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    Florida rethinks tobacco policy

    As lawsuits are settled and tobacco stocks soar, top officials say they are open to putting tobacco back into the portfolio.

    By DIANE RADO

    © St. Petersburg Times, published May 16, 2001


    TALLAHASSEE -- Florida sold its tobacco stocks four years ago after a push by then-Gov. Lawton Chiles, who said the state shouldn't profit from cigarettemakers at a time when it was suing the industry.

    Now, with tobacco lawsuits settled around the country and tobacco stocks soaring, top state officials are rethinking the decision to divest and are open to including tobacco stocks in Florida's investment portfolio again.

    The three members of the board overseeing Florida's $100-billion pension fund -- Gov. Jeb Bush, Comptroller Bob Milligan and Insurance Commissioner Tom Gallagher -- all signaled support Tuesday for investing in tobacco stocks again.

    In fact, Gallagher wanted to rescind the 1997 decision to divest immediately, but Bush and Milligan urged a more cautious approach at a meeting Tuesday.

    "I agree with where you're going," Milligan told Gallagher. "I would like to make sure we've done it in an orderly fashion."

    Bush told Gallagher: "I think you're on the right track." But the state Board of Administration staff should provide more information, and there should be a policy discussion before taking action, Bush said.

    Though no final decision was made, Chiles' widow, Rhea, reacted strongly Tuesday to the idea of investing in tobacco again.

    "If the decision to invest in tobacco is simply one of dollars and cents, why in the world would the state of Florida continue to feed the demon that will cost our taxpayers hundreds of millions of dollars in future health care costs?" Mrs. Chiles said in a statement released through a public relations firm.

    Gallagher argued that the state should be making investment decisions based on financial information such as return on investments and not on the notion, "We don't like this industry."

    The May 1997 decision to divest "was done on an emotional basis," Gallagher said.

    At the time, Democrats Chiles and then-Insurance Commissioner (and now U.S. Sen.) Bill Nelson voted to divest some $825-million in tobacco stock from Florida's public pension account as states around the nation were suing the industry to recoup the cost of health care for smoking-related illnesses among poor and elderly citizens.

    The nation's top cigarettemaker, Philip Morris, was hurt the most, with Florida dumping some 14-million shares. Also sold were hundreds of thousand of shares of RJR Nabisco Holdings Corp., American Brands and UST; Loews Corp; Dimon Inc.; Universal Corp; Nabisco Holdings; and Mafco Consolidated Group.

    Milligan, who was in his first term as comptroller, opposed the divestiture, saying it was politically popular but financially foolish.

    Indeed, consultants to the state Board of Administration advised against the move, saying the outlook for tobacco stocks was positive, despite the lawsuits. A historical analysis of average returns showed that tobacco stocks had added $30-million a year to Florida's portfolio. The decision to divest affected some 750,000 current and retired public employees.

    Since then, some of those tobacco stocks have performed neither better nor worse than the stock market as a whole. Philip Morris' stock, for example, has risen 39.7 percent since June 30, 1997, versus 41.7 percent for the Dow Jones index of industrial stocks.

    But the past year has been a different story. While the Dow Jones index of stocks has fallen 0.6 percent, Philip Morris' stock price has nearly doubled, and rival tobacco maker R.J. Reynolds' has risen 156.2 percent.

    "We think that public pension fund managers have a fiduciary responsibility to manage those portfolios that produce the best returns," said Nick Rolli, a Philip Morris spokesman in New York. He said Philip Morris is involved in far more than cigarettes -- it is a mammoth consumer products company that includes Kraft Foods, Nabisco and Miller Brewing Co.

    Philip Morris also is a big Republican contributor in Florida. It donated a total of $80,000 to the state GOP in 1999 and 2000, records show. The Florida Democratic Party received $12,500 from the company.

    Bush, Gallagher and Milligan are all Republicans. But Tom Herndon, executive director of the state Board of Administration, was a former chief of staff to Chiles, and he advised against selling tobacco stocks four years ago. His deputy executive director, Coleman Stipanovich, headed a council of investment advisers in 1997 and did not favor divestiture at the time.

    Should Florida move forward with investing in tobacco again, it wouldn't be the first state to do so.

    Maryland also divested its tobacco stocks several years ago because it didn't want to own stock in companies it was suing, said state Treasurer Richard Dixon. However, after the tobacco lawsuits were settled, Maryland began including tobacco stocks in its investment portfolio again, Dixon said.

    At this point, it's not clear how much Florida has lost or gained over the years by selling the tobacco stock. "We've never really done a full-scale, here are the numbers, here are the stocks, this is what happened," said Elizabeth Mozley, investment communications manager at the state Board of Administration. "We basically divested and went on."

    In fact, the discussion by Bush, Milligan and Gallagher on Tuesday came as something of a surprise.

    "There has been no detailed discussion by the trustees on this in some time," nor has there been discussion by the investment advisory council on the divestiture issue, Mozley said.

    The board staff will research the matter and present its findings for discussion, she said.

    - Times staff writer Scott Barancik contributed to this report.

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