A lack of state bond sales backed by tobacco-settlement money means that state revenues from the 1998 deal with Big Tobacco are expected to decline this year, Reuters reported April 11.

States anticipate receiving $5.4 billion in settlement-related revenues in fiscal 2006, down from $5.8 billion in 2005. The decline is tied to the fact that no states are expected to issue bonds backed by settlement funds this year, not to a threatened reduction in payments by tobacco companies based on the terms of the 1998 pact.

Settlement proceeds averaged $9.3 billion annually between 2000 and 2004, according to a new study from the federal Government Accountability Office (GAO).

After a flurry of bond issues, only one state -- Virginia -- issued tobacco-settlement bonds in 2005. Apart from $390 million raised by that sale, the rest of the $5.8 billion garnered by states in 2005 came directly from tobacco companies under the terms of the settlement agreement.

In the first five years of the settlement, states took in $31.1 billion from tobacco companies and generated another $15.6 billion by issuing bonds against future settlement payments. The tobacco bond market has faltered as cigarette sales --which determine settlement payments -- have declined, and tobacco companies have threatened to cut their state payments under a clause in the settlement that allows them to do so if their market share declines.

The GAO report said that states are allocating the biggest share of their settlement money to health programs, but that some states are using all of the proceeds on debt service.