Tobacco Settlement Agreement Fund Oversight Committee


Minutes of the<MeetNo1> 9th Meeting

of the 2004 Interim


<MeetMDY1> December 14, 2004


The<MeetNo2> 9th meeting of the Tobacco Settlement Agreement Fund Oversight Committee was held on<Day> Tuesday,<MeetMDY2> December 14, 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> Senator Vernie McGaha, Co-Chair; Representative Roger Thomas, Co-Chair; Senators Charlie Borders, David Boswell, and Dan Kelly; Representatives Adrian Arnold, Carolyn Belcher, James Comer, Thomas McKee, and Tommy Turner.


Guests:† Dean Wallace, Council for Burley Tobacco; Jeff Harper, Kentucky Farm Bureau; Keith Rogers, Brian Furnish, and Joel Neaveille, Governor's Office of Agricultural Policy; Tim Hughes, Kentucky Agricultural Finance Corporation; Beth Jurek, Deputy State Budget Director; Gay Dwyer, Kentucky Retail Federation.


LRC Staff:† Lowell Atchley, Biff Baker, Tanya Monsanto, Janie Miller, Tom Willis, Bart Hardin, Joe Lancaster, Charles Shirley, Perry Nutt, and Kelly Blevins.


Following approval of the minutes, Chairman Thomas asked Mr. Keith Rogers, and Mr. Brian Furnish, director and deputy director respectively of the Governorís Office of Agricultural Policy (GOAP), to present the list of funding applications that the Agricultural Development Board (ADB) acted on during its November meeting. Information about the projects is on file with the meeting materials in the LRC Library.


Regarding a Trigg County proposal to supply irrigation services to tobacco growers, Mr. Rogers said the project marked the first time the ADB had approved a forgivable loan using county tobacco settlement funds. Responding to a question from Senator Kelley, Mr. Rogers indicated that farmers using the service would receive a discount off what amounted to a going-rate for such equipment and services rental.


Senator McGaha asked a hypothetical question related to an Edmonson county project to provide lime to farm operators on a cost-share basis. The senator asked if an entrepreneur from Detroit were to start farming in Edmonson County, would he be eligible to participate in the lime cost-share program. The witnesses responded it was possible, although previous tobacco economic dependency would be a factor in scoring applicants, along with other factors. Conceivably, they said, if there were sufficient funds and not many applicants, then the newly arrived farmer could quality.


During a discussion about goat association applications that received low priority ratings at the county council level, Representative Comer asked about the status of the goat market in Kentucky. Mr. Furnish said the demand for Kentucky goat meat was good, and prices were holding up. He said Kentuckyís goat population has grown from an estimated 5,000 a few years ago to about 95,000 currently. He said Kentucky goat meat goes primarily to the Atlanta area and to the Northeast, New York and Boston. Certain ethnic and religious groups prefer goat meat, he told the Committee.


Representative Arnold raised a question about the status of administrative spending by county councils and entities receiving model program money. Mr. Rogers said counties differ in how they use available administrative money, with some choosing to use it for administration, travel and the like, but others choosing to use it for producer programs. He promised to report more thoroughly on the issue at the next committee meeting.


Next, prompted by questions from Representative Comer, Mr. Rogers responded on the status of the Purchase Area Aquaculture Cooperative (PAAC), located in Graves County. According to Mr. Rogers, the co-op closed its processing plant until at least next year and was on the brink of financial insolvency. The co-op had received about $3.3 million in grants and loans from the ADB, the Department of Agriculture and general fund. Mr. Rogers pointed out that the board approved a $240,000 loan last March to help the co-op with its infrastructure and equipment costs. The approval carried some stringent financial audit and reporting requirements, but in the intervening months, a large portion of the money had been spent and the requirements were not completely fulfilled. He said the co-op owed money to about 32 grower-producers. The entity currently owed about $1.5 million, and five members who signed a bank note, also stood liable for potential losses. An existing bank note comes due next April, according to Mr. Rogers.


Representative Comer stated that he had a concern about refunding projects that had already received prior funding, but continued to show a loss. Representative Comer referred back to his opposition of funding the PIC Project stating the Lane Report recently stated PIC did not impact the state's economy very much due to the fact that PIC outsourced most of their work to foreign countries.


During questioning by various members, Mr. Rogers said that the co-opís infrastructure would continue to be in place. He said it was possible that someone could take over the operation and provide a market for fish producers in that area. In the meantime, producers can sell their products in a live-haul market, according to Mr. Furnish. The witnesses said leasing the co-opís facilities probably would not be an option, considering the financial condition of PAAC.


Chairman Thomas said many people were committed strongly to the project in the beginning. During the agricultural diversification debate on HB 611, Representative Arnold said legislators recognized there would be trials and errors in the allocation of tobacco settlement funds.


Next, Mr. Rogers briefed members on the new model programs the ADB created. Those included dairy, pork, technology, timber, and shared-use equipment. He also said the Kentucky Agricultural Finance Corporation had approved policy changes to commit 75 percent of its available funds to value-added marketing, and 25 percent to a farmer investment account.


In another report, Beth Jurek, assistant state budget director, updated the Committee on the status of Phase I moneys allocated to rural development, health care improvement, and the Early Childhood Development program. According to the report, the rural development portion had over $92.4 million available in FY 05. The health care improvement portion had over $27.3 million, and Early Childhood Development had over $32.7 million. A copy of the financial summary is on file with the meeting materials in the LRC Library.


Next, Chairman Thomas asked Assistant Attorney General Michael Plumley and Mr. Rogers to report on the Phase II litigation pending in a North Carolina Business Court. Mr. Plumley reported on the various legal filings in the case and indicated that a hearing was scheduled for December 20. At issue is the question whether tobacco companies are obligated to make their 2004 Phase II payments in the aftermath of the federal tobacco quota buyout. Mr. Plumley said the U.S. Department of Agriculture had not begun assessing tobacco companies to pay for the buyout, a circumstance that Mr. Rogers later said strengthened statesí position on the issue. Mr. Plumley said the judge in the case was committed to handing down a ruling before Christmas.


Responding to a question from Chairman Thomas, Mr. Plumley said tobacco companies were barred from making an early buyout assessment payment, which could have been construed as an attempt to offset their 2004 Phase II payment. Discussing further, Senator Borders asked about the likelihood of an appeal once the judge made his decision.† Mr. Plumley said an appeal is ďpretty likely.Ē


Considering the timing involved, Mr. Plumley also said it is unlikely a Phase II distribution would occur in December. On the question of using Phase I moneys to supplement Phase II Mr. Rogers said there was a court-ordered moratorium on transfers from the National Tobacco Settlement Trust. Until the court lifts that moratorium, or until the moratorium ends, there will be no Phase II distribution to tobacco growers. He said it was the administrationís interpretation that some type of payment would have to be made for the supplemental language requirement to be triggered. Regarding another question, Mr. Plumley indicated it was probable Phase II payments also would be held up throughout the appeals process.


Should a Phase II distribution be ordered, Mr. Rogers said it would take about three weeks to get the checks prepared for delivery to tobacco growers.


As the meeting ended, Senator McGaha, the Committee co-chair, introduced a resolution honoring the work and years of service of his counterpart, Representative Thomas, whose term was ending. A copy of the resolution is on file with the meeting materials in the LRC Library.


The meeting ended at about 2:40 p.m.