State completes tobacco bonds sale

Minnesota Management and Budget has successfully completed the sale of tobacco revenue bonds that played a key role in the budget fix that ended the state’s historic government shutdown this past summer. The Tobacco Securitization Authority sold $757 million in bonds on Wednesday, MMB said, more than the $640 million that officials had planned to use to as a fix for the state’s $5 billion budget deficit. The larger amount includes a debt service fund, interest and the costs associated with issuing the bonds. “This is the first time a sale like this has been completed in Minnesota and it went extremely well,” Kristin Hanson, MMB assistant commissioner for treasury and debt, said in a statement.

“The response from the market was stronger than expected.” Issuing tobacco bonds to help fix Minnesota’s budget deficit was perhaps the most controversial aspect of the ultimate budget deal agreed to by Gov. Mark Dayton and Republican leadership at the Capitol. Some worried that it would lead to a pattern of borrowing to finance the general fund, while others simply objected to using the tobacco dollars — which comprise the state’s share of a legal settlement in past tobacco litigation — in place of general tax dollars. In any event, the successful sale puts to rest concerns about whether issuing the bonds would sufficiently cover the costs that budget negotiators booked for the coming biennium. The bonds received an interest rate of 4.75 percent and were rated A/A- by Standard & Poors and BBB+ by Fitch.