funds.

In fact, Gov. Jerry Brown tried to raid what was left of the First 5 funds, but he was blocked by counties that successfully sued to keep the money.

There will be another attempt to get more revenue from smokers with a proposed June ballot initiative to get $1 per pack tax increase on cigarettes.

Such a huge levy would boost cigarette costs to more than $7 a pack for some brands, which is likely to increase the rate of decline in smoking or create a black market, either of which could further deplete revenues to pay the tobacco bonds.

There are a couple of lessons to be learned from this situation:

First, it makes far more economic sense to accept regular long-term payments than to borrow money against them for short-term use.

And second, ever-increasing huge taxes on a product are likely to be counterproductive as use of the product declines or sales go underground.

Unfortunately, with the state's reluctance to adapt to economic realities, we are less than confident that either lesson will be learned in Sacramento.


TOPICS: Business/Economy; Editorial; Government; US: California
KEYWORDS: ca; finances; first5; forthechildren; meathead; meatheadtax; pufflist; taxes; tobacco; tobaccosettlement
Who could ever see this coming. Maybe that $1.00 per pack tax will solve the problem.(/S)
1 posted on 03/15/2012 4:58:19 PM PDT by Mark
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To: Mark

lol.

Just like raising taxes on business and people with the means to pick up and leave.


2 posted on 03/15/2012 5:06:31 PM PDT by GeronL (The Right to Life came before the Right to Pursue Happiness)
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To: Mark

People are either quiting or switching to Nicorette gum (which works very well).. They’ll probably start taxing the crap out of Nicorette gum. But anyway, smoking is a ‘luxury’ and when luxury goes, so goes smoking. Let the KaliKommie “second hand smoke is killing our children” and ‘butt-free beaches” crowd scramble for more money.. Watch out, pot smokers! Hahahaaa...


3 posted on 03/15/2012 5:09:51 PM PDT by FedsRStealingOurCountryFromUs
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To: Mark

That’s ok, because the purpose was to get people to stop smoking and be healthier. It was for the children. Right?


4 posted on 03/15/2012 5:12:40 PM PDT by Vince Ferrer
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To: Vince Ferrer

“That’s ok, because the purpose was to get people to stop smoking and be healthier. It was for the children. Right?”

I just love watching California Government “Hump Itself!” I hope Rob Reiner goes apoplectic when he sees his “child indoctrination program” go under. The solution here is always to issue more bonds, but figuring out the viability of the repayment process, not so much!


5 posted on 03/15/2012 5:31:38 PM PDT by vette6387
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To: Mark

Once you kill the golden goose, you go after all the birds you can find.

Those that were okay with the high taxes on cigarettes will now get to cover those costs for the kids.


6 posted on 03/15/2012 5:35:40 PM PDT by dforest
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To: dforest

I always said that anyone who told me they were “for the children “ had better be smoking....put your money where your mouth is.


7 posted on 03/15/2012 5:50:34 PM PDT by coolbreeze (giving money and power to government is like giving whiskey and car keys to teen-age boys.)
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To: FedsRStealingOurCountryFromUs
I've noticed that after going after the smokers for the big tax bucks, not wanting to loose the smokers and their $$$$ anymore, now their going after those who roll their own cigs plus the electronic cigs....

but you know, its all for the children and for our "own" good so they say.

8 posted on 03/15/2012 6:34:26 PM PDT by cherry
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To: Mark
the beating will continue until...
9 posted on 03/15/2012 6:35:23 PM PDT by Chode (American Hedonist - *DTOM* -ww- NO Pity for the LAZY)
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To: Mark; Eric Blair 2084; Tolerance Sucks Rocks; CSM; Mears; metesky; Madame Dufarge; ...
We told them so --- but they ignored the warnings. Now it is too late and they are reaping what they sowed.

WARNING TO ALL OF YOU HATERS OF TOBACCO USERS - YOU ARE NEXT

10 posted on 03/15/2012 6:49:27 PM PDT by Gabz (Democrats for Voldemort.)
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To: FedsRStealingOurCountryFromUs
People are either quiting or switching to Nicorette gum (which works very well)..

Actually going cold turkey has a better track record for long term.

They’ll probably start taxing the crap out of Nicorette gum.

That will never happen because it is the funding behind Nicorette that caused this problem to begin with.

11 posted on 03/15/2012 6:52:20 PM PDT by Gabz (Democrats for Voldemort.)
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To: Mark

Tobacco should move 100% to the black market like Marijuana is now, just to punish the parasitic government.


12 posted on 03/15/2012 6:56:26 PM PDT by KoRn (Department of Homeland Security, Certified - "Right Wing Extremist")
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To: Gabz

Thanks for the ping,Gabz.

The rise in bootlegging will be a boost to the economy though. :-)

Morons all.


13 posted on 03/15/2012 6:58:36 PM PDT by Mears (Alcohol. Tobacco. Firearms. What's not to like?)
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To: Mark
Let's see. Demonize something. Tax it to death. Borrow money on the tax revenue stream. Outlaw its use almost everywhere.

The definition of stupid.

14 posted on 03/15/2012 7:05:26 PM PDT by elkfersupper ( Member of the Original Defiant Class)
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To: elkfersupper

“Let’s see. Demonize something. Tax it to death”

The left has already sarted on all things made with sugar. It’s just a matter of time.


15 posted on 03/15/2012 7:32:40 PM PDT by freeangel ( (free speech is only good until someone else doesn't like it)
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To: freeangel

Tax chocolate and the end has come!


16 posted on 03/15/2012 8:33:50 PM PDT by Mark (Don't argue with my posts. I typed while under sniper fire..)
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To: cherry

Along with that they’ve set their eyes upon the obese and will surely find ways to force penalties (taxes) upon them. I guess rising food costs is punishment, but 0bamacare will make the obese pay ‘in spades’. Political correctness gone amok!


17 posted on 03/15/2012 10:10:11 PM PDT by FedsRStealingOurCountryFromUs
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To: Gabz; Mears; elkfersupper
Thanks for the ping, Gabz. I'd never imagine finding you folks on a thread like this, eh?

All them there chickens coming home to roost...

18 posted on 03/16/2012 3:19:06 AM PDT by metesky (Brethren, leave us go amongst them! - Rev. Capt. Samuel Johnston Clayton - Ward Bond, The Searchers)
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To: Gabz; Mears
Maps of the United States should be redrawn to superimpose the warning "Here Lie Demons" over California's name.

With some dragons thrown in for emphasis.

19 posted on 03/16/2012 4:34:57 AM PDT by Madame Dufarge
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To: Mark
Unlike many other states, California made the mistake...

This statement could spawn its own laundry list.

Rush and other talkers had this sized up from day one.

20 posted on 03/17/2012 12:00:11 AM PDT by newzjunkey (Santorum: 18-point loss, voted for Sotomayor, proposed $550M on top of $900M Amtrak budget...)
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To: newzjunkey

There was a time when I was 7 or 8 years old that I thought “These office critters MUST be smarter than a 7 or 8 year old!”
Well, I was wrong.


21 posted on 03/17/2012 12:28:05 AM PDT by Mark (Don't argue with my posts. I typed while under sniper fire..)
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To: Gabz

Yet more proof that there is a God...and He has a great sense of humor.


22 posted on 03/17/2012 7:49:29 AM PDT by Eric Blair 2084 (I don't always drink beer, but when I do, I prefer to drink a bunch of them. Stay thirsty my FRiends)
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