ASG assumed responsibility to repay fed tobacco loan
Since the year 1999, American Samoa’s share of the multi billion dollar national Tobacco Master Settlement Agreement (MSA) has reached more than $17 million, according to a follow up report by local consultant Bryan M. Jackson, who conducted the August 2011 study on “Feasibility of a Cigarette Tax Stamp Program in American Samoa”, and proceeds of the MSA are being used as a guarantee of a more than $18 million loan from the federal government.
The follow up report was based on a recommendation in the first report, which states that ASG form a Tobacco Enforcement Unit (TEU) to monitor and enforce the tobacco laws of American Samoa, and that the funds needed to establish a TEU could come from the territory’s share of the MSA revenues.
When Samoa News covered Jackson’s first report this year, it was pointed out in the story that MSA proceeds were used by ASG as a guarantee of an $18.6 million loan from the federal government.
Samoa News has reported several times over the years about the use of the MSA money.
According to Jackson’s follow up report, it has since been learned that the MSA proceeds cannot be used for a TEU, because this money is being used to guarantee the $18.6 million loan.
In his testimony to the Senate last week on the FY 2013 budget, Budget Office director Malemo Tausage said the additional money it is adding to the ASG’s annual budget is the $6 million plus of un-pledged interest of American Samoa’s share of MSA, i.e. that which is not pledged to pay back the federal government’s $18. 6 million dollar loan to ASG.
Jackson’s report provides some interesting information about the ASG share of MSA proceeds and how it chose to ‘secure’ its loan from the federal government.
American Samoa’s share of MSA monies was set at 0.0152170 percent, which meant that over the first twenty-five years of the MSA, the territorial government would receive over $31.1 million in MSA funds.
From 1999 up to April, 2011, ASG received $17.15 million in MSA payments, according to the report, based on information from the National Association of Attorneys General website, which tracks payments on the MSA.
ASG’s largest share was in 2009 with $2.50 million; followed by $2.37 million in 2008; $2.13 million in 2010 and $1.97 million in 2011. Payments are made in April of every year but payment for this year was not known at press time.
In Jackson’s follow up report, is an item called “securitization of MSA funds” and it notes that in lieu of receiving long term MSA payments, several jurisdictions, including nine states, some individual counties in New York State and California, and the territory of Guam, “elected to securitize all or part of their tobacco settlement funds.”
“Securitization, in the context of the MSA, is the process of issuing bonds backed by anticipated future tobacco settlement revenues,” the report explained. “In order to securitize MSA monies, state and local governments sell their tobacco settlement ‘revenue stream’ through a legislatively established Special Purpose Entity (SPE).”
The SPE then issues bonds backed by MSA funds and pays out the debt service on them (i.e., pays off the issued bonds when they mature), it says. noting that an SPE is designed to be legally separate from the government entity that establishes it.
Proponents of securitization argue that this process could help governments in immediate need of cash to fund projects such as capital improvements, establish an endowment, or help pay down debt — and thus free up general revenue funds for health care and other purposes.
However, opponents of securitization caution that because the high discount (i.e., interest rate) needed to attract investors made the bonds expensive, a government entity using this approach would receive only a fraction of the amount it would (potentially) get over the long term.
ASG did decide to seek a lump-sum payment rather than continue to receive a long term MSA revenue stream. “However, for some reason it did not securitize its MSA funds, but applied for and received a loan” from the federal government, the report states.
As ASG had not sold off its anticipated MSA revenue stream through bonds, but instead used it as a form of loan collateral — the promise of future MSA monies was used to guarantee repayment of the tobacco loan — for this reason there was apparently no need to legislatively establish an SPE for American Samoa.
However, ASG was required to “pledge its full faith and credit — i.e. assume all responsibility — to repay the tobacco loan despite any future shortfalls in its MSA revenue, the report noted.
“This was in stark contrast to the usual situation involving the securitization of MSA funds, whereby government entities and their respective SPEs are generally insulated from and not liable for any deficiencies in MSA revenues used to back bonds,” according to the report received by Samoa News last week.