State Delays Sale of Tobacco Bonds Over Illinois Court Decision

California is delaying the sale of $2.3 billion in tobacco settlement bonds because of concerns over an Illinois court decision last month that could bankrupt Philip Morris USA, Treasurer Phil Angelides (D) announced yesterday, the San Diego Union-Tribune reports (Mendel, San Diego Union-Tribune, 4/4). Illinois Circuit Court Judge Nicholas Byron last month ruled in a class-action case that Philip Morris misled consumers about the health risks of "light" cigarettes and ordered the company to pay $10.1 billion in damages. Philip Morris officials plan to appeal the case, but state law requires the company to post a $12 billion bond to file an appeal. The tobacco company warned that it might not be able to pay out the state's tobacco settlement funds because of the bond order (California Healthline, 3/31). Philip Morris, the nation's largest tobacco company, provides approximately 50% of the annual payments to states under a 1998 settlement for tobacco-related health care costs (San Diego Union-Tribune, 4/4). The decision to delay the April 15 sale of the bonds comes as a "major setback" for the state as the bonds would fund state operating expenses and help close a two-year budget gap that could reach $34.6 billion, the Sacramento Bee reports. Gov. Gray Davis' (D) budget for the current fiscal year "relied heavily" on the proposed sale of $5.3 billion in bonds. California, which is expected to receive $12 billion from the settlement through the next 25 years, is one of several states that decided last year to sell the bonds to close budget gaps. While Angelides did not say when the sale would take place, Davis said the delay could be as short as two weeks (Bluth, Sacramento Bee, 4/4).