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Could tobacco be the budget-saver Illinois has been looking for?

Cigarette advertising is visible at a newspaper stand in New York, New York.

TEXT OF STORY

JEREMY HOBSON: Illinois will try to sell bonds today as it grapples with a multi-billion dollar budget gap. States of course are trying to balance budgets and have usually two options: either raise taxes or cut spending.

But as Marketplace's Gregory Warner reports now, Illinois is taking a creative new approach using a familiar source of cash -- tobacco.


GREGORY WARNER: Forty six states receive money every year from legal settlements with Big Tobacco, to cover the medical costs. Today Illinois will start selling bonds on those annual payments. Promising investors that money so the state can have cash now. Matt Fabian is managing director at Municipal Market Advisers. He says compared to other accounting schemes that states have tried...

MATT FABIAN: You know whole whole tiers and strata of gimmickry, the tobacco financing isn't a bad one.

Other gimmicks states have tried include tapping into roadwork budgets and state pensions, and selling office buildings only to lease them. Illinois hopes to raise a billion and a half dollars from its tobacco bond sale to pay overdue debts to schools, businesses and taxpayers. Here's the catch: the amount of tobacco money a state receives each year is tied to how many cigarettes are shipped in the state.

FABIAN: And how many cigarettes are shipped depends on the health of the local economy, how high these states and local governments have raised cigarette taxes, and how many smokers have died, frankly.

So light up, Chicago. You just might be making helping city schools buy new textbooks.

In Philadelphia I'm Gregory Warner for Marketplace.

About the author

Gregory Warner is a senior reporter covering the economics and business of healthcare for the entire Marketplace portfolio.

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