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Tobacco money finances building

Financing the construction of a Mat-Su prison through tobacco settlement revenues would run contrary to state law, according to a Senate committee.

JUNEAU

Financing the construction of a Mat-Su prison through tobacco settlement revenues would run contrary to state law, according to a Senate committee.

Murkowski administration officials are proposing to sell bonds to private investors to be repaid with future tobacco settlement payments. They want to use the proceeds to fund university construction projects and a new state prison in the Matanuska-Susitna Borough.

Alaska and 45 other states receive annual payments from a $206 US billion 25-year Master Settlement Agreement reached in 1998 with four major tobacco companies.

The Mat-Su Borough is already working on a bond measure to finance the prison. The facility is expected to cost about $240 million US and hold 2,250 beds.

Cheryl Frasca, director of the Office of Management and Budget, said the administration linked the prison to the university projects in the governor’s budget proposal when it became clear that a tobacco settlement bond sale would yield much more money than expected under current market conditions.

Frasca said managers at the Department of Revenue had said at first that the bonds would generate about $89 million US, but they later revised that estimate to $180 million US.

“Needless to say, we couldn’t let the opportunity go,” Frasca said.

The Senate Finance Committee plans to remove the prison reference from the bill. Legislation approved in 2004 requires that local communities participate in the financing of prison construction projects. That key state-community partnership is missing from the sale of tobacco settlement bonds.

While some senators expressed concern over the financing plan, Deven Mitchell, debt manager for the Treasury Division, said the state has a “point-in-time” opportunity.

“We have low interest rates, we have a fairly favourable environment in which to enter the market and we have an opportunity to maximize revenues today from an asset that could go away,” he said.

The state has issued tobacco bonds twice before. In 2000, the Legislature authorized a $116 million US bond sale to fund public school construction projects. In 2001, it authorized a $135 million US sale to fund public school, university and water and harbour projects.

Associated Press

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