Brief (1)
Senate Sub. for HB 2559 establishes a means of securitizing the state's interest in tobacco settlement receipts. Under the bill, the Secretary of Administration would be authorized to sell all or part of the state's rights to payments under the settlement of the tobacco litigation to a subsidiary of the Kansas Development Finance Authority (KDFA). Approval of the State Finance Council would be required if the sale is projected to produce a lower net present value than would be received under current law.
The subsidiary corporation created under the bill, the Kansas Tobacco Settlement Financing Corporation, is authorized to sell securities backed by the tobacco settlement receipts. Any bonds sold by the Kansas Tobacco Settlement Financing Corporation would be sold without recourse against the state should tobacco settlement payments fail to be paid as scheduled. The proceeds from the sale of the bonds and any tobacco settlement payments not required to pay debt service on the securities would be credited to the Kansas Endowment for Youth Fund consistent with current law on the use of tobacco settlement receipts.
The bill also reconciles previous amendments to the statutes creating the KDFA and clarifies that the KDFA and its subsidiary corporations do not need to file articles of incorporation with the Secretary of State.
Background
Under the provisions of the master settlement agreement, the state is anticipated to receive $2.0 billion from the tobacco companies over the next 30 years. Legislation approved by the 1999 Legislature provides that the payments are to be deposited to the Kansas Endowment for Youth (KEY) Fund. The legislation enacted in 1999 also provides for periodic transfers from the KEY Fund to the Children's Initiatives Fund. The payments are subject to adjustment based on inflation, overall tobacco consumption during the settlement period, and other factors.
The substitute bill recommended by the Senate Committee was developed as an option to maximize the returns to the KEY Fund and help protect the state's long term interest in receipts from the master settlement agreement. An analysis of the proposal developed by the KDFA estimated that sale of 74 percent of the tobacco settlement assets would provide net proceeds to the KEY Fund of $415.8 million. In conjunction with the residual tobacco payments which are not sold, investment income from the proceeds, and less transfers to the Children's Initiatives Fund as authorized by the 1999 Legislature, the KEY Fund is projected to have a gross ending balance as of June 1, 2030, of $1.6 billion. This compares to a projected ending balance of $1.5 billion under current law if all of the tobacco settlement payments are received.
The Senate Committee of the Whole amended the bill to clarify that the proceeds from any bond sale under the act would be deposited to the KEY Fund, that it is the intent of the Legislature that the KEY Fund be utilized for the same purposes as authorized by the 1999 Legislature, that there is public notice of the sale of any tobacco assets, and that the Kansas Tobacco Settlement Financing Corporation is formed solely for the purpose of purchasing tobacco assets from the state and selling bonds to be repaid from those assets.
As passed by the House, HB 2559 shifted the fund to which municipal and state bond fees charged by the State Treasurer are credited from the State General Fund to the Bond Services Fee Fund. The Senate Committee deleted these provisions and added the provisions dealing with the sale of tobacco assets. *Supplemental notes are prepared by the Legislative Research Department and do not express legislative intent. The supplemental note and fiscal note for this bill may be accessed on the Internet at http://www.ink.org/public/legislative/bill_search.html