Strickland to Ohio: Securitize this

The list of new spending initiatives in Ohio Gov. Ted Strickland’s State of the State speech Wednesday, proposed even in what he called a time of “shrinking resources,” led some observers to ask the obvious question: How’s he going to pay for all that?
Certainly the new Democratic governor’s proposal to dump school vouchers won’t do it, despite his disingenuous characterization of them as No. 1 on his list of “wastefulness and giveaways (that) can no longer be tolerated.” His bid to eliminate various commercial and sales tax “loopholes” would help somewhat.

But a big part of Strickland’s solution to the cash crunch is a move that’s mostly been overlooked so far: “Securitizing” Ohio’s tobacco settlement funds – in essence, “selling” the state’s future payments from Big Tobacco to private investors, who would assume the risk and reward in those payments. Strickland says that would net Ohio $5 billion cash. That’s billion with a “b.”

Where would the money go? Strickland would put $2.2 billion into the current school construction program. That’s $2.2 billion that wouldn’t have to come from other state revenue and could go toward Strickland’s wish list. The other $2.8 billion would allow the state to forgo bonds it is scheduled to issue in the future, saving what Strickland says would be $250 million a year for 20 years. That money would fund his proposed property tax cut for seniors and the disabled.
The downside is that it’s a one-time deal: Once Ohio sells its rights to the tobacco money, it’s gone for good. Of course, given the tobacco companies’ long-term financial viability in this country, that could be a good gamble for the state to make.

Securitizing tobacco funds isn’t really Strickland’s idea. It’s not even the brainchild of former “Jeopardy!” champ State Treasurer Richard Cordray, who floated the idea last month.
As I noted in a previous post on this blog, several years ago then-Treasurer Joe Deters – yes, Republican Joe Deters – proposed that Ohio follow the lead of several states that had securitized their funds, but his fellow GOP officeholders foolishly squashed the notion.

It is one of several ideas – along with a judicial selection commission, expansion of the Passport home-care program, reform of business regulations and more – that many Republicans have advocated in the past but couldn’t get their leaders to accomplish. Now, ironically, Strickland is moving to get them done. In this case, if they had taken Deters’ cue on the tobacco funds, they could have earmarked that money for their preferred initiatives. But as with so many other policy issues, they have only themselves to blame here.