Tobacco Settlement Agreement Fund Oversight Committee


Minutes of the<MeetNo1> 1st Meeting

of the 2005 Interim


<MeetMDY1> October 11, 2005


The<MeetNo2> meeting of the Tobacco Settlement Agreement Fund Oversight Committee was held on<Day> Tuesday,<MeetMDY2> October 11, 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 Charlie Borders, David E Boswell, Dan Kelly, and Joey Pendleton; Representatives Adrian K Arnold, James R Comer Jr, Charlie Hoffman, Thomas M McKee, and Tommy Turner.


Guests:  Aleve Douglas, Community Farm Alliance; Billy Fan Pelt and Maner Ferguson, Lexington-Fayette Urban County Government Purchase of Development Rights; Keith Rogers, Brian Furnish, Tim Hughes, Governor's Office of Agricultural Development; and Brent Frazier, Purchase of Agricultural Conservation Easement program.


LRC Staff:  Lowell Atchley, Tanya Monsanto, Carl Frazier, and Kelly Blevins.


Following roll call, approval of the minutes, and an announcement regarding an LRC hurricane relief effort, the presiding chairman, Senator McGaha, asked Mr. Keith Rogers and Mr. Brian Furnish, executive director and deputy director respectively of the Governor’s Office of Agricultural Policy (GOAP), to give their monthly report of state and county projects reviewed at the previous Agricultural Development Board (ADB) meeting.


            Reviewing the list of state-funded projects, Mr. Rogers noted that Reed Farm Service was the first of many projects receiving funds under the latest round in the agritourism grant program. The ADB approved 13 projects totaling $525,493 in the second round of the competitive grants program.


             Regarding the Elements Enterprises project, Mr. Rogers said applicants could not use agriculture development funds to buy wine equipment. He said the board had a moratorium in effect regarding the use of agriculture development funds to purchase wine-production equipment pending creation of a policy statement. He said such a policy statement could come at a board retreat in November.


            Chairman McGaha asked what was meant by the statement that River Valley Agritourism Alliance would be assisting “related businesses” in the Mason County region. Mr. Rogers responded that he was not sure and would check that out further. River Valley received $59,000 in state and county funds to promote agritourism ventures in their region.


            During the discussion of the Jackson’s Orchard & Nursery project, Senator Boswell asked how the GOAP monitors equipment purchases. Mr. Rogers responded that applicants normally acquire their needed equipment, submit the invoices to the GOAP, and the GOAP in turn disburses the payments. He said they follow the same procedure for construction equipment.


            Representative Comer asked if loan forgiveness must be reported as income for tax purposes. Mr. Rogers said forgivable loan credit is considered income. He added that applicants are required to earn credit under forgivable loan arrangements.


            In the course of the Chrisman Mill Vineyard discussion, Chairman McGaha asked the GOAP officials if they review geographic location and the potential impacts of a particular project on other projects. Mr. Rogers responded they review potential impact from a regional standpoint. The senator mentioned Woodford County as an example, but Mr. Rogers said the businesses in that county existed already and tended to be spread out.


            The GOAP executive director then spent some time explaining the Agricultural Development Board’s decision to loan Cumberland Farm Products $95,000 to help cover the cooperative’s operating losses for 2004. Mr. Rogers explained the board had helped other cooperatives in the past overcome financial difficulties. According to Mr. Rogers, if the Cumberland Farms cooperative ceased operations, loan funds would be repaid in full to the ADB.


            Representative McKee asked how the cooperative lost $159,828 last year. Mr. Rogers said they review each cooperative individually and generally they have had more capacity than product, therefore it required more to operate. Also, he said, cooperatives operate on a small window of three to six months, but maintained an overhead for 12 months.


            Mr. Rogers said a CoBank Business Advisory Services study would be presented, in part, at the next ADB meeting. The study looked at the operation of four farmer cooperatives in the state. Mr. Rogers told the Committee that the Agricultural Development Board has “made a strong statement” that it was not going to continue bailing out failing cooperatives.


            During the discussion, Representative McKee expressed his support for grower cooperatives, saying they provided a service in marketing products.


            Mr. Rogers also updated the Committee on the ADB’s commitment of $2,465,630 in continued funding to the Kentucky Beef Network. He said one board member had said the funding for the beef network was the “best money we have spent to date.”


            Next, Mr. Rogers updated the Committee on the status of the Phase II funds. He said the state would be receiving about $95 million from tobacco companies, the result of a favorable ruling in the North Carolina courts. About $87 million will go toward paying off bonds sold to make the Phase II payment to tobacco quota holders and growers, with the remainder going back to the Agricultural Development Fund.


Tobacco companies contested release of the final quarter of the Phase II payment, according to Mr. Rogers, on grounds that they should not have to make the payment because of their federal tobacco buyout assessment obligations. He said they consider that argument without merit and a delay tactic because the Phase II payment was due before the buyout payment was assessed.


            At one point, Representative McKee suggested an amnesty program to pay quota holders and growers who somehow missed being certified under the most recent Phase II program. But Mr. Rogers expressed qualms about such an amnesty. According to the GOAP executive director, the 2004 certification period was longer than previous ones. He said only a certain amount of money was available, and if additional people were paid, that would mean less money for those already certified for payment. Also, he said there might be legal hurdles in the way by virtue of the Phase II trust agreement.


            Before Mr. Rogers left the table, Senator Pendleton asked why there was no information available regarding Agricultural Development Board’s decision to not formally take up the Committee’s request to reconsider a Christian County tobacco infrastructure program. Chairman McGaha said all members should have received a faxed copy of the letter from Mr. Rogers outlining the board’s action. Staff provided a letter to Senator Pendleton to review during the meeting.


            Mr. Rogers reviewed the letter and the board’s action. He said the issue remained a divisive one. He also said he was still open to a meeting on the topic that would include Committee and board members.


            In subsequent discussion before the meeting ended, Chairman McGaha told Senator Pendleton that he planned to “let the dust settle” on the topic and conduct further discussions in the coming weeks.


            Next, the Committee heard the annual report of the state Purchase of Agricultural Conservation Easement (PACE) program, operated by Mr. Brent Frazier, of the Department of Agriculture.


            According to Mr. Frazier’s report, the PACE corporation has purchased agricultural conservation easements on 82 farms totaling 18,578 acres costing $16,440,567. In addition, 22 easements on 3,429 acres had been donated to the program, bringing the total inventory to 104 farms containing 22,007 acres. A total of 610 applications were pending for a total of over 122,000 acres with an estimated easement value of approximately $100 million.


            Responding to Representative Arnold, Mr. Frazier said landowners could leave the PACE program, but must do so under strict procedures and most reimburse the program for funds received.


            Mr. Frazier, responding to Senator Boswell, outlined how the program comes to accept donated land. He said they do not get involved in the tax treatment of donations to the program.


            Following Mr. Frazier were Mr. Maner Ferguson and Mr. Billy Van Pelt with the Lexington-Fayette Purchase of Development Rights (PDR) program.


            To date, according to Mr. Ferguson, the Fayette County Rural Land Management Board holds conservation easements or contracts to purchase conservation easements on 121 farms totaling over 14,398 acres. A total of 424 acres were donated. The list of farms included 62 horse farms and 51 general agriculture farms.


            Representative Arnold asked about potential farmland preservation efforts in adjacent counties. Mr. Ferguson said that throughout the state farms were being “piano-keyed” to allow for additional building. He said a program such as theirs represented a more appropriate way to save farmland.


            Responding to Senator Boswell, Mr. Ferguson also reviewed PDR’s procedures covering instances when people wish to leave the PDR program.


            Both the PACE and PDR materials are on file with meeting documents in the LRC Library.


            The meeting adjourned at approximately 2:30 p.m.