DES MOINES -- State officials took a first step Wednesday toward the possible sale of all or part of Iowa's $1.9 billion settlement with tobacco companies, a move that might protect its share from turbulent legal and economic forces.

State lawmakers created the Tobacco Settlement Authority to explore the possibility of selling or "securitizing" settlement proceeds. The authority also began searching for an independent financial adviser to help craft a securitization plan, which could involve selling future settlement payments to investors in exchange for a lesser amount of guaranteed upfront cash. It remains quite uncertain, however, that Iowa will ever go that route. The settlement authority and its adviser ultimately may decide that the state should not sell its settlement. In the end, the final decision is up to the Legislature and Gov. Tom Vilsack. Uncertainty is driving the state to explore securitization. Iowa is expected to annually receive between $60 million and $70 million from the settlement over the next 25 years. But its share ultimately depends upon the good financial health of the tobacco companies, which may be slowed by sluggish cigarette sales or crippled by billions in legal losses. Much is at risk for Iowa. During the past legislative session, lawmakers voted to pay for a long list of new and current health-care initiatives with tobacco cash. Amid fears that the programs would outlast the cash, they formed the settlement authority to weigh the state's options. The authority is comprised of State Treasurer Michael Fitzgerald, Auditor Richard Johnson and Cynthia Eisenhauer, the director of the Department of Management. The group is set to meet Sept. 5 to pick an adviser from a slate of bidders. But for now, no one knows whether securitization would be a good deal for Iowa. Brett Mills, the deputy state treasurer, said it would be "wildly premature" to speculate on how much Iowa would get for its settlement. However, based upon what a handful of other political subdivisions have received in selling their portions elsewhere, Mills said Iowa could get $800 million to $900 million in exchange for its $1.9 billion share. Iowa, he said, would be on the cutting edge of the securitization movement and could do better than other states that try to sell their settlements later. But a continued string of big tobacco defeats in the courtroom, such as a recent $145 billion judgment against the industry in a Florida case, could make securitization an unattractive risk for investors. In Iowa, once the financial adviser is picked, a securitization program plan could be completed by mid-November. After that, it will be up to lawmakers to decide what course the state should take.

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