Governments may pay for one-time use of tobacco bonds.

• Position: News Briefs - Brief Article

A number of state and local governments have resorted to using money from the 1998 tobacco settlement to close budget gaps. Although these tobacco securitizations have helped these governments make up for diminished revenues, the ratings agencies are warning that they also could contribute to credit downgrades and higher future borrowing costs. Although rating agencies say they do not frown upon the use of tobacco proceeds for capital projects or even as part of a broad plan to restore fiscal stability, they are concerned about the one-time use of these nonrecurring revenues. The rating agencies...