Tobacco Settlement Agreement Fund Oversight Committee




<MeetMDY1> January 27, 2005


The<MeetNo2> Tobacco Settlement Agreement Fund Oversight Committee met on<Day> Thursday,<MeetMDY2> January 27, 2005, 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; Senators Charlie Borders and Joey Pendleton; Representatives Adrian K Arnold, Carolyn Belcher, James R Comer Jr, Charlie Hoffman, Thomas M McKee, and Tommy Turner.


Legislative Guests: Representative Mike Denham and Representative Fred Nesler.


Guests:† Keith Rogers, Brian Furnish, Catherine Ball, Lucinda Pease, and Stephen Yates, Governor's Office of Agricultural Policy; Rick Alexander, Commodity Grower's Co-op; Mark Farrow, Kentucky Department of Agriculture; Michael Plumley, Office of the Attorney General; Karen Jones, Office of Drug Control Policy; Shana Herron, Community Farm Alliance; Sarah Nicholson.


LRC Staff:† Lowell Atchley, Biff Baker, Tanya Monsanto, Tom Willis, Joe Lancaster, Charles Shirley, and Kelly Blevins.


Following the call to order and roll call, House members of the Committee elected Representative Carolyn Belcher to serve as House co-chair. Representative Adrian Arnold made the motion to elect Representative Belcher, Representative Charlie Hoffman seconded. Representative Tom McKee then made a motion to cease nominations and elect Representative Belcher by acclamation; Representative Arnold seconded the motion. The motion passed.


Turning to the agenda, Chairman Vernie McGaha asked Assistant Attorney General Michael Plumley to brief the Committee on the latest developments in the Phase II litigation. According to Mr. Plumley, the North Carolina Supreme Court had agreed to hear an appeal of a North Carolina Business decision that certain tobacco companies did not have to pay the 2004 Phase II payment to tobacco quota holders and growers. Reviewing an order setting out a schedule in the case, Mr. Plumley said the court could hear the appeal sometime in April. He also said one potential justice had removed himself from the case because of a direct conflict of interest.


Senator Pendleton asked about a letter written to Congress by some state attorneys regarding the buyout language and the importance of being specific about the timing of the buyout could have an effect the statesí case. Mr. Plumley said he did not think it would be detrimental to the case, but pointed out the buyout bill said the buyout had no affect until the end of the 2004 crop, and the bill also impacted future growing years.


Senator Borders asked how long it could take the North Carolina court to decide the case. Mr. Plumley said he had no idea; although, they were asking for a quick decision. In response to a follow-up question, Mr. Plumley said the case could ultimately go to the U.S. Supreme Court, but that would be unusual.


Senator Borders emphasized the need for a decision in the case because of the impact on tobacco growers not receiving 2004 Phase II money.


Representative McKee observed that it would have been clear if Congress had inserted language in the buyout bill saying the buyout would take effect on January 1, 2005. Mr. Plumley agreed and added that he felt the Attorney General's Office had presented many reasons why the buyout should not have triggered tax offset language contained in the Phase II agreement.


Representative Denham asked about a stipulation in HB 611 to supplement Phase II funds from the agriculture portion of Phase I. Mr. Plumley responded while there may be a responsibility to supplement Phase II from Phase I, it might be premature to decide whether that applied to 2004. There is still hope that the 2004 payment would eventually be distributed. He said the status of future years will depend on the effect of the buyout and the buyout payments. At some point, the Phase II trust may terminate and the program may end.


Co-chair Belcher asked if the General Assembly or if the LRC had asked the Attorney Generalís Office for a formal opinion on the Phase I-Phase II supplement issue. Mr. Plumley said he thought there might have been one, but had not seen it. Representative Belcher said she is concerned that an official opinion will be needed at some point.


Next, Chairman McGaha 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 December and January meetings. Information about the projects is on file with the meeting materials in the LRC Library.


††††††††††† Committee members asked no specific questions about the December projects.


††††††††††† Then, Mr. Rogers discussed the special ADB meeting in Owensboro on January 7 to deal with a request from the West Kentucky Growers Cooperative (WKGC). In the January 7 meeting, the ADB approved a $200,000 disaster relief grant, $28,500 as a grant to finance half the projected cost of a production manager. And, in response to a WKGC request, the board voted to lend the co-op $200,000 for the 2005 crop year, provided that they match the funds with $100,000 of operating funds.


††††††††††† Mr. Rogers explained that vegetable producers supplying the co-op had a disastrous crop year in 2004 because of severe weather. WKGC sought the funds to cover 2004 operating losses and provide operating capital for 2005.


††††††††††† Representative Comer asked a series of questions about the co-op, how it operates, its financing, and its history of obtaining tobacco settlement funds. Mr. Rogers said the co-op processes various types of vegetables, and handles a large amount of sweet corn. Normally, the co-op has two to five employees, but can employ 40-60 during the busy part of the harvest season.


††††††††††† Representative Comer asked how the co-op could lose so much money. Mr. Rogers explained that the co-opís profit-loss position was affected because the products were not there for marketing. He said the entity projected revenues of about $4 million last year, but ended with approximately $2.2 million. He said several producers lost their crop. For example, one producer had 60 acres of sweet corn planted, but because of adverse weather, was unable to harvest the crop. Mr. Rogers said 2004 was anticipated to be the year that the co-op finally made a profit, but did not because of the problems encountered.


††††††††††† Representative Comer asked how much money the co-op had received from the Agricultural Development Board. According to Mr. Rogers, the organization had received a $1.5 million loan for the purchase of the co-op facilities from a former private owner. That loan was renegotiated for a zero interest rate in 2004; the entity is to pay 1.5 percent of gross revenue each year as a principal payment. There also is a $1.4 million forgivable loan. Mr. Rogers also explained the assorted lien and mortgage situations, and indicated that the co-op owns 156 acres which is probably the most profitable because it can be rented out and used as a disposal area for crop refuse. He said the ADB had talked with the co-op about selling the property, but they have been able to show that it is in a break-even to profit situation.


††††††††††† Following the co-op discussion, Mr. Rogers turned to the report on the January 21 ADB meeting. Chairman McGaha asked for clarification on the Double J. Mill project from Owsley County. The project involves the creation of a feed mill on a farm to serve feed stores and individual farmers within a 100-mile radius. Mr. Rogers explained that the property will be deeded off and that business grew out of an individual hauling feed from Fleming County.


††††††††††† The Committee discussed another project: the approval of $80,000 for the Kentucky Community and Technical College System.† This project will train up to 200 tobacco farmers in computer skills. Representative McKee said the undertaking had been discussed for some time.


††††††††††† During the general discussion of projects, Senator Borders observed to guests in the audience that some of the projects mentioned do have an impact in tobacco-dependent counties.


††††††††††† Another project prompted some discussion. The applicant, Kentucky Cowtown, LLC, will be building a 52-acre arena and exhibition area adjacent to I-75 in Williamstown. The applicant received $25,000 in Grant County funds. Senator McGaha asked if the Agricultural Development Board would have approved the project as a state-level applicant. Mr. Rogers responded that the board generally would not because it would need to affect more people.


††††††††††† As the meeting drew to a close, Representative Comer told the Committee that he contemplated filing a bill requiring the Committee to meet monthly. He said it was important for the Committee to meet monthly, particularly in light of the Phase II situation and its potential impact. Chairman McGaha said the chairs had attempted to meet monthly and agreed it was critical to meet on a timely basis.


††††††††††† The meeting ended an approximately 3:30 p.m.