Interim Joint Committee on Agriculture


Subcommittee on Rural Issues


Minutes of the<MeetNo1> 2nd Meeting

of the 2011 Interim


<MeetMDY1> November 9, 2011


Call to Order and Roll Call

The<MeetNo2> 2nd meeting of the Subcommittee on Rural Issues of the Interim Joint Committee on Agriculture was held on<Day> Wednesday,<MeetMDY2> November 9, 2011, at<MeetTime> 10:00 AM, in<Room> Room 131 of the Capitol Annex. Senator Vernie McGaha, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Senator Vernie McGaha, Co-Chair; Representative Mike Denham, Co-Chair; Senators David Givens and Paul Hornback; Representatives Will Coursey, Kim King, Tom McKee, Terry Mills, Steven Rudy, and Tommy Turner.


Guests: Representative Marie Rader; Todd Lewis, Executive Director, Attorney General’s Office Special Prosecutions; Patrick Hughes, Deputy Attorney General; Mitch Denham, Assistant Deputy Attorney General; Karen Woodrich, State Conservationist, United States Department of Agriculture, Natural Resources Conservation Service; Jerry Rickett, President and CEO, Kentucky Highlands Investment Corporation; Terry Aff, CEO, Stardust Cruisers; and Gregory Luhan, Associate Professor of Architecture, University of Kentucky.


LRC Staff: Tanya Monsanto, Biff Baker, Stefan Kasacavage, and Susan Spoonamore, Committee Assistant.


Eastern Livestock case from the Attorney General’s Office of Special Prosecutions

Todd Lewis, Executive Director, Attorney General’s Office of Special Prosecutions, explained that the Office of the Attorney General began investigating the returned checks that were issued from the Metcalfe Buying Station in Edmonton immediately after being notified of possible wrongdoing. The Metcalfe County grand jury issued an indictment containing 173 criminal counts for individuals in Eastern Livestock Company. The indictment also listed the names of 172 victims who were cattle producers who sold at the Metcalfe Buying Station. Mr. Lewis stated that the Attorney General’s Office was aware of other cattle producers who also suffered returned checks, but for venue purposes, the indictment listed only the persons who sold at Edmonton. The Bill of Particulars, which was recently filed, stated that from January 1, 2009 to November 10, 2010, the defendants participated in a criminal enterprise with five or more others on a continuing basis, the purpose of which was to commit theft. He said that the named defendants knew that the enterprise was engaged in obtaining property or services from others unlawfully. The first scheme was to defraud Fifth Third Bank by maintaining a set of falsified transactions on the books of Eastern Livestock, and the second scheme consisted of a massive check kiting operation.


Mr. Lewis said that, pursuant to legislative requests, the Attorney General’s Office had been researching Kentucky’s laws to identify areas of the Kentucky Revised Statutes that could be revised to prevent fraud of this magnitude from happening again. The recommendations were as follows:

1.         Amend KRS 431.525 to clarify that a judge has the ability to consider the immense financial resources of a defendant when setting the defendant’s bond.

2.         Amend KRS 261.200 to more clearly define “buying station” and ensure that a single buying station would be subject to the same federal and state regulations and bonding requirements as stockyards.

3.         Increase the bonding requirements in the stockyards statute.

4.         Change the monthly requirement that stockyards report receipts to the Kentucky Department of Agriculture to a daily reporting requirement. Increase the penalty for not posting a bond for a flagrant and willful violator from a Class B Misdemeanor.

5.         Add statutory language to authorize an investigator to require buying stations to immediately produce records to verify their compliance with relevant statutes and regulations.

6.         Increase all the penalties in Chapter 261.

7.         Grant the Attorney General’s Office statewide jurisdiction over agricultural fraud, and provide the resources necessary to investigate criminal activity.


In response to Representative Denham, Mr. Lewis stated that the last quoted figure for a nationwide loss from Eastern Livestock Company was approximately $130 million. He said that eight to ten states were affected by the criminal activities and that there were three or four banks involved in the check kiting scheme.


In response to Representative Kim King, Mr. Lewis said that the current definition of a stockyard does not include individual sales conducted by Future Farmers of America, 4-H groups, county, state or private fairs, breeder livestock associations, or individual sales of livestock conducted by or for a person on his or her own premises.


In response to Senator Givens, Mr. Lewis said that the definition of a stockyard is set out in KRS 261.200(5). Mr. Lewis also gave a timeline of court action to be taken against the Eastern Livestock Company, but stated that no trial date had been set yet. He said that the Attorney General’s Office was aware of lawsuits being filed against Fifth Third Bank by some of the named victims.


In response to Representative Kim King, Mr. Lewis said that the Attorney General’s office has a Victims’ Advocate Division and victims can contact that office for questions and assistance.


In response to Representative Rudy, Mr. Lewis stated that if a stockyard or the cattle marketing industry were to be federally classified as a highly regulated industry, then a state would be able to authorize investigators to demand that relevant records be provided immediately.


In response to Representative McKee, Mr. Lewis said that he was aware of only one other state to issue a warrant against one of the defendants.


USDA Natural Resources Conservation Service Programs Available to Rural Kentuckians

Karen Woodrich, State Conservationist, United States Department of Agriculture (USDA), Natural Resources Conservation Service (NRCS), stated that the mission of the USDA Natural Resources Conservation Service Program was to help people help the land. She said that the NRCS helped all 120 conservation districts in Kentucky deal with soil, water, air, plant, animal, human-effect, and energy issues. The Technical Assistance Program, the largest of NRCS’s programs, worked with individuals to assess their needs from simple to complex. The most popular financial assistance program was the environmental incentives program. Both programs offered resources and assistance for making the best use of land conservation. In 2012, a new program will be available to focus on organic growers. Another popular program was the Wildlife Habitat Incentives Program that established good wildlife practices. The Emergency Watershed Protection Program was established to safeguard lives and property as a result of natural disasters. Beginning in 2012, areas must be declared federal disaster areas before funds can be requested. Ms. Woodrich also discussed several new smaller programs that will be available for 2012. She stated that there are 54 NRCS offices located across Kentucky to help all of its residents with environmental conservation issues.


In response to Representative Denham, Ms. Woodrich said that some of the major conservational issues were soil erosion in western Kentucky, intense grazing pressure in central Kentucky, and forestry and surface mining control in eastern Kentucky. She further stated that enrollment for NRCS’s programs was available year-round and that NRCS worked with other state agencies to assist in cost-sharing for fencing and other needs. In response to a question regarding the NRCS’s Watershed Program that once included the building of lakes, Ms. Woodrich stated that it had been phased out at the national level.


In response to Representative Kim King, Ms. Woodrich stated that Anderson and Spencer Counties were most likely participating in some programs even though the map in the presentation may not have shown it.


In response to Representative McKee, Ms. Woodrich said that NRCS was anticipating a 10 percent federal funding cut, with possible cuts to some programs.


In response to Senator Hornback, Ms. Woodrich said she had no idea what programs would be affected with the anticipated decrease in federal funding. She said that NRCS receives approximately $30 million in federal assistance dollars.


Houseboats to Residences Manufacturing Project in Southeastern Kentucky

Mr. Jerry Rickett, President and CEO of the Kentucky Highlands Investment Corporation (KHIC), stated that KHIC works in 22 counties in southeastern Kentucky investing in businesses. Since 2007, the loss of manufacturing and related jobs in southeastern Kentucky had resulted in 1,200 people being unemployed. Seeing the need for energy-efficient housing and employment, KHIC was working with the Center for Applied Energy Research and the School of Design at the University of Kentucky to help houseboat manufacturers build energy-efficient housing. Rural housing was a problem in southeastern Kentucky. Most homes were older mobile homes with no insulation, which caused families to struggle with paying their energy bills.


Mr. Gregory Luhan, Associate Professor of Architecture, University of Kentucky, discussed the interaction between the Kentucky Highlands Corporation, Stardust Cruisers, the Center for Applied Energy Research, and the UK College of Design for designing Houseboats to Energy Efficient Residences (HBEER). He said that the goal of the group was to design an energy-efficient residence for $100,000 in order to meet the low-cost housing needs of southeastern Kentucky.


Mr. Terry Aff, President, Stardust Cruisers, explained the opportunities of diversifying from houseboat manufacturing to sustainable, high-efficiency houseboats. Stardust has completed the energy-efficient houseboat unit and hoped to complete a second unit soon. Stardust has built seven new boats averaging approximately $700,000 each, and most are going overseas. Mr. Aff also stated that Stardust hoped to begin constructing high-efficiency modular classrooms. Challenges facing Stardust include shipping, employee taxes, sales taxes, property taxes, and financing. The two largest obstacles are the unemployment tax rate and the property taxes on boats. He asked that the General Assembly consider making rate adjustments to those taxes.


In response to Representative Kim King, Mr. Luhan stated that the modular homes are built on rigid foundations. He testified that the homes were durable, well-built, and long-lasting. In the future, homes can be built with FEMA approved safe rooms in case of tornados.


Representative Rader expressed concerns over the lack of affordable, energy efficient homes for the low-income population.


In response to Representative Mills, Mr. Rickett stated that the $100,000 prototype home contained 1,030 square feet.


In response to Senator McGaha, Mr. Rickett said that some of the heating equipment and certain types of trusses were not available for purchase in Kentucky. Otherwise, almost all of the materials used in the modular home were produced or made here in Kentucky.


There being no further business, the meeting was adjourned at 12:00 p.m.