ALBANY -- About 20 small and medium-sized counties are opting for lump-sum payments of the tobacco settlement money by jointly selling the right to 25 years in annual installments to private investment firms.

Some of the state's larger counties like Erie, Monroe, Westchester and Nassau, as well as New York City, have already sold their rights to Wall Street bonders, but each did it independently. The pool effort organized by the state Association of Counties reduced the legal and procedural costs associated with "securitization,'' making it an affordable option for smaller counties, NYSAC Executive Director Robert Gregory said. "These costs are being shared by participants rather than by individual counties,'' Gregory said. "They're very significant savings.'' New York state is scheduled to receive $25 billion over the first 25 years of the tobacco settlement, with the state and local governments sharing the money almost evenly. Many of the state's 62 counties are choosing lump-sum options because they fear that yearly payments, adjusted according to national sales of cigarettes, may dwindle over the years because of declining tobacco revenue. In addition, counties cite the possibility of class-action lawsuits in the United States and by other nations that may lead tobacco companies to file for bankruptcy and dry up the settlement fund. By opting for the lump-sum option, Gregory said counties that join the NYSAC pool will receive a total of about $250 million -- about 40 percent of the projected 25-year payment. Under securitization, counties would create nonprofit local development corporations (LDC) that would handle only the tobacco payments. The counties would sell their rights to the yearly tobacco payments to the LDCs in exchange for an upfront lump sum. The LDC would then sell the rights on the bond market. Annual tobacco payments would go to LDCs, which would use the money to pay off bondholders. The LDC would be responsible for all payments, and counties would not be liable if tobacco payments dwindle because of declining sales, Gregory said. "The counties have in effect gotten out from under any risk associated with the payment stream by transferring that liability to the bondholders,'' he said.

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