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Tobacco Bonds in Minnesota Budget Come at Hefty Price

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MINNEAPOLIS (AP) – The budget deal that ended Minnesota’s government shutdown relies heavily on $640 million borrowed against money from the 1998 tobacco settlement.

The strategy allows Democratic Gov. Mark Dayton and Republican legislative leaders to avoid the same amount in spending cuts or tax increases.

But it could cost as much as $640 million in interest – plus a substantial annual revenue loss for years to come.

Tom Hanson was the state’s finance commissioner under former Gov. Tim Pawlenty. He says from the GOP standpoint, it’s better than a tax increase. But the downside is the money won’t be available in the next biennium.

About 20 other states have issued bonds backed by future tobacco settlement revenues to meet immediate budget needs.

This is the first time Minnesota is taking that approach.

(Copyright 2011 by The Associated Press.  All Rights Reserved.)

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