From the reports we get here - our county money is already gone. How will they survive now?

Naples says pace of spending violates pact
County warned on tobacco fund
By MATTHEW SPINA
News Staff Reporter
6/16/2004

Erie County's financial handlers have been warned, a second time, that they're breaking the rules on how to spend the county's more than $250 million in tobacco-settlement money, most of which is gone years earlier than expected.

In a report sent Tuesday, County Comptroller Nancy A. Naples tells the County Legislature and County Executive Joel A. Giambra that they've spent the money faster than anticipated and on items that often don't benefit the community over the long term, violating Internal Revenue Service standards and the county's own agreement.

An attorney for the county, however, calls some of Naples' findings subjective and says that if county officials were doing anything wrong, their advisers in New York City would have raised a warning flag.

"My guess is that as time went on, the need for spending this money became greater, and the administration chose to spend it faster," Naples said. "There was no rule. But it was a lot of money, and no one believed we would spend it quickly because it seemed like so much."

She said each item went through the appropriate review process - proposed by the Giambra administration and approved by the County Legislature.

Naples said the general plan had been to use the money over nine years, but 87 percent has been spent or committed after a mere four years, some of it on everyday government needs - new vehicles, furniture, personal computer upgrades, road repairs. In a similar report in May 2002, Naples said tobacco money had gone toward snow-removal supplies, auto repairs, toilet paper and cleaning products.

The tobacco money springs from the 1998 settlement of a national lawsuit brought against major tobacco companies by 46 states to recover tobacco-related health care costs. Ideally, it was to be used for health care concerns, but many communities are using it for long-term betterment projects, and some to meet the crush of general expenses.

Some of Erie County's money has gone toward long-term projects that meet or exceed its life-expectancy goal of 17.79 years. But when projecting the life of all the items purchased, Naples' staff arrived at an average 13.27 years, meaning the county hasn't met the rules drawn up when it borrowed the original $212 million that provided its tobacco money upfront four years ago.

Officials expected that by investing some of the money, the tobacco windfall would reach $256.2 million by 2009. The county agreed to use the cash for long-term projects, in part because the federal government and bond attorneys wanted to make sure that in 20 years, the county wasn't paying off money borrowed to buy items that lasted only five years, maybe 10.

But there was no hard rule on how quickly the money could be spent, said County Attorney Frederick A. Wolf.
"I'm not aware of any agreement that says we can't spend the money in six months or six years, so I would say that's a pretty subjective call," Wolf said of the Naples report.

The comptroller has asked Wolf to address the risks if the county doesn't meet promises to bond buyers on the "economic-life requirement." Wolf, however, said that if the county isn't spending the money on truly long-term needs, then its bond counsel, the New York City firm of Hawkins, Delafield and Wood, will raise concerns.

County Budget Director Joseph Passafiume said he will talk to lawyers with Hawkins, Delafield and Wood about making the changes they deem necessary. Meanwhile, Albert DeBenedetti, D-Buffalo, chairman of the Finance and Management/Budget Committee, said he and other lawmakers relied on information from the Giambra administration when deciding whether to finance a capital project with tobacco proceeds.

Aside from the fact they went on a spending spree, won't they be surprised if that anticipated future tobacco money doesn't materialize because people are buying cigarettes from Indian reservations or non-settlement companies?

Very good point, Freedom............because the MSA monies are based on how much product is sold in a state.

However, it also raises another question, which I do not recall ever being addressed. Are the companies paying the money based by what is shipped to a particular state in toto, or is it divided up in those states that have Indian Reservations? I don't know the answer.