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Holden: education will be cut if lawmakers do not cash tobacco bonds

January 28, 2003
By: Valerie C. Green
State Capital Bureau

JEFFERSON CITY - In a speech to the Missouri School Board Assocation Tuesday, Gov. Bob Holden announced more than $259 million in cuts to school districts and $91 million to higher education that he guaranteed will be made if the state legislature does not use tobacco bonds to make up the short fall.

"We cannot cut ourselves out of this hole without sacrificing education and the future of our state," Holden said. "I will do everything in my power to protect education."

To avoid cutting education, Holden is asking the legislature to approve borrowing money from the national tobacco settlement.

"Hopefully we won't need these cuts to get through the year," said, Rep. Check Graham, D-Columbia, who serves on the House Education Approprations committee. "We have created funds like the tobacco money so we don't have these cuts triggered."

Following the announcement, Republican leaders questioned the constitutionality of the bonds and the support they would have in the General Assembly.

Speaker Catherine Hanaway, R-St. Louis County, also questioned the authority of the governor to cut funding from local schools.

She cited the constituional section that states,"The governor shall not reduce any appropriation for free public schools."

"The governor is trying to increase revenues midway through the fiscal year," Hanaway said. "We aren't sure if his way is legal."

The original tobacco plan approved by the legislature last year would have amounted to a cash advance. Investors would purchase a long-term portion of the state's portion of the national settlement with the tobacco industry -- with the investors taking the risk as to the 20-year or 40-year future of those payments.

Since passage of that plan last spring, however, the administration has determined they could not get reasonable interest rates unless there was a guarantee that the state would pick up payments if the settlement package fell apart.

It's that switch to a guarantee of future state tax revenues to pay off the bonds that has raised Republican constitutional questions.

Senate President Pro Tem Peter Kinder, R-Cape Girardeau, said he would not vote for the tobacco loans if the vote was held today. He also predicted that there is not enough support in the Seante for the appropration needed to cash the bonds.

"Tobacco money could be used as a bridge if we are committed to budget reform, but it is only putting a band-aid on the bleeding," Kinder said. "I am not sure this is the best way to fund the shortfall."

Republicans said they are not confident that all of their questions have been answered or that the governor has the support he needs to pass the tobacco bonds.

To pass the bonds, the Board of Public Buildings, which is comprised of the governor, Lt. Gov. Joe Maxwell and Attorney General Jay Nixon, must approve the sale, and the legislature must approve a $1 appropration. Both the board and legislative leaders are saying they want the other to act first.

House Budget Chair Carl Bearden said he has not introduced the administration's proposal as a formal bill because he has "unanswered questions" and is waiting for a statement of support from the Board of Public Buildings.

"We are waiting to see if this plan is constitutionally sound before we go forward," Bearden said.

Maxwell said he will sign a letter to the Republican leadership outlining the board's strategy to pass these bonds if the legislature gives it the $1 appropration. He said he is prepared to vote yes on the bonds, but held off from making a direct promise that he definitely would vote to issue the bond.

Nixon's spokesman Scott Holste said he has not been asked by the governor to give an opinion on the matter and denied further comment.

If the legislature does not approve the tobacco bonds, the governor promised that the projected $350 million shortfall would be mostly covered by the cuts to education.

"We don't have any other options," Holden said.