CARSON CITY — Lt. Gov. Brian Krolicki said Friday the state blew a chance to gain $600 million when legislators did not consider his tobacco revenue plan during a special session in June.
"It would have served us well at this moment to fill the holes in the budget," Krolicki said.
State government is struggling to balance the state budget at a time when tax revenue is declining. Gov. Jim Gibbons now figures the state needs to cut spending by another $358 million during the fiscal year that ends June 30. He also predicted earlier this week that state revenue will fall $1.5 billion short of the need in the next two-year state budget.
Because of the collapse of the Wall Street financial markets, Krolicki said there would be little interest now by investors to purchase state bonds that would be paid off by tobacco revenue the state receives.
Earlier this year, Krolicki predicted the state government could secure about $600 million, without raising taxes, by selling bonds and paying investors back over a 20-year or longer period. Investors would be paid interest on the bonds they purchase.
Bonds would be paid off with the $50 million Nevada receives each year from the tobacco industry. Under a national settlement, tobacco companies pay states to cover some of the costs they absorb from the tobacco-related illnesses of people who lack health care benefits. Nevada uses the money for the Millennium Scholarship and SeniorRx programs, along with health care programs.
Although Gov. Kenny Guinn and legislators came under fire by some for their decision in 1999 to use the tobacco revenue for Millennium Scholarships, that use was not prohibited under the settlement.
Krolicki figures the state receives enough tobacco revenue to cover the debt on a $600 million bond. That money could have been used in dealing with the revenue shortfall.
But just before the special legislative session in June, state Treasurer Kate Marshall said her office had been unable to secure the "working papers" on the assumptions Krolicki used to arrive at the estimated proceeds from his plan.
If the Legislature considered the proposal, Marshall said, she wanted to work with the attorney general "to determine the extent to which such action would put the state at risk of engaging in fiduciary failure."
Marshall also pointed out that Krolicki in 2003 told the Senate Committee on Government Affairs that a tobacco securitization plan would be a "tremendous fiduciary failure" and should not be used to "balance today’s budget."
At the time, Krolicki was state treasurer.
Steve George, senior deputy treasurer, said Friday that Krolicki pitched his plan several times before legislators, and the majority always disagreed.
"If we got a lump sum payment, it could fill budget holes now, but not cover the programs for which the money was intended," George said. "In the short term, it looks great. But the money would be gone to help children and senior citizens."
While the state lost its chance for the $600 million, Krolicki said Friday that legislators next year should pass a law allowing the state to use its tobacco revenue asset.
He expects financial markets will recover and eventually the state will benefit from using the tobacco funds.
Krolicki said Jim Rogers, chancellor of the Nevada System of Higher Education, asked him last month if the plan could be revived.
"This (proper) market situation does not exist today," he wrote in a letter to Rogers. "However, should the capital markets be restored in the coming months, there would exist a strong likelihood that this type of transaction could be successfully conducted at non-punitive interest rates and costs at some point in 2009."
The lieutenant governor announced Thursday that he might run in 2010 for seat held by U.S. Senate Majority Leader Harry Reid, D-Nev.
Contact Capital Bureau Chief Ed Vogel at firstname.lastname@example.org or 775-687-3901.