The Railsplitter Tobacco Settlement Authority is an independent Illinois public corporation created in 2010 to turn the state’s future tobacco settlement payments into immediate cash. It sold $1.5 billion in revenue bonds backed by Illinois’s share of the 1998 Master Settlement Agreement with tobacco companies, handed the proceeds to the state to pay down a bill backlog, and has since retired all of that debt. With the final bond redemption scheduled for June 1, 2026, the Authority is expected to dissolve shortly after.
Why Illinois Created It
By the end of 2010, Illinois was sitting on an enormous stack of unpaid bills. Governor Pat Quinn’s administration reached for a tool roughly a dozen other states had already used: securitization. Instead of collecting tobacco settlement payments year by year, the state would sell its right to those future payments to a newly created entity, which would issue bonds to investors and hand the state a lump sum. Investors would carry the risk that tobacco payments might shrink over time. The state would get cash up front.
The General Assembly authorized this through the Railsplitter Tobacco Settlement Authority Act (30 ILCS 171/), signed as Public Act 96-958 with an effective date of July 1, 2010. Illinois had been projected to receive about $9.1 billion over 25 years under the Master Settlement Agreement, though actual payments consistently ran short of projections as cigarette consumption declined.
How the Authority Is Set Up
The statute defines the Authority as a “body corporate and politic” that exists separately from the state. Its assets, liabilities, and funds sit outside the state treasury, in trust. It receives no appropriations from the General Assembly. Its bonds are explicitly not a debt of the State of Illinois and have no claim on the state’s taxing power; they are payable only from the pledged tobacco settlement revenues. The Authority is barred from filing for bankruptcy or guaranteeing anyone else’s debts, and as a public entity performing a public purpose it is exempt from state and local taxes.
A three-member board governs it: the Director of the Governor’s Office of Management and Budget serves as chair, and two more members are appointed by the Governor. As of the most recent fiscal year, Budget Director Alexis Sturm chaired the board, joined by Brad Fletcher (appointed October 2025) and William O’Connell. Paul Chatalas is chief financial officer and Alexander Smith is secretary.
The 2010 Bond Deal
On December 1, 2010, the Authority sold roughly $1.5 billion in tax-exempt tobacco settlement revenue bonds. Under the purchase and sale agreement, Illinois transferred 100 percent of its future MSA payments to the Authority, structured as a “true sale and absolute conveyance” that could not be reversed for insolvency or any other reason. Some other states securitized only a portion of their tobacco revenue; Illinois handed over all of it.
In exchange, the state received the net bond proceeds plus a “residual certificate” entitling it to any tobacco settlement payments the Authority collected beyond what it needed for debt service, reserves, and operating costs. The bond proceeds went to leftover fiscal year 2010 bills and to helping balance the state budget.
The ratings were unusually strong for the sector. Standard & Poor’s rated the short-term bonds A and the long-term bonds A-minus. Fitch assigned BBB-plus, which the agency identified as the highest rating it had given to any tobacco bonds. David Vaught, then the state’s Budget Director, called it “one of the highest rated tobacco deals in history.”
How the Money Moves
The mechanics run through a trustee, not the state. Illinois irrevocably instructed the MSA escrow agent to send all tobacco settlement payments directly to the trustee. The trustee applies those funds in a fixed order: first the Authority’s fees and operating expenses, then debt service on the bonds, then debt service reserves. Whatever is left flows to a residual account and is released to the state within five business days.
In practice, this meant Illinois still received substantial money in good years. In the fiscal year ending June 30, 2025, the Authority collected $246.3 million in tobacco settlement revenues and distributed $234.5 million back to the state as residual payments, with the bonds already fully defeased.
The 2017 Refunding
In late December 2017, the Authority issued $671 million in Series 2017 bonds to refund $682.4 million in outstanding Series 2010 bonds. The new bonds carried a fixed 5.00 percent coupon across all maturities, which ran from 2022 through 2028.
Early Payoff and Dissolution
By fiscal year 2024, Illinois’s finances had improved enough for the state to retire its tobacco bonds ahead of schedule. It defeased the remaining $449 million in outstanding bonds by setting aside funds in a special escrow account, a move projected to save $50 million. Those escrowed funds are designated for final bond redemption on June 1, 2026. The Bond Buyer reported in September 2023 that the defeasance rendered the state’s outstanding debt “smoke-free.”
The statute that created the Authority requires it to terminate six months after all liabilities have been met or discharged. With final redemption set for June 1, 2026, dissolution is expected shortly thereafter. On termination, all remaining rights and property pass to the State of Illinois. The Authority’s most recent audit, released January 27, 2026, noted “substantial doubt about the entity’s ability to continue as a going concern,” reflecting the scheduled dissolution rather than any financial trouble. Total assets of $127.9 million sat against total liabilities of $124.4 million, essentially all of it residual tobacco payments owed back to the state, and no outstanding bond debt.
How Illinois Compared to Other Tobacco Bond Issuers
Many states used the same securitization structure, including California, New Jersey, Alaska, Ohio, and Louisiana. The sector has since run into trouble. Cigarette consumption was projected to fall 9 to 10 percent annually by the mid-2020s, squeezing issuers that had counted on steadier volumes. Nassau County’s tobacco settlement corporation recorded the sector’s first outright payment default in June 2026, missing a $35.9 million principal payment. Ohio’s Buckeye Tobacco Settlement Financing Authority drew on its debt service reserve in 2025 to meet bondholder obligations. Moody’s estimated as far back as 2014 that up to 80 percent of the tobacco bond issues it tracked were likely to default. Fitch stopped rating U.S. tobacco settlement bonds entirely in 2016, citing “increasing payment complexity and forecasting uncertainty.”
Illinois avoided those outcomes. Actual MSA payments to the state ran roughly 24 percent below original projections through 2012, but the Authority retired its debt early without defaults, reserve draws, or credit trouble. As of April 2023, Illinois had received a cumulative $7.58 billion in MSA payments since 1999, and its 2024 payment was $267.5 million. Once the Authority dissolves, annual settlement payments will again flow directly to the state.