Tobacco Settlement Agreement Fund Oversight Committee


Minutes of the<MeetNo1> 7th Meeting

of the 2004 Interim


<MeetMDY1> October 12, 2004


The<MeetNo2> 7th meeting of the Tobacco Settlement Agreement Fund Oversight Committee was held on<Day> Tuesday,<MeetMDY2> October 12, 2004, at<MeetTime> 12:30 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> Senator Vernie McGaha, Co-Chair; Representative Roger Thomas, Co-Chair; Senators Charlie Borders and David Boswell; Representatives Adrian Arnold, Carolyn Belcher, James Comer, and Thomas McKee.


Guests:  Bob Babbage, Babbage Cofounder; Karen Jones, Office of Drug Control Policy, Dean M. Scott Smith, Dr. Will Snell, and Drew Graham, University of Kentucky College of Agriculture; Daniel Green, Burley Tobacco Growers Cooperative; Jeff Harper, Brian Alvey, Laura Knoth, Kentucky Farm Bureau; Shana Herron, Community Farm Alliance;  Gay Dwyer, Kentucky Retail Foundation; and Keith Rogers, Brian Furnish, David Bratcher, Joel Neaveill, and Catherine Bell, Governor's Office of Agriculture Policy;

Legislative Guests: Representatives Don Pasley, Mike Denham, Marie Rader, Royce Adams, Bob Damron, and Robin Webb.


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


At the beginning of the meeting, Representative Roger Thomas, presiding Chair, directed the Committee’s attention to two documents. One a comprehensive summary of model programs, categorized by county and type. The other, a chart showing, among other things, which state funded projects have affected individual counties.


The Chair then summoned Mr. Keith Rogers, and Mr. Brian Furnish, director and deputy director respectively of the Governor’s Office of Agricultural Policy (GOAP), to present the list of funding applications that the Agricultural Development Board (ADB) acted on during its September meeting. Information about the projects is on file with the meeting materials in the LRC Library.


Mr. Rogers mentioned one project, Cumberland Meat Products of Pulaski County, which was not included in the information packet supplied to the Committee. During its September meeting, the ADB had approved the application for $110,000, but with stipulations attached. The company later withdrew its application because it disagreed with the ADB’s conditions, Mr. Rogers told the Committee.


According to Mr. Rogers, the Board approved Chaney’s Dairy Barn request for $10,000 in Warren County funds, but deferred an additional request for $100,000 in state funds pending a general discussion of agritourism during an upcoming retreat.


Regarding the next project review, Breathitt County Conservation District, Representative McKee asked a question about the terms of the project. Mr. Rogers indicated the applicant must make the shared use equipment in the venture available to all producers, not just to small farm operators. In response to a follow-up question, Mr. Furnish said there are no standard fees for equipment rental. The fee structure must be included in the funding application. Mr. Rogers added that under shared use programs, counties can require an up-front match or require the match to be met through fees for equipment shared use.


Following a review of similar vegetable and fruit program applications from the Pulaski County Horticulture Association, Senator McGaha asked about the status of Pulaski as a tobacco-dependent county. Mr. Furnish responded that tobacco dependency is a factor in the application ranking process, but he was not certain how Pulaski stood in terms of its tobacco economy.


When he described the Cave Region Agritourism’s application for funding to implement a regional marketing education plan, Mr. Rogers pointed out the application, totaling $22,500 in state and local funds, was the first of its type that the ADB had approved. In his response to Senator Boswell’s question, Mr. Rogers said the funds could be made available to existing agritourism ventures. In addition, Mr. Rogers told Senator McGaha that he would provide information regarding the tobacco dependency ranking of the applicant’s county, Warren.


Next, Mr. Rogers turned to projects that the Agricultural Development Board declined to approve for funding at its September meeting. During the discussion, Mr. Rogers confirmed an observation by Chairman Thomas that applications denied funding become inactive. A number of the no-funded applications that Mr. Rogers reviewed carried a low priority rating from the county councils. Chairman Thomas asked if county councils are required to denote why they give certain applications a low priority. Mr. Rogers responded that council representatives sometimes talk to GOAP analysts regarding priority decisions. Responding to Chairman Thomas, Mr. Rogers said they would put a new section on their application form related to county council priority reasoning.


One no-funded application in particular prompted some discussion. The Jessamine County FFA Alumni Association, which received a high priority rating from the local council for a request of $750 to help offset costs associated with holding a “Food for America” field day for school children. The tobacco settlement funds were to be used to help defray transportation costs. The Agricultural Development Board denied the request during its September meeting. Mr. Rogers told the Committee the Board did not believe the request was in line with the tenets of HB 611. During the discussion, Representative Robert Damron, who was in attendance, told the panel that he had heard a number of complaints from people who wondered why a board in Frankfort turned down their application to essentially use local funds. Chairman Thomas suggested Board should look favorably at situations involving school groups. In subsequent discussion, the Chairman asked if the Board had ever denied funding for similar small, education-related projects.  Mr. Rogers could not recall specifically, indicating that he believed some FFA projects had been denied. Mr. Rogers mentioned that the Board had been reticent in the past regarding granting funding to some education projects because they believed the scope did not meet the agricultural diversification goal in the use of tobacco settlement funds. Mr. Rogers agreed to bring the issue to the Board’s attention during the upcoming retreat.


Next, the Committee members and other legislators attending the meeting received a briefing on the recent congressional enactment of a tobacco quota buyout. Dr. Will Snell, with the University of Kentucky Department of Agricultural Economics, and Daniel Green, comptroller with the Burley Tobacco Growers Cooperative, summarized the $9.6 billion buyout affecting tobacco quota owners and growers. Dr. Snell noted the historic significance of the legislation. The speakers reviewed details concerning payments to quota owners and growers, particularly the amounts and duration of the payments. How those payments will be determined, who specifically can receive them, and early payment options, plus the status of existing pool stocks, and outlook for tobacco production in Kentucky in coming years.


One troubling issue, which the Committee discussed at length, was the impact that the buyout would have on Tobacco Grower Settlement Trust (Phase II) payments to quota owners and growers. The Phase II agreement requires the four major tobacco companies to make quarterly payments to the National Tobacco Grower Settlement Trust, with payments distributed to producers in tobacco states.


Because of a tax offset provision in the agreement, Phase II will end with enactment of the buyout. Committee members expressed their apprehension regarding whether settling tobacco companies will withhold their final quarterly Phase II payments. According to Mr. Rogers who addressed the issue, approximately $25 million in Phase II funds is due from companies later in the year. Mr. Green noted that buyout legislation drafters intended to preserve the remaining Phase II payment, but one legislator later observed that if companies were able to withhold the remaining Phase II money, it would be a “$125 million drafting error.” Representative McKee said many tobacco farmers have depended on Phase II checks to make their loan payments.


The issue of the status of a final Phase II payment in the event of a buyout is one that has yet to be litigated in the Phase II court case, according to Mr. Rogers. He later assured the Committee that the administration will strive to make sure the remaining Phase II moneys come to the state. Information about the buyout is on file with the meeting materials in the LRC Library.


There being no further business the meeting adjourned at approximately 2:30 p.m.