Tobacco Settlement Agreement Fund Oversight Committee




<MeetMDY1> April 12, 2005


The<MeetNo2> Tobacco Settlement Agreement Fund Oversight Committee met on<Day> Tuesday,<MeetMDY2> April 12, 2005, 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 Carolyn Belcher, Co-Chair; Senators David E Boswell and Joey Pendleton; Representatives Adrian K Arnold, James R Comer Jr, Charlie Hoffman, Thomas M McKee, and Tommy Turner.


Guests:  Keith Rogers, Brian Furnish, Bill McClosky, and Tim Hughes, Governor's Office of Agricultural Policy; Shana Herron, Community Farm Alliance; Dean Wallace, Council on Burley Tobacco; Jeff Harper, Kentucky Farm Bureau; H.H. Barlow, Agricultural Development Board and Kentucky Dairy Focus; Jim Sidebottom, Kentucky Dairy Focus; Dennis Griffin, Agricultural Development Board; and Jeff Fichner, University of Kentucky student.


LRC Staff:  Lowell Atchley, Biff Baker, Perry Nutt, and Kelly Blevins.


Following roll call and approval of the March 2005 minutes, Co-chair McGaha asked Mr. Keith Rogers and Mr. Brian Furnish, executive director and assistant director respectively of the Governor's Office of Agricultural Policy (GOAP), to report on agricultural diversification project applications that the Agricultural Development Board (ADB) considered during its March meeting.


In reference to the Scott County Beef Improvement Association forage/livestock enhancement project, both Representative McKee and Co-chair McGaha lauded the Scott County Council for stipulating that producers applying for funds must have grown, rented or leased tobacco in 2003 to be eligible for cost-share funds. Regarding a similar venture, the Montgomergy County Farm Bureau forage equipment cost-share project, Representative Arnold asked about typical equipment ownership duration requirements. Mr. Rogers indicated that county councils set those stipulations and they generally are from two to five years.


The next project, a Kentucky Wireless Company undertaking to provide rural farm households in Robertson County with high-speed Internet access, prompted questions from committee members focusing on the need for the service and whether a private company could provide the service without the use of tobacco settlement funds. Mr. Rogers said the project was the first of its kind. The project involved awarding $15,000 in Robertson County funds to Kentucky Wireless, a division of Fleming County RECC, to provide broadband Internet service to farm families under a forgivable loan arrangement.


Senator Boswell said he had some profitability concerns about the Robertson County project and wondered why Kentucky Wireless could not invest $15,000 of its own into the project. Mr. Rogers said the entity could have, but the service would have cost more for subscribers. He said the project targeted tobacco farmers. Representative McKee mentioned Robertson County’s size and said that without the assistance provided, the undertaking probably would have been cost-prohibitive. Mr. Rogers next responded to a series of questions from Co-chair McGaha regarding specifically how the $15,000 would be used. Mr. Rogers pointed out that Kentucky Wireless would use the funds to purchase and install transmitting equipment and farm families would get receiving equipment valued at $150.


            After mentioning funding committed to the Kentucky Dairy Focus, discussed later in the meeting, Mr. Rogers and Mr. Furnish turned to the Agricultural Development Board’s 2005 Agri-tourism Competitive Awards Program. But, as the committee awaited copies of documents showing the agritourism competitive scoring system, the GOAP officials reviewed other projects that did not receive funding in March.


One project in particular, AgroVenture Partners, prompted some discussion. The company planned to establish a processing facility in Todd County to procure hay produced in southern Kentucky to be compressed and sold to the equine industry. Mr. Rogers said the project originally began in Simpson County, but later was set up in Todd County, where that county council voted it a low priority. The company subsequently withdrew its application, but may resubmit it later. Regarding the project, Senator Pendleton said he is hopeful such a company will ultimately receive a high county priority because there is potential in the export hay market.


            Mr. Rogers turned again to the agri-tourism projects. Eight businesses received a total of $292,200 in funding in the form of forgivable loans, mostly based on the utilization of Kentucky-grown or produced commodities, and services. The eight endeavors included: Chaney’s Dairy Barn, Warren County, Acres of Land, Madison County, R Farm Pumpkins & More, Mason County, Boyd Orchards, Woodford County, Evans Orchard and Cider Mill, Scott County, Terrapin Hill Farm, Mercer County, Serenity Hill Farm, Jessamine County, and Farmer Bill’s, Grant County.


Committee members asked questions about the locale of projects, and specific usage of funds, such as building an animal shelter in one instance and graveling a parking lot in another. The listed criteria used to score the projects are on file with committee materials in the LRC Library.


            Representative Comer asked why one project may have received as little as $15,000 and another as much as $50,000. Mr. Rogers responded that the funds were actually loaned to the ventures and if the forgiveness clauses were not met, the money would have to be repaid. He said they looked at a company’s ability to repay a loan based on its cash flow. Responding to another question from Representative Comer about how the GOAP monitors forgiveness requirements, Mr. Rogers said the GOAP requires periodic reports from the companies.


            Next, Mr. Rogers summarized the ADB’s decision in March to release a $240,000 certificate of deposit that a bank had held as security on an operating line of credit for the Purchase Area Aquaculture Cooperative. According to Mr. Rogers, had the board not taken the action, it ultimately would have lost the funds to the bank following legal proceedings.


            Responding to a question from Co-chair McGaha, Mr. Rogers summarized PAAC’s business restructuring. The co-op will split into two entities – the Mid-America Aquaculture Cooperative, which will be involved in production and marketing, and a new Purchase Area Aquaculture Corporation, which will operate a fish processing facility.  


            Mr. Rogers said the company is attempting to raise $2.5 million in investment capital, but he said he believed, from reviewing their financial statements, that it would be difficult to raise the money. Mr. Rogers said the ADB suggested last year when it committed the $240,000, that no more state funds would be forthcoming to the cooperative.


            In response to Representative Comer, Mr. Rogers said the ADB had granted the co-op over $1 million through the years.


            Following that discussion, Co-chair McGaha introduced Mr. H.H. Barlow and Mr. Jim Sidebottom, who reported on the formation of the Kentucky Dairy Focus, which received a $330,000 grant from the ADB. Mr. Barlow, a member of the Ag Development Board, said formation of the organization came after a series of dairy meetings and also came in response to a general decline of the industry in the state. According to Mr. Barlow, Kentucky is a forage-producing state and is well positioned to produce milk for the South, which has 70 percent of the nation’s population. He said the state’s dairy industry needed a single organization to represent it. He mentioned a goal is to pattern the organization after the Kentucky Cattlemen’s Association, which has shown considerable growth in recent years. The ADB has assisted the Cattlemen’s Association in the past. Co-chair Belcher said she was glad to see the effort proceed.


            Senator Pendleton, a former dairy farmer, mentioned the problems and pitfalls of dairy production, including the price of milk, feed costs, and labor costs. According to Senator Pendleton, Kentucky is an ideal dairy state and he asked how the industry could prosper. Mr. Sidebottom responded that the problem is that milk is shipped to the state and consumers pay for the shipping. He said they are hoping to increase production in the state and reduce shipping-related costs.


            In response to a question from Representative McKee, Mr. Barlow said there are 1,368 producers permitted to ship milk in the state. The volume produced is similar to past years; even though the number of producers has declined. Mr. Barlow expressed encouragement by young people talking about entering agriculture.


            Mr. Sidebottom reviewed some of the reasons for producers to join the Kentucky Dairy Focus. He said the state would be divided into 12 districts. The organization’s board will have 20 members made up of 12 producers from the districts, and eight allied industry representatives. The organization will be hiring a full-time executive director.


The meeting adjourned at approximately 2:45 p.m.