State Treasurer of Iowa

State Treasurer Fitzgerald Refinances Tobacco Bonds

April 21, 2021

DES MOINES, Iowa – State Treasurer Michael Fitzgerald announced that Iowa received an overwhelming response to the refunding of its tobacco settlement bonds, resulting in over $167 million savings for the State of Iowa over the life of the bonds. “A bond refunding is similar to an individual refinancing their home,” Fitzgerald explained. “The State was able to take advantage of low interest rates, just as a homeowner would. The long term savings is big.”

“We refinanced $668 million in bonds on April 6, 2021, at an average cost of 3.29%, down from the previous 5.65%,” Fitzgerald stated. “With some of the lowest interest rates ever and a positive market for tobacco bonds, it just made sense to do the refunding and save Iowans the extra money.” 

When the original bonds were issued back in 2001, the funds raised were used for issues related to health care; substance abuse treatment and enforcement; tobacco use prevention and control; and other related needs. Each year the State receives an annual payment from the tobacco industry. A large portion of that payment is dedicated to paying existing bonds. With this refunding, the bonds should pay off sooner, which will increase the amount of funds coming directly to the State that could be spent on initiatives determined by the Governor and the Legislature. “I’m just happy to be able to find the financial vehicle to make the money available,” said Fitzgerald.

As a result of the tobacco settlement from 1998, Iowa would have received $2.1 billion over 25 years from the tobacco industry. By selling bonds in 2001, the State received the money up front from the bond holders and eliminated the risk the tobacco companies would not be able to pay later. “In 2005 we refunded the bonds at a lower interest rate and netted a $150 million in savings for the State,” Fitzgerald added. “This bond refunding netted another $167 million for a total savings over $300 million. It is the icing on the cake.”

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