In one development, Miller said Iowa has just received $434,781.52 as a result of an IRS ruling that the State did not have
to pay income tax on investment income earned while millions of dollars of tobacco settlement payments had been held in
escrow. "We are pleased that the issue is resolved," Miller said. "Every penny helps when the State is in difficult
Miller explained that tobacco industry payments accrued in escrow accounts when they first began under the Master
Settlement Agreement that resolved the lawsuits of many states. The funds remained in escrow accounts, accruing
interest, until the formal settlement documents and litigation were finalized in each state. The issue was whether the
interest income was taxable under IRS rules. Now that the issue is resolved, Miller said, Iowa and other states are
receiving both the taxes paid and interest on taxes paid on the funds.
Fitzgerald explained the details of a second major development in connection with Iowa's payments from the tobacco
industry - conclusion of a bond sale worth over $644 million based on the future payments due to Iowa from the tobacco
industry. In essence, the State sold bonds based on the stream of payments the tobacco industry is required to pay to Iowa
in perpetuity. Bondholders will be paid from a portion of the payments the industry is paying Iowa under the "tobacco
"This is a major accomplishment and excellent result for the State," Miller said. "It was a good arrangement authorized
by the Governor and Legislature, and the Treasurer did an excellent job in marketing and issuing the bonds. The whole
process and result reflects well on Iowa's financial management, reputation, and credit rating." Miller noted that at least
22 percent of the tobacco revenue stream directly to the state will continue because it was not needed for payments on the
bonds. He also noted that when the bonds are paid, payments directly to Iowa by the tobacco industry would resume.
Miller said the "securitization" arrangement had several strong benefits. He said securitization transfers financial risk
from the State to the bondholders, in the event that tobacco companies might go into bankruptcy or see a decline in
tobacco consumption that would reduce their payment obligations. "We are working very hard precisely to reduce the
enormous cost of tobacco in lives and money. Securitization removes any possible conflict of interest between that goal
and the ongoing payments the industry owes to the State," he said.
"My greatest hope is that this will help us become a healthier state," Miller said. "We can go full-speed ahead with efforts
to reduce tobacco use and addiction by children and all Iowans, and we can build up funds for many kinds of health
programs for years to come."