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Abstract: The Office of Management and Budget of the City of New York is considering how to use a new source of revenue--the payments from the Tobacco Master Settlement. The recently settled tobacco lawsuit between the states and the major tobacco manufacturers is anticipated to yield over $200 million annually in additional revenues for the City. These payments are welcome. In 1999, the City is relatively sound financial shape; however, it still has a debt burden remaining from the fiscal crisis of the late 1970s. In addition, the budget office, however, projects budget deficits in future years. The case discusses the possible uses for the tobacco payments, including funding smoking cessation programs, reducing the operating deficit, prepaying debt, undertaking much need capital repairs, or starting new capital projects. An investment banker suggests that the City securitize its expected payments. The City would receive a large lump sum amount upfront from investors. In exchange, the City would repay the investors out of the future tobacco payments. The case introduces students to governmental budgets and budget politics as well as the securitizations.