Originally published on May 30, 2017
Keith Fitz-Gerald is out with a new ad for his Money Map Report that promises you can “claim” payments from big tobacco — and, naturally, Gumshoe readers are curious… is there really some way that normal folks like you and I can “collect thousands of dollars a month, tax-free, from Master Settlement Payments?”
Well, sort of. But probably not the way you’re thinking. Let’s look at the details and get you some answers…
As with most ads of this sort, the pitch is that this money is sitting there just waiting to be claimed… all you have to do is get your name on the list!
The money comes from the Master Settlement Agreement that the big tobacco companies signed with all the state Attorneys General about 20 years ago, settling all the lawsuits states had filed to both restrict tobacco advertising and to recoup tobacco-related health care costs.
Here’s a little taste of the ad:
“This Master Settlement Agreement has no end date. Big Tobacco is legally obligated to pay out this cash forever.
“In fact, we estimate they’ve been paying out about $686 million a month…
“And it may surprise you to learn that you could personally claim a tax-free portion of this settlement!
“Every month a check made out for $2,300 could arrive in your mailbox…
“Even if you’ve never smoked…”
There’s a lot of stuff in the ad to fire up anger about the big tobacco companies and their practices, from ridiculous advertising about the health benefits of smoking to suppressed research and aggressive lobbying… all of which sets up a straw man that makes you angry, and makes it easier to believe that there’s some way that makes sense for you to deserve and receive some kind of “free money.” More from the ad:
“Big Tobacco destroyed countless lives.
“Their actions placed an undue burden on our healthcare system…
“And they got away with it for too long….
“The Master Settlement Agreement dictates Big Tobacco distribute cash to 46 states and five U.S. territories forever.
“And thanks to a special clause in this deal, Americans have the chance to claim 100% tax-free income from it….
“This money is even guaranteed and backed by the government.”
And more language about how this is something you “claim” and “receive” … nothing about you ever having to do anything other than make a phone call or fill out a form online in order to “begin receiving” the payments.
“At this very moment, government offices in cities and towns across the country are receiving this cash.
“It’s being held in escrow accounts, waiting to be claimed.
“But what most people don’t realize is that even if you weren’t a direct victim of Big Tobacco’s misdeeds…. you can still get a portion of this settlement cash…Are you getting our free Daily Update
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And I want to help you do just that.”
And now big are these payments? Fitz-Gerald cites several different examples of indiiduals who have been collecting big from tobacco at $3,300, $5,000 or $6,000 a month, but the number most frequently repeated in the ad is “an average of $2,300 or more.”
So what the heck is he talking about? Is there some “settlement fund” that’s going to give you money?
But there is a settlement fund in most states, and most states have borrowed against that future revenue, so there are a lot of municipal tobacco settlement bonds — and you could buy those bonds to lend money to the state, and receive tax-free municipal bond interest in return that is backed by the perpetual cash flow from the tobacco settlement.
So, tragically, this is an investment — not a magical pool of money that you can just ask for by using a secret codeword because you had a hard time quitting smoking, or lost a family member to lung cancer, or are just angry at tobacco companies in general.
To be fair, Keith Fitz-Gerald does very briefly note that you would have to make a one-time investment — though, as one might expect, he minimizes it and hides it in a section where he’s already got you thinking about lottery-like winnings:
“You’ve heard of a similar deal with lottery winners.
“The person who hits the Powerball will sometimes take a lump-sum payment from the government now instead of receiving annual installments.
“Only this time, it’s the government looking for the lump-sum capital.
“And because your money is being pooled with that of other Americans, you don’t have to put up a great deal to get started.
“Your one-time investment can be as little as $250.
“And in return, you will be transferred a share of the settlement money Big Tobacco is legally obligated to pay that city or small town forever.
“The checks will arrive every month. This income is tax-free.”
There are some unique characteristics to these tobacco-fueled municipal bonds… they are typically tied specifically to the tobacco company payments, so they may in some ways be protected from bankruptcies (ie, if Illinois declares bankruptcy, it might be that the Illinois tobacco bonds continue to receive their payments even if general obligation bonds do not — I can’t promise that this is true, and I’m no tax law expert).
And the tobacco settlement payments themselves are inflation-protected in at least some cases, though each bond is structured differently so I don’t know if they include rising payments (for what it’s worth, lots of people find the sector challenging — the complexity and lack of predictability of the tobacco revenue stream even drove Fitch to stop rating some of these bonds).
That specific connection to one defined string of revenue is somewhat similar to special project bonds, like those that might support the renovation of an airport or of a sewer system and that are paid back by revenue generated by that project (sewer fees, airport fees, etc.). Which can be good or bad, but it does at least make the particular bond more analyze-able because you’re not simply betting on whether or not the state will go bankrupt during the 30 years before the bond matures. And in many cases, the yields will also be higher on those “special projects” because they’re not backed by general taxing authority but by a specific business or activity.
Fitz-Gerald says that this tobacco settlement has generated “156 lucrative deals” …
“The government has worked out a series of very special deals on behalf of ALL AMERICANS.
“Currently, there are 156 lucrative deals to choose from.
“But we don’t anticipate that remaining the case for very long.
“Because Americans who have become privy to what I call ‘Master Settlement Payments’ are beating down doors to lock up their spots.”
I don’t know if the 156 number is accurate or not, there are a bewildering array of municipal tobacco bonds, but the “on behalf of ALL AMERICANS” bit does not mean that everyone gets some of the cash… it means that the state (or city, in a few cases) gets the cash from these ongoing tobacco settlement payments, and they use it how they want to.
So how do these tobacco bonds actually work?
Well, the states settled with the tobacco companies in 1998, dropping their suits and claims for health-related tobacco costs in exchange for an ongoing stream of cash that is based on the number of cigarettes sold.
In most cases, the states initially determined that this cash would go to help cover the health care costs of tobacco that are borne by the state, and to help fund anti-smoking programs… but, of course, when a state budget hits a tough patch (as they all do, from time to time), the temptation was immediately to use this tobacco money to plug other holes in the budget.
And in order to use more of that future tobacco money today to solve the current problems with their budgets, a lot of states decided to essentially sell off this future revenue stream to investors by issuing municipal bonds. The state gets cash up front, the investors get either a fixed or a revenue-dependent coupon payment for 20 or 30 or 40 years or until some preset revenue target is reached.
There are now a l