Tobacco Settlement Agreement Fund Oversight Committee




<MeetMDY1> July 13, 2004


The<MeetNo2> Tobacco Settlement Agreement Fund Oversight Committee met on<Day> Tuesday,<MeetMDY2> July 13, 2004, at<MeetTime> 1:00 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 Charlie Borders, David Boswell, and Richard Sanders Jr; Representatives Adrian Arnold, Carolyn Belcher, James Comer, Thomas McKee, and Tommy Turner.


Guests:  Jim Acquisto and Karen Jones, Kentucky Agency for Substance Abuse Policy; Glenn Jennings and Martin Koetters, Office of Insurance; Otis Singleton, Auditor of Public Accounts; Bobbie Walters, Cabinet for Health and Family Services; Dr. Alfred Cohen and Bonnie Sigafus, University of Kentucky Markey Cancer Center; Dr. Jennifer McGehee Marsh, University of Louisville Brown Cancer Center; Irene Centers, Department of Public Health; Debbie Hawes Perry, Franklin County Health Department.


LRC Staff:  Lowell Atchley, Biff Baker, Tanya Monsanto, and Kelly Blevins.


The presiding co-chair, Senator Vernie McGaha, opened the meeting by asking Mr. Keith Rogers, director of the Governor’s Office of Agricultural Policy (GOAP), and Mr. Brian Furnish, GOAP deputy director, to report on the June 18, 2004 Agricultural Development Board (ADB) meeting. In reviewing the county model program approvals, Mr. Rogers called attention to the Ohio County Agricultural Development Council’s establishment of a $100,000 revolving loan program. Mr. Rogers said the Ohio County project was the first established under a revolving loan model program that the ADB established in line with H.B. 611. The Ohio County Ag Development Council will be working in conjunction with local lenders, with each entity dividing the loan amount 50-50. The Kentucky Agricultural Finance Corporation will administer the low interest loans in a separate account.


In response to a question from Senator Richie Sanders, Mr. Rogers talked about the impending shift of the Ag Finance Corporation to the GOAP. He said Mr. Tim Hughes would be working as marketing and business development coordinator for the corporation. Senator Sanders said he hopes that future loan approvals will not be concentrated in the Frankfort area, but rather will be disbursed statewide.


Responding to a question from committee Co-chair, Representative Roger Thomas, Mr. Rogers said a few counties have allowed applicants to contribute a smaller match than the 50-50 match required under earlier model program guidelines.


Discussion returned to the revolving loan issue, with Mr. Rogers pointing out that he views a revolving loan as another tool that councils can use in distributing tobacco settlement money. He indicated that county councils establish the terms of the loans, interest rate, and repayment period. Under the program, loan funds may be used to provide the 50 percent match requirement of other ADF grant programs.


Senator McGaha asked about the status of the cattle genetics improvement cost-share program. Mr. Rogers pointed out that the ADB decided earlier this year to keep the program in place, even though GOAP staff recommended that it end. But he said the board set some parameters, such as setting a lifetime maximum of $5,000 that a producer can receive under various aspects of the program. The maximums are retroactive to the beginning of the program.


Senator Charlie Borders then commented on a staff-prepared map that shows which counties have received state funding and their tobacco dependency ranking. Senator Borders said the committee would be better served by including data indicating funding levels by county. After some discussion, Mr. Rogers said he could explain particular projects to committee members individually.


Mr. Rogers next turned to state funded projects. The Ag Development Board approved only one project during its June meeting, the Siemer Milling Company application for funds to help construct a wheat mill at its Hopkinsville manufacturing site. The facility will use low quality, non-food grade wheat in the production of glue extender. The $1 million forgivable loan ($826,053 in state funds) will be reduced by 10-cents a bushel on all Kentucky-produced wheat over a 5,760,000 bushel threshold. Replying to committee members' questions, Mr. Rogers said the project would affect 16 counties in Western Kentucky. He said some farms in that part of the state are capable of producing 80-100 bushels of wheat per acre. Mr. Rogers indicated the project would meet tobacco diversification strategies because of the number of counties affected. Many of those counties, he said, are tobacco dependent. He said Siemer buys directly from about 80 wheat producers in the area, plus purchases from grain elevators in the region. He said the company would offer prices comparable to those offered for high quality wheat, minus the usual dockage. Mr. Rogers said the new Siemer manufacturing process could open up an even wider geographic market because it will be accepting the lower quality wheat.


During another segment of the monthly report, Mr. Furnish discussed the goat market in Kentucky. He indicated that most of the goat market is centered on meat production. The Department of Agriculture keeps track of periodic sales at stockyards around the state and grades the animals. He said goat meat goes to many locales and there is a demand for goat meat from certain ethnic groups.


Representative Thomas asked Mr. Rogers about the status of three gubernatorial appointments to the ADB. Mr. Rogers said he expected the appointments to occur during the week and pointed out that the regular Ag Development Board meeting was scheduled for Friday, July 16.


In further business, the committee heard a report from Mr. Michael Plumley of the Kentucky Office of Attorney General regarding a recent amendment to the National Tobacco Grower Settlement Trust Agreement (Phase II). Mr. Plumley discussed the history of the amendment, which grew out of a controversy last fall when tobacco companies withheld their third quarter payments because Congress was considering a tobacco quota buyout. According to Mr. Plumley, Kentucky and other tobacco-producing states have approved the amendment, which is on file in a North Carolina court.


Mr. Plumley told the committee that the amendment applies in a narrow situation and addressed some ambiguity that existed in the original agreement. He said the amendment language would come into play if Congress passes a major tobacco buyout that affects future payments through 2010. If a buyout carries an additional assessment on tobacco companies, any refunds to companies would begin the year a buyout becomes effective and move forward, Mr. Plumley explained.


Responding to a question from Representative Thomas, Mr. Plumley said a “blowout buyout” refers to a buyout that effectively ends Phase II payments. He said it was his understanding that a buyout included in a major trade bill pending in the U.S. Senate would not affect Phase II payments. But addressing a comment by Representative McKee, Mr. Plumley said tobacco companies could dispute any buyout legislation that Congress enacts.


Next, the committee received reports on programs funded by tobacco settlement money via the Kentucky Health Care Improvement Fund. Mr. Glenn Jennings, the outgoing interim executive director of the Department of Insurance, presented an overview of the Health Care Improvement Fund and the Health Care Improvement Authority, the governing board for the fund. Before giving his report, Mr. Jennings introduced the new exective director of the Department of Insurance, Mr. Martin Koetters. In his report, Mr. Jennings told the committee that it would be helpful if the deans from the University of Kentucky and the University of Louisville could send proxies to board meetings, something that cannot be done currently because of specificity in the statutes. Mr. Jennings also reported on Kentucky Access, telling the committee that the high-risk insurance pool received $16,855,000 in tobacco settlement money in FY 2004 and insures 2,833 people. He said the program is enrolling about 70 people per month. During questioning, Mr. Jennings said he believed the program has helped attract insurance companies back to the Kentucky market because high-risk individuals are being insured by Kentucky Access.


The committee then received a report from Mr. Jim Acquisto, head of the Kentucky Agency for Substance Abuse Program. Mr. Acquisto said the program received $489,000 in tobacco settlement funds. Mr. Acquisto indicated that 21 local boards have formed under the program, although some parts of the state had not created local boards.


Next, Ms. Irene Centers, program manager, reported on the Tobacco Prevention and Cessation Program. Ms. Centers said she anticipates receiving $2,7145,600 in tobacco settlement money in FY 2005 to run the program. A total of 91 percent of funds are allocated to local health departments for programs ranging from youth education programs to adult cessation, according to Ms. Centers.


The final report presented to the committee was on the Kentucky Lung Cancer Research Fund and was presented by Dr. Alfred Cohen, representing the Markey Cancer Center at UK and Dr. Jennifer McGehee Marsh, with the Brown Cancer Center at U of L. According to information supplied to the committee, the four target areas for the fund are investigator-initiated research, designation with the National Cancer Institute Comprehensive Cancer Center, early detection and prevention, and establishing a clinical trials network in Kentucky. Required under KRS 164.476, the National Cancer Institute designation could put the institutions in line for NCI support grants. Tobacco settlement money helped fund 32 grants at the Brown Cancer Center at a cost of $6,252,623, and 35 grants at the Markey Cancer Center at a cost of $5,996,209.


The meeting adjourned at approximately 3:15 p.m.