New York, Jan. 23 (Bloomberg) -- Cigarette makers this month paid New York City $72.8 million, almost $1 million less than the expected amount, under the 1998 legal settlement between tobacco companies and state attorneys general, a city agency said.

The shortfall poses no risk to investors in bonds backed by settlement payments, said Raymond J. Orlando, a spokesman for Tsasc Inc., which issues tobacco settlement bonds for the city. ``I wouldn't call it a significant difference,'' he said. The payment represents the last of five Jan. 10 installments from Brown & Williamson Tobacco, Lorillard Inc., Philip Morris Cos. and R.J. Reynolds Tobacco Holdings Inc. Those companies and other, smaller cigarette makers also must make April 15 payments under the accord in perpetuity. Payments from the four largest cigarette companies can be cut below estimates to reflect lower market shares or lower sales overall. Both trends eroded Tsasc's January payment, said Steven Levy, an analyst at Prudential Securities. ``Consumption is definitely seeing declines as a result of higher sin taxes,'' Levy said. ``And sales have shifted somewhat to some of these low-cost competitors.'' Tsasc, whose $709 million bond sale in November 1999 marked the start of what is now a $17.5 billion market, sets aside funds for principal and interest payments a year before they are due. It will have covered 80 percent of debt service due for the year starting July 1 using this month's payment, Tsasc said. Tsasc also sold $500 million of tobacco-backed bonds in August and may sell more of the securities by the June 30 end of its current fiscal year, said Alan Anders, deputy director for finance in the city's Office of Management and Budget. The city faces a gap of $3 billion in the coming year's budget. ``We'll evaluate the desirability of doing a tobacco deal once we see how the market absorbs the heavy supply that's in the market'' from other municipalities such as California, Anders said in an interview last week. California sold a record $3 billion of tobacco bonds this month and plans to sell more than $2 billion in April. New York state Governor George Pataki has proposed selling $4 billion of the bonds to help address a $12 billion budget gap.

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