PROVIDENCE — There may have been a handful of people in House Finance Committee Room 35 who understood the intricacies of the securitization of master tobacco settlement revenues.

But when the meeting was over yesterday afternoon, it was clear that elected leaders had pieced together a plan involving the tobacco settlement that significantly improves the state’s 2008 budget outlook in the General Assembly session’s waning days.

Lawmakers likely will have $102 million more revenue to balance the budget than previously thought, thanks in part to House Bill 6473, which authorizes the state to raise $195 million from the sale of tobacco settlement bonds.

That’s $35 million more than the governor’s office projected in November that the state could raise. And House Finance Chairman Committee Chairman Steven M. Costantino, D-Providence, later said he planned to shift $67.5 million from sale of the bonds previously designated for transportation projects to help balance the budget.

The move essentially fills a hole created last month when state leaders learned they would not receive an expected $100-million settlement from the insurance giant American International Group.

Costantino acknowledged that the plan represented a bit of good news in an otherwise dreary budget year. But he said that some tough decisions remained.

“It’s a good thing — it’s a time sensitive issue,” he said. “But certainly, it doesn’t mitigate the challenge we have with this budget.”

Intense negotiations will continue behind closed doors across Smith Hill in the coming days as legislative leaders and lobbyists fight over the General Assembly’s fiscal 2008 spending plan, which may be released as early as Friday. While lawmakers hope to avoid a host of unpopular cuts to social services proposed by Governor Carcieri in November, the revenue outlook — even after yesterday’s news — won’t allow the restoration of everything.

The governor’s budget would cut housing assistance, health insurance and college tuition payments for about 850 young adults, ages 18 to 21, raised in state care. The spending plan — which by law must match projected revenues — would also cut services to developmentally disabled children, transfer youth from the Rhode Island Training School to the state prison at age 18, and would tighten eligibility for state-subsidized childcare.

To restore all the governor’s proposed cuts would cost an estimated $200 million.

“That’s exciting and great news, and I hope it helps some of the foster youth and the 4,000 kids who might not have childcare,” said Rachel Miller, director of the advocacy group RI Jobs with Justice, reacting to news of the tobacco settlement plan. “But even if it creates solutions for this year, we’re still going to face this problem next year.”

Miller’s group will lead a march across the city this evening to protest the proposed cuts. She will join foster children and their parents, and many others, sleeping on the ground in front of the State House tonight.

“The budget has been talked about a lot — a lot of numbers,” Miller said. “It’s really about how these decisions affect people’s lives. There are people in this state who depend on these services.”

Gary S. Sasse, head of the Rhode Island Public Expenditure Council, echoed Miller’s concern that the state was again turning to a one-time revenue fix to fill a structural deficit only expected to grow in the coming years.

“To the extent that we use the tobacco settlement to balance the budget…we continue a practice that has gotten us into trouble,” he said. “We’ve been too dependent on non-recurring revenues.” He noted the irony of using a one-time budget fix (the tobacco bonds) to fill another that fell apart (the AIG settlement).

But the tobacco securitization plan outlined yesterday is not a done deal.

State Budget Officer Rosemary Booth Gallogly said her office has worked for weeks to determine how much Rhode Island could make by selling a portion of future payments from the tobacco master settlement, an agreement with large tobacco companies in accordance with in the landmark settlement that 46 states — including Rhode Island — reached in 1998 with the country’s major cigarette manufacturers.

The $195 million projected figure “reflects the current market,” she said, confirming that it is $35 million more than previous estimates. But the legislation endorsed by the House Finance Committee yesterday doesn’t specify how the money should be used.

There are no restrictions that the money be used for capital improvements as opposed to operating expenditures, Gallogly said.

The governor’s office has been critical of using one-time fixes to close deficits.

“If you use that money to build a bridge, you have the bridge forever. If you use it to plug a hole in operating expenses, you have the same hole the next year,” Carcieri spokesman Jeff Neal said. “The governor in the past has vetoed the budget because they used one-time revenue windfalls to pay for ongoing state programs.”

Costantino said there are few options.

“That can’t happen,” he said of the governor’s plan to use $67.5 million of tobacco settlement money for transportation projects. “If you know what I’m facing, this is a challenging budget.”

And at least one group is concerned that the tobacco settlement revenue isn’t being used for “preventing the problem that got us here in the first place: people using tobacco,” according to a statement released by Liz Gemski, of the American Cancer Society’s Rhode Island office. “We understand that the General Assembly is under a considerable amount of pressure to address the budget deficit, and we are confident that they will make the right, and necessary, choices on how best to use tobacco settlement monies.”

speoples@projo.com