Judge clears way for tobacco settlment money bond sale

Posted: Thursday, October 26, 2000

ANCHORAGE (AP) -- The state can go forward with the sale of bonds backed by money it expects to receive from the multistate tobacco settlement, a Superior Court judge ruled Wednesday.

The state expects to receive about $93 million from the sale, which is set to close on Thursday. About 40 percent of the money will go to build rural schools.

Eric Myers, a Juneau man who wants to see more of the tobacco settlement money go toward health-related programs, sued to block the sale, arguing that it violates the Alaska Constitution by dedicating a source of state income to a single purpose indefinitely.

The bonds were backed by the Alaska Housing Finance Corp., which established a subsidiary to sell them.

In agreeing to accept its share of the tobacco settlement money in payments of more than $20 million a year, the state created a revenue stream, said Peter Maassen, one of Myers' lawyers. Therefore, the Legislature was selling assets that did not yet belong to them, Meyer argued.

But Superior Court Judge Dan Hensley said legislators have the power to sell all kinds of assets, some of which may promise future revenues. The bond sale from the tobacco settlement money is ''nothing more than the sale of an asset,'' the judge said.

''I believe the constitution does not prohibit this action,'' Hensley said.

The judge said once lawmakers decided to sell the state's expected share of tobacco settlement money, it became an asset.

''The settlement of the ... tobacco lawsuit was a windfall,'' Hensley said. ''There is no significant distinction in taking a lump sum now, or later and selling it.''

The judge said if he sided with Myers, the ruling might prevent the state from shedding a risky asset in the future just because it produced a revenue stream. As it was, the state was relieving itself of the risk that the tobacco companies might not be able to pay up in the future, Hensley said.

Dan Fauske, executive director of the Alaska Housing Finance Corp., said he was relieved by the judge's decision. If Hensley had sided with the plaintiff, ''It would have been a terrible mess ... postponing the bond sale at the 11th hour,'' Fauske said.

The decision will be appealed to the state Supreme Court, said Peter Gruenstein, another of Myers' lawyers. He said Hensley ignored the issue of fiscal accountability. The constitutional provision is intended to force lawmakers to regularly re-examine how the state's money is spent.

''It was not a windfall. The state agreed to accept structured payments,'' he said. ''Today's Legislature cannot spend tomorrow's money.''

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