Taking a "One-Time, Lump Sum" Payment
Earlier in this report, we listed various financial adjustments that likely will affect New Mexico's share of the financial payments from Master Settlement Agreement. These adjustments follow national performance figures and events that likely will be outside the control of the New Mexico people. Historically, New Mexico trails the nation on many key social and economic indicators. We assume New Mexico's future will follow this pattern. We therefore believe New Mexico will be affected more negatively by adjustments in the tobacco payments than will be other states participating in the deal.

If the honorable and good representatives of New Mexico decide not to rescind the attorney general's agreement, we recommend the state seriously explore the option of taking a "one-time, lump-sum" settlement payment. There are a number of advantages to New Mexico associated with this decision.

A recent news account reported Colorado is considering taking their tobacco settlement in a one-time lump-sum payment [1]. Colorado's Treasurer, Michael Coffman, has proposed the state take their share of the tobacco settlement money in a single $901 million payment. The alternative would be to incrementally receive an estimated $2.7 billion over the next 25 years.

This example illustrates New Mexico would receive approximately one-third of the initially reported $1.2 billion settlement figure in a one-time lump-sum amount. This would result in a $400 million single payment to the state.

A single payment of $400 million allows New Mexico to be free of the anticipated adjustments in the Master Settlement Agreement. It allows New Mexico to invest these resources and obtain the "best return" possible on this money.

In a simplified model, we demonstrate that by investing the $400 million in an interest-bearing trust fund at the modest rate of 6%, these funds would return New Mexico $24 million per year.

The state could follow the minimal tobacco control programming recommendations furthered by the Centers for Disease Control and allocate $13 million toward reducing the addiction, illness and death associated with the tobacco epidemic. There would be a remaining $11 million per year for reinvestment purposes or to be applied to other select public works.

Our organization maintains an Internet archive providing comprehensive information about the tobacco settlement, policy activities and deliberations of other states. These materials are located here.

Footnotes
1. USA TODAY, "Colorado," August 26, 1999, p. A14.