County secures its share of tobacco windfall: A bond sale will yield $172 million for health and building projects.
Seizing a rare windfall, Sacramento County has sold bonds secured by a landmark lawsuit settlement with the tobacco industry that will generate almost $172 million for health programs and building projects.
Escrow closed this month on bonds backed by future annual payments the county is entitled to receive as part of a national agreement signed by cigarette makers in 1998. The transaction secures Sacramento's share up front and provides funds for spending approved by the Board of Supervisors last year.
Most of the proceeds, $102 million, are intended for items such as juvenile hall beds, garbage trucks and a clinic. An additional $69.9 million will endow a fund for health, youth and tobacco-education programs.
Sacramento County is the first in the state to "securitize" future settlement payments, according to county officials. Concerned that future settlement payments could decline if tobacco consumption falls, many states and counties want to get their money now by selling bonds to investors willing to assume the long-term risk of annual payments from the settlement.
In California, bond sales have been stalled by a dispute over legal fees. Contingency agreements with most of the larger counties, including Sacramento, entitled attorneys to 25 percent of the first $25 million received in tobacco money, plus 15 percent of anything over that.
"When the suit was filed, the prospects for a settlement with the tobacco companies were very dim, much less any recovery," said budget chief Geoff Davey, who devised the bond deal.
Sacramento County and the lawyers recently agreed to a one-time payment of $4 million, Davey said. The fee settlement is "pennies on the dollar," he said, adding that the original deal would have cost more than $25 million over 25 years.
The county's multimillion-dollar windfall flows from a $206 billion settlement of a lawsuit filed against the tobacco industry by 46 states. California is expected to get about $1 billion annually, with half going to the state and the rest divided among its 58 counties and four largest cities.
The county received its first annual payment, $16.3 million, in 1999. Supervisors put most of it in reserve accounts and approved the bond sale to secure future annual payments up front.
Most of the net bond proceeds are earmarked for big-ticket projects -- including $40 million for juvenile hall expansion, $30 million for a new primary-care clinic, $15 million for cleaner-burning garbage trucks, $6 million for a new animal shelter and $5.2 million for libraries in Carmichael and Rio Linda.
The endowment portion is intended to meet the original lawsuit goal, which was to recover public money spent on health-care costs related to tobacco. With interest, the fund is expected to provide a total of almost $95 million over 15 years.
"The county has done a good job in allocating those funds for programs that will benefit the community," health chief Jim Hunt said.