Authorizes Erie county to establish a trust fund for investment and expenditure of proceeds of tobacco asset securitization
financing from the sale of the county's right to receive its portion of the state's allocable share of payments under the terms of
the Master Settlement Agreement and the Consent Decree and Final Judgment; provides that monies shall only be used for the
county's share of medicaid expenditures and its contribution to the Erie County Medical Center operating budget, debt service,
economic development, and regionalism/regional asset purposes; requires an enabling resolution adopted by the county
legislature and approved by the county executive; provides for the establishment of a non-profit local development corporation.

SPONSORS MEMO:

BILL NUMBER: S7917A

SPONSOR: VOLKER

TITLE:
AN ACT in relation to tobacco asset securitization financing by the
county of Erie, to authorizing establishment of a trust fund for invest-
ment and expenditure of proceeds from such financing, and to prescribing
and limiting powers and procedures with respect to such fund.

PURPOSE:
This bill would authorize the establishment by Erie County of a trust
fund for investment and expenditure of proceeds from tobacco asset secu-
ritization financing.

SUMMARY OF PROVISIONS:
This bill would authorize Erie County to establish a tobacco asset secu-
ritization trust fund for the investment and expenditure of proceeds
received by the County from the sale of the County's right to receive
its portion of the State of New York's allocable share of payments under
the terms of (i) the Master Settlement Agreement entered into by partic-
ipating cigarette manufacturers, forty-six states and six other U.S.
jurisdictions in November 1998 and (ii) the Consent Decree and Final
Judgment entered in State Supreme Court for New York County in December
1998, as amended (such right is hereinafter referred to as the "County's
Tobacco Asset").
Monies in the fund could only be used for County debt service, enhance-
ments for economic development in the County, the County's annual
payment of its local share of Medicaid expenditures, its contribution to
the Erie County Medical Center's operating budget, and enhancements in
regionalism and other cooperative intergovernmental initiatives. The
fund would be established by an enabling resolution adopted by the Erie
County Legislature and approved by the Erie County Executive. The fund
would be held and administered by a trustee, a trust company or bank
having the powers of a trust company in the State, appointed pursuant to
the enabling resolution.
Monies in the fund would be invested in general obligations of, or obli-
gations guaranteed by, any state of the United States of America or
political subdivision thereof or the District of Columbia, receiving one
of the two highest long-term unsecured debt rating categories available
for such securities by two independent rating services, or in accordance
with the provisions of Section 11 of the General Municipal Law, subject
to any arbitrage agreements by the County with bondholders of the corpo-
ration formed to purchase the County's Tobacco Asset and securitize such
asset through the issuance of such corporation's tax-exempt bonds.

EXISTING LAW:
The County is not authorized under existing law to establish such a
trust fund.  Therefore, the proceeds received by the County from the
sale of the County's Tobacco Asset would be available for any valid
county purpose, subject to appropriation by the County Legislature.

JUSTIFICATION:
The County plans to securitize the County's Tobacco Asset through a
transaction similar to the New York City, Nassau County and Westchester
tobacco asset securitization financings which were completed in 1999.
This securitization transaction will require corporation (the "Erie
Tobacco Asset Securitization Corporation" or "ETASC"), in order to
provide a bankruptcy-remote purchaser of the County's Tobacco Asset
which can issue tax-exempt bonds to finance such purchase.
The deposit and investment of such monies in a special-purpose trust
fund is necessary in order to provide for the use of the resulting secu-
ritization proceeds, over an extended period of time for the following
purposes:  payment of the County's long-term general obligation indebt-
edness, to enhance economic development in the County, to stabilize the
cost to taxpayers of the County's annual share of Medicaid expenditures,
to stabilize the cost to taxpayers of the County's contribution to the
Erie County Medical Center operating budget, to enhance regional cooper-
ation and encourage inter-governmental initiatives which reduce the
overall cost of government.
The investment of such monies in certain tax-exempt obligations as
described above would enable ETASC to issue its bonds on a tax-exempt
basis under federal tax law, even though the monies will be expended
over an extended period of time. The eligibility criteria for such
investments, being the two highest long-term unsecured debt rating cate-
gories available for such securities by two independent rating services,
or in accordance with the provisions of Section 11 of the General Munic-
ipal Law, will safeguard such monies for future expenditure by the Coun-
ty.
The passage of this legislation is critical to the County's efforts to
complete its planned securitization transaction as soon as possible. In
addition to providing the funding source for various County purposes,
the securitization will enable the County to transfer, to ETASC's bond-
holders, the risk of being financially dependent on the continued
viability of the domestic tobacco industry. In view of the pending liti-
gation in Florida, California and many other states against the domestic
tobacco industry, as well as the U.S. Justice Department lawsuit, the
potential for multibillion dollar liability and industry bankruptcy
threatens the County's future receipt of payments under the 1998 Master
Settlement Agreement and the 1998 Consent Decree and Final Judgment.
Securitization will make it feasible for County taxpayers to realize the
benefits of the Tobacco Asset over an extended period of time, regard-
less of the ultimate fate of the domestic tobacco industry. Various
other entities are currently preparing their own securitization bond
issues. In order for the County to be assured that it can access such
market for risk transfer and funding purposes, on terms which are cost-
effective to the County, it is necessary to obtain passage of this
legislation and then complete local implementation of the securitization
transaction.

LEGISLATIVE HISTORY:
New bill.

FISCAL IMPLICATIONS:
None to the state.

EFFECTIVE DATE:
Immediately.