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(Parenthesis ( ) Indicate Expenditure Decreases)

*This bill specifies that all interest earnings will be accrued to the Tobacco Permanent Fund, reducing general fund revenues, increasing the tobacco permanent fund.

(Parenthesis ( ) Indicate Expenditure Decreases)

Duplicates/Companion to Senate Bill 10 (M.J. Garcia)

SOURCES OF INFORMATION

Legislative Finance Committee (LFC)

SUMMARY

Synopsis of Bill

This bill provides for a 50% annual transfer of tobacco settlement proceeds from the tobacco settlement permanent fund to a newly named "tobacco settlement program fund" (formerly the tobacco settlement income fund). Beginning in fiscal year 2002, money in the program fund may be appropriated by the legislature for specified purposes after receiving the recommendations of the tobacco settlement revenue oversight committee created by this bill.

The bill adds language stating that income from investment of the tobacco settlement money shall be credited to the permanent fund. The Department of Finance and Administration previously indicated that unless there is language in statute that specifies the disposition of interest earnings on fund balances, those earnings would be credited to the state general fund. Balances remaining in the program fund after appropriations have been made shall not revert to the general fund but shall remain in the fund.

The annual transfer to be used for expenditure is based upon settlement proceeds received and deposited in the state treasury and distributed to the tobacco settlement permanent fund in the prior fiscal year. The balance, (50%) would remain in the permanent fund, and constitute the corpus of the tobacco settlement permanent fund. These funds are to be invested by the State Investment Council in a manner similar to the Land Grant and Severance Tax Permanent Funds. Like the Constitutional amendment concerning the Land Grant Permanent Fund (LGPF) and the Severance Tax Permanent Fund (STPF) distributions, the bill provides for a change in the fixed rate annual distribution formula, to 4.7% of the five year average year-end market value of the total fund. The formula change, commonly referred to as a "crossover" would occur sometime in the future when the 4.7% distribution calculation is greater than the 50 percent annual distribution methodology when it is measured at the end of the calendar year.

The tobacco settlement revenue oversight committee created by this bill would be composed of six members: three members of the house of representatives appointed by the speaker of the house, and three members of the senate appointed by the committees' committee of the senate, or if the senate appointments are made in the interim, by the senate president pro-tempore, after consultation with and agreement of a majority of the members of the committees' committee. Political party affiliation on the appointed committee shall be representative of the party affiliation of both houses of the legislature, respectively.

FISCAL IMPLICATIONS

The estimated amount available for appropriation in fiscal year 2001 is $24,275,000. This estimate is based on total revenue to be received by the state from the tobacco settlement through June 30, 2000, of $48,550.0. This consists of $27551.2 received to date and $21 million to be received later this fiscal year. Two tobacco settlement payments have been made to the state:

December 15, 1999: $14,725.0

December 31, 1999: $12,826.2

Total YTD: $27,551.2

Note: Projections made in the fall of 1999 estimated total distributions of $49.4 million, based on a 10% volume adjustment. Actual volume adjustment for FY2000 is higher by 4%, making the total adjustment 14%. This had the effect of reducing estimated payments by almost one million dollars. Volume adjusted payments are provided for in the master settlement agreement and reduces the states' payments based on market erosion of the tobacco manufacturers who were party to the master settlement agreement.

Beginning in fiscal year 2002, appropriations from the program fund may be made by the legislature for purposes generally outlined in the bill (6-4-10(B) and after receiving recommendations of the tobacco settlement revenue oversight committee.

DUPLICATION

Senate Bill 10 (Garcia)

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