Even worse some of the bonds are guaranteed by the state. Ouch.
From California Watch:
As tobacco sales fall, state budget suffers
Fewer smokers is bad news for California’s budget.
A major bond rating agency sounded an alarm this month, saying the state may have borrowed more than $4 billion against settlement money that might never materialize.
A little more than a decade ago, 46 state attorneys general reached a settlement with the four biggest tobacco companies. The companies agreed to pay an estimated $246 billion over a 25-year period to compensate states for tobacco-related health care costs. But there is one quirk: The settlement payments are not fixed, but linked to tobacco sales.
Rather than waiting for annual payments, the state and some local governments decided to borrow money against their anticipated future revenue. All told, they’ve issued $16 billion in bonds since 2001.
Major bond rating agencies and some municipal finance experts have warned for years that the number of smokers was decreasing more rapidly than expected.
In December, California had to dip into its reserves to cover bond payments. Dick Larkin, director of credit analysis at Herbert J. Sims & Co., said there were two reasons: fewer smokers and a dispute with the tobacco companies that has resulted in delayed payments....MORE