Tobacco Settlement Agreement Fund Oversight Committee




<MeetMDY1> June 10, 2003


The<MeetNo2> Tobacco Settlement Agreement Fund Oversight Committee met on<Day> Tuesday,<MeetMDY2> June 10, 2003, at<MeetTime> 1:30 PM, 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 Roger Thomas, Co-Chair; Senators David Boswell, Daniel Kelly, Joey Pendleton, and Richard Sanders Jr; Representatives Adrian Arnold, James Comer, Thomas McKee, and Tommy Turner.


Guests:  Shana Herron, Community Farm Alliance; John Mark Hack, Gene Royalty, Sandy Gardner, Kara Keeton, Joel Neaveill, Brad Wellons, and David Bratcher, Governor's Office of Agriculture Policy; Smith Mitchell, Economic Development; Vicki Pettus and Roger Recktenwald, Kentucky Infrastructure Authority; Mayor Bob Hunt, Cave City; Matt Michaud; Phil Huddleston, Kentucky League of Cities; Kori Jones, Kentucky Farm Bureau; and David Sparrow, University of Kentucky College of Agriculture.


LRC Staff:  Dan Risch, DeVon Hankins, Perry Nutt, and Kelly Blevins.


Prior to starting the meeting Senator McGaha announced that staff analyst Biff Baker had lost his wife and asked the members and guests to pause for a moment of silence on behalf of the Baker family.  Senator McGaha then called to order the second meeting of the Tobacco Settlement Agreement Fund Oversight Committee, a roll call was taken, and a quorum established.


Senator McGaha asked Mr. John-Mark Hack and Mr. Gene Royalty from the Governor’s Office of Agricultural Policy (GOAP) to present their responses to the questions asked by various committee members during the May meeting.  Mr. Hack noted that his staff was still working on the information that Representative Thomas had requested regarding the amount of duplication and participation in model county programs and would provide the data as soon as it was available.  Mr. Hack provided members with a list of how many applicants had been funded once and have submitted one or more additional and separate funding requests.  He stated that as of the May 2003 Agricultural Development Board (ADB) meeting $107,000,000 had been approved for funding and $74,000,000 had actually been distributed to recipients.  He noted that the primary reason for the difference is related to projects that opt not to receive their full award in a lump sum disbursement.  Mr. Hack stated that the ADB encourages recipients to only ‘draw down’ what they need as they move forward with their projects so that the interest can continue to accrue to the respective county accounts until such funds are needed.


Senator McGaha asked Mr. Hack if most of the duplicated projects were related.  Mr. Hack said yes and reviewed some of the relevant projects to explain how.  Senator McGaha then asked if the majority of the $107,000,000 that has been funded was county funds.  Mr. Hack noted that it was both county and state funds.


Mr. Hack provided members with two lists, one illustrating the amount of state-requested dollars by county and the other state-awarded dollars by county.


Representative Thomas asked about the status of projects that have not been approved.  Mr. Hack stated that a number of them have been ‘no funded’ and the rest are in ‘pending’ status.  He noted that their ‘pending’ list totaled around thirty-seven applications.  Representative Thomas then asked which list do the ‘pending’ projects show up on.  Mr. Hack stated that they are accounted for on the list illustrating the amount of state-requested dollars by county.  Senator McGaha asked if the ‘pending’ projects’ information was separated out on that list.  Mr. Hack said no.


Mr. Hack then provided a document which summarized the projects that have been approved by the ADB to date and explained the contents of a second document that listed the applications that were reviewed by the ADB during their May 2003 meeting.  He briefly reviewed the Bath County Agricultural Extension application and noted that the ADB had received about eight other regional marketing projects.  He also noted that the project was funded based on the criteria delineated in a marketing research study conducted by the University of Kentucky.


Senator Sanders asked how the Bath County project was different from the Cave City regional marketing project which had not been approved.  Mr. Hack stated that the Bath County project focused more on the actual marketing of farm products and the ADB viewed the Cave City project as more of a exposition center and convention center expansion with a farmers’ market component.  He noted that the ADB was specifically interested in how direct the marketing function was going to be with regard to benefiting farmers’ in that marketing area.


Senator Sanders asked Chairman McGaha if Mayor Bob Hunt, of Cave City, could present his rebuttal on behalf of the Cave City project.  The Mayor gave a brief history of the project’s development and an overview of its status as it has moved through the ADB application review process.


Senator Boswell asked Mr. Hack if the ADB has a communication process that provides ‘no funded’ applicants with an explanation as to why they were denied funding and what steps they would need to take in order to have a more successful application.  Mr. Hack said that they try to be as clear as possible in explaining the reasons for no funding.  He also stated that staff works with  applicants to address the reasons for no funding as resources permit.  He noted that there have been a few projects that were originally denied funding, then reworked and retooled and subsequently funded.


Senator Pendleton asked Mayor Hunt what the primary goal of the Cave City project was.  Mayor Hunt stated that they wanted to construct an arena/agri type facility that local farmers could use for shows and sales.  Senator Pendleton then asked Mr. Hack why the ADB did not look favorably on such projects.  Mr. Hack said that the direct connection to farm income was not apparent to staff or the ADB, especially within the context of the number of dollars being requested for the project.  Senator Sanders informed the committee members that the Cave City project was actually mentioned in the federal farm bill although specific funds have yet to be allocated.  Co-Chairs McGaha and Thomas thanked Mayor Hunt for speaking to the committee and applauded the work that had been done thus far.


Senator Boswell asked Mr. Hack if the ADB takes into consideration the county’s level of tobacco dependence when reviewing applications.  Mr. Hack said yes, however the location of a project doesn’t always determine the potential impact on tobacco dependent counties.  He noted the Kentucky Specialty Meats project in Caldwell county and the Little Kentucky Smokehouse project in Union county as examples.  Senator McGaha also expressed concern about the apparent lack of approved projects in the major tobacco dependent counties.


Senator Kelly asked Mr. Hack whether or not the ADB had funded a worm project.  Mr. Hack stated that the ADB had not funded any worm farming projects to date.  He noted however that the ADB had cost-shared on a market research study, with the Southern Kentucky Worm Growers Association, focusing on the potential of vermiculture products.  He gave a brief overview of the study’s findings.


Senator McGaha asked about the Scott County Beef Improvement Association’s project. He asked if the estimated 150 families to benefit from the expansion were new families who previously had not been able to participate prior to the expansion.  Mr. Hack stated that he did not know the answer, however he said the project does expand their capacity to service other families. Therefore the project creates an opportunity for people to benefit from the heifer replacement sales who had not benefited before.


Representative McKee asked if the volume of applications submitted had increased, decreased, or leveled off since the inception of the program.  Mr. Hack stated that on the non-model projects were leveling out but that more innovative proposals were now being presented.  Representative McKee asked if the ADB had considered any options for getting the Phase I money out to the more tobacco dependent counties.  Mr. Hack stated that the ADB was interested in extending some low-cost capital in those counties where applicants are finding it difficult to meet the requirement on the model cost-share programs.


Senator McGaha asked how the forgivable loan worked regarding the Kentucky Specialty Meats project.  Mr. Hack said that the applicant will pay a premium to Kentucky goat producers over the current market rate set at Saint Angelo, Texas and that price difference will be assessed against the loan.  Senator McGaha also asked how the two hundred thousand dollar low-cost loan worked. Mr. Bratcher said that the ADB worked with the applicant’s bank to buy down a portion of their loan and the bank will actually be secured with a first lien on all assets.  Senator McGaha asked Mr. Bratcher to clarify if a local bank was involved and if the ADB was the entity buying down the loan.  Mr. Bratcher confirmed both to be the case, however he noted that though the ADB is able to generate the loan, the ADB is not sure that it is the appropriate entity that should be doing this, particularly in terms of servicing.  He also stated that it was the opinion of the ADB that this type of activity should be assigned to the Agricultural Finance Corporation when that entity gets up and going.


Senator Boswell asked what banks charge to service the loan.  Mr. Bratcher stated that it would be a prorata share of the proceeds of sales based upon the outstanding balances at the time on each of the loans.


Representative Thomas asked if staff review applications that have received a ‘low-priority’ ranking from their perspective county council.  Mr. Hack stated yes, however the application does not receive as much attention as one that had received a ‘high-priority’ ranking.  Representative Thomas then asked if there have been any applications that have received a ‘low-priority’ ranking in which the staff felt that it had more merit.  Mr. Hack stated that this had not occurred to his knowledge.


Senator Boswell asked if there were mechanisms for multi-county projects and if so, how many had been approved.  Mr. Hack stated that there have been several applications that have included multiple county funding and he could provide that information at the next meeting.


Senator Kelly asked for a status report on the Kentucky Center for Agricultural Development and Entrepreneurship.  Mr. Hack stated that they have a resource center and staff dedicated to its mission.  He also noted that he could provide the committee with another copy of the status and activity sheet he provided during the May 2003 meeting.  Representative McGaha noted to the committee that they would dedicate a portion of a future meeting to this subject.


Both Chairpersons McGaha and Thomas noted that Mr. Hack was leaving his position with GOAP and thanked him for his work and commitment to rural Kentucky. Mr. Hack expressed his appreciation for both Chair’s acknowledgement and gave his view as to why the program has been so successful.


Mr. Gene Royalty asked for permission to give a brief presentation on their proposal for the Kentucky Agricultural Finance Corporation.  He was asked to  wait to make his presentation after the other scheduled presenters if time permitted.


Mr. Perry Nutt, Staff Economist for the Legislative Research Commission (LRC), gave a presentation regarding the process and formula for the allocation of tobacco settlement money to the county accounts.  Mr. Nutt gave a brief overview of KRS 248.703 (3) and stated that the formula was made up of three variables weighted.  He also provided two tables illustrating county rankings via the formula variables.


Representative Thomas asked which variable receives fifty percent of the weighted average.  Mr. Nutt stated that the county burley basic quota as a percentage of state burley quota variable received the fifty percent weighted average.  Representative Thomas asked if counties had shifted in their ranking.  Mr. Nutt stated yes but by no more than .04% either way.  He noted that he could provide the committee with a list.  Representative Thomas asked if there was a better formula to use in determining such allocations.  Mr. Nutt stated that it was widely agreed that the formula currently being used was the standard measure in use for such allocations.


Mr. Roger Recktenwald, with the Kentucky Infrastructure Authority (KIA), gave a progress report on the use of tobacco settlement money for tobacco county water projects and explained the planning and funding process for all projects.  He provided information and data tables on both the first year, and second year funding allocations and a status of various projects.


Representative Thomas asked if KIA could provide the committee with a map of Kentucky segregated by county illustrating funding dollars of both funding years.  Mr. Recktenwald stated that he has such a map and would work with the committee’s staff to develop it for the committee’s use.  Representative McKee asked that counties not receiving funding be illustrated as well.  Mr. Recktenwald agreed.


Senator Kelly expressed his concern about how funds were appropriated in the first round of funding for the water projects, and noted that some less-than tobacco dependent counties had received a good deal of funding. Senator Kelly further stated that this may have been due to their willingness to participate in KIA’s water project planning process.  He also thanked Mr. Recktenwald for all of his hard work and noted his high level of competence in strategic planning.  He then urged members of the committee to communicate to their constituents the importance of getting involved in the water planning process for projects in their counties.  Mr. Recktenwald expressed his appreciation for the Senator’s acknowledgement and gave his view as to why the programs have been so successful.


Senator Kelly asked if the utility companies felt that the effort has been worth it and if so, whether they continue to take it seriously.  Mr. Recktenwald stated that the utility companies have bought in to the process and do appreciate the value of the effort, particularly with regard to the ability to collect and access statistically significant data relevant to their work.



The Co-Chairs, decided to delay the presentation by Mr. Royalty and Mr. Bratcher to a later date and asked for a copy of the proposal to be sent to the committee prior to such date.


A motion was made and seconded to approve the May 2003 meeting minutes. The motion passed.


The meeting adjourned at approximately 3:45 p.m.