Tobacco Settlement Agreement Fund Oversight Committee


Minutes of the<MeetNo1> 3rd Meeting

of the 2004 Interim


<MeetMDY1> June 8, 2004


The<MeetNo2> 3rd meeting of the Tobacco Settlement Agreement Fund Oversight Committee was held on<Day> Tuesday,<MeetMDY2> June 8, 2004, at<MeetTime> 1:00 PM, in<Room> Room 131 of the Capitol Annex. Representative Roger Thomas, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Representative Roger Thomas, Co-Chair; Senators David Boswell and Richard Sanders Jr; Representatives Adrian Arnold, Carolyn Belcher, James Comer, Thomas McKee, and Tommy Turner.


Guests:  David Sparrow, University of Kentucky College of Agriculture; Jeff Harper, Kentucky Farm Bureau; Shana Herron, Community Farm Alliance; Keith Rogers and David Bratcher, Governor's Office of Agriculture Policy.


LRC Staff:  Dan Risch, Lowell Atchley, Biff Baker, and Kelly Blevins.


As the meeting opened, Representative Roger Thomas, presiding Co-Chair, asked the members and audience to stand and observe a moment of reflection in sympathy with the families of Senator Joey Pendleton upon the passing of his father, Senator Vernie McGaha whose father has been ill and in the hospital, and President Ronald Reagan who had passed away in the week prior to the meeting.


Next, Representative Thomas asked Mr. Keith Rogers and Mr. David Bratcher of the Agricultural Development Board to report on the business of the Board conducted at its May 21, 2004 meeting. The first item reported on was a summation of the funds approved for the various model county programs. In making the summation, Mr. Rogers said that $1,665,349 had been approved at the Board's May meeting for county model programs.


Representative Adrian Arnold asked for an example of  the types of projects that are funded through the on-farm water enhancement model program. Mr. Rogers responded that the money sometimes is used to improve water availability to cattle. He also gave as an example that the money can be used to fence cattle out of ponds and other water sources in order to protect water quality.


When the report focused on state-funded projects, Representative McKee asked if the money approved for Boones Abattoir, Inc. to expand and rebuild a fire damaged specialty livestock slaughter facility would benefit farmers outside of the county where Boones Abattoir, Inc. is located. Mr. Rogers explained that the slaughterhouse provides services to at least 30 producers in 13 counties. He also said that the facility allows the producers to provide their products directly to retail market. Representative McKee observed that Boones Abattoir, Inc. appears to be small and focused at a scale that can be particularly helpful to Kentucky producers.


Senator David Boswell asked about the Henry County Chamber of Commerce project. The project provides funding for a portion of the costs associated with an Agricultural Marketing Specialist for Henry County. Senator Boswell asked if the project duplicates services provided by other organizations. He used the University of Kentucky, County Extension Office as an example. Mr. Rogers replied by saying that the specialist working for Henry County would be dedicated to assisting Henry County farmers and in that way would differ from other service organizations. Representative Thomas asked if funding, even partially, of personnel costs is out of the ordinary. Mr. Bratcher said that it is somewhat out of the ordinary but he recalled that one or two farmers' markets that had received funding had received as a portion of that funding money to cover some personnel expenses.


In his report on projects that were turned down for funding, Mr. Rogers included as the reasons for the denials failing to purchase sufficient raw products from Kentucky farmers and duplication of services offered from other organizations. Representative McKee took an opportunity at this point to request that the Board reconsider its policy of only funding greenhouse requests from county account money. He pointed out that not all counties will have sufficient funds in their accounts to afford the costs of greenhouses but that those same counties could greatly benefit from having greenhouses available in their educational systems.


In other business, Mr. Rogers and Mr. Bratcher conducted a budget briefing for the committee, explaining various budget scenarios that were pending – the executive branch budget, the House committee substitute, and the Senate budget bill. Mr. Rogers reviewed other budget documents as well – a state-level investment status summary, state-level investments since the start of Phase I fund distribution, and county account activity.


Mr. Rogers told the Committee that, as of June 1, the Agricultural Development Board (ADB)  had approximately $17.9 million available to allocate from three funds, the state pool, the market development pool, and the KCADE grant pool. According to Mr. Rogers, the ABD had meted out approximately $17.6 million during the past 12 months.


He mentioned that the $17 million in tobacco settlement funds, which the Governor directed to be moved from the Kentucky Agriculture Finance Corporation (KAFC) account, has been transferred. The KAFC still had a balance of $3 million. In subsequent discussion, Senator Sanders pointed out that the Governor’s budget proposal has the funds being replaced with a $17 million issue. Mr. Rogers added that the funds would go back into the KAFC's loan pool. In response to a later question, Mr. Rogers said the reason the $17 million will be put back into the KAFC’s loan pool is to assure that corporation money is another tool in the tool box available to fund applicants.


In further discussion, Mr. Rogers said agriculture loan funds come back to the Governor's Office of Agriculture Policy (GOAP) and go into a restricted fund account. He said it was his understanding that budget language is required to allow them to use those funds, once paid back. Mr. Bratcher added that they intend to have a revolving loan fund within the KAFC, whereby funds from loan payoffs can be loaned out again. Mr. Rogers estimated that $170,000-$180,000 has been paid back to the GOAP to date.


Representative Arnold then asked if all state-level investment projects were still in existence. Mr. Bratcher said they were. Mr. Rogers said there are still some funds outstanding in some older accounts and they are trying to bring those to a close.


Representative McKee asked about the status of unexpended balances in county accounts. The GOAP representatives acknowledged that counties have those balances. Counties can retain the funds, but Mr. Rogers said that for the sake of efficiency, they are urging closure of older model program accounts, transfer of the funds from banks to the state, and then transfer back into county accounts for new projects.


In discussion regarding tobacco settlement funds going to the Environmental Stewardship Program, it was explained that, even though the executive branch and House allocated $9 million in FY 05 and 06, the Senate budget document allocates $5 million initially, but leaves an option of applying for additional grants. Senator Sanders said that in reviewing the history of those expenditures, actual fiscal year spending had been about $5 million.


Chairman Thomas then reviewed the history of the budget request related to the Agricultural Development Board (ADB) being encouraged to work with the Economic Development Cabinet to provide up to $5 million each year of the biennium to fund the Natural Products Investment Fund. (The funds will be used to invest in higher risk start-up companies that are attempting to create products for the pharmaceutical and chemical industry by using tobacco and other plants.) Mr. Rogers said advances made by these type companies might lead to Kentucky becoming a center for the natural products industry. Hopefully in the future, more farmers and large amounts of acreage would be included in the industry, he added. However, he said the ADB has been hard-pressed to view the small natural products industry in a positive light currently because of the negligible impact on agriculture. Mr. Rogers agreed with Chairman Thomas that the state would have equity in the companies and ultimately there will be a return to the state.


Turning to the state-level investment listing, Mr. Rogers reviewed the status of individual projects that have longer fund drawdown times, have been delayed, or may be withdrawn. He once again emphasized the need for applicants to show progress on projects or return the funds. Mr. Bratcher added that a new ADB policy requires applicants to be under contract and drawing funds within six months.


In further discussion, the GOAP representatives said they are practicing due diligence in the use of the tobacco funds and if there are compliance issues or reports of misspending, they need to know it so they can take action.


In other business, the GOAP representatives said the Phase II amnesty informational efforts have been successful, with numerous calls and considerable interest expressed. In response to a question from Representative McKee, they said it was their understanding that tobacco growers and quota holders, who were party to the antitrust lawsuit again cigarette companies and leaf buyers, should be receiving their settlement checks in September.


Chairman Thomas indicated that Committee members received biographical information on new Agricultural Development Board members. He said he anticipates having board members attend an upcoming Committee meeting.


The meeting adjourned at approximately 2:30 p.m.