Tobacco Settlement Agreement Fund Oversight Committee


Minutes of the<MeetNo1> 10th Meeting

of the 2005 Interim


<MeetMDY1> November 8, 2005


The<MeetNo2> 10th meeting of the Tobacco Settlement Agreement Fund Oversight Committee was held on<Day> Tuesday,<MeetMDY2> November 8, 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 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 McCloskey, and Tim Hughes, Governor's Office of Agricultural Policy; Sam Moore, Wayne Hunt, Sam Lawson, and John Cleaver, Agricultural Development Board; Jody Hughes, John Covington, and Sandy Williams, Kentucky Infrastructure Authority; Jeff Harper, Kentucky Farm Bureau; Dean Wallace, Council for Burley Tobacco; Berea Ernst, Community Farm Alliance; and Sharon Burton, The Farmer's Pride.


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

Following roll call and approval of the minutes, 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. Before doing so, Mr. Rogers introduced some board members in attendance, Mr. John Cleaver, Mr. Wayne Hunt, Mr. Sam Moore, and Mr. Sam Lawson. Co-Chair McGaha expressed his appreciation for the work that board members perform.


Mr. Rogers addressed some questions during the review of the model program list. He noted that some entities receiving model program funds could receive funding on more than one occasion. Also, he said the turnaround for model program recipients to receive their funds was quicker now that he was signing off on the contracts versus processing through the Finance Cabinet.


Responding to a question from Representative Arnold during a review of the John’s Custom Meats project, Mr. Rogers said was not aware of companies like that having difficulty obtaining insurance. He said the insurance requirement was a standard clause in their contract.


Regarding the Cumberland Thoroughbred Training Center, Mr. Rogers told Representative Comer the project received no state funds because it was viewed as benefiting a single person rather than many people. Representative Comer mentioned the positive publicity the training center had received on a Bowling Green TV station.


As the project review continued, Co-Chair McGaha asked for clarification about the Hurstland Farm project. Mr. Furnish said the farm would have retired Thoroughbreds some that would be spared from going to slaughter. He said the farm would be part of a driving tour in the central Kentucky region.


Next, Mr. Rogers reviewed the highlights of the first facet of the recently released CoBank study of Kentucky’s grower cooperatives. During its October meeting, the ADB approved $35,000 to pay for completion of the study. Mr. Rogers reviewed some of the reasons Kentucky’s grower cooperatives were struggling and CoBank’s initial findings, which called for the various cooperatives to consolidate, with centralized management, fixed assets and the like.


“This is a very serious situation,” Mr. Rogers said of the cooperatives. He said Green River Growers Cooperative voted recently to close.


If the cooperatives were not successful as single entities, why could they expect to be successful under one umbrella, Representative Belcher asked. Mr. Rogers responded they had not been profitable for a variety of reasons including the overhead involved with keeping grading facilities open year round, but only using them part of the year. Also financial management problems, and weather problems have affected production. He said the cooperatives have an infrastructure that is much larger than demand for products.


Speaking further, Mr. Rogers told the Committee that the ADB has liens on certain assets pledged as a part of loan arrangements, but he said some losses are inevitable.


After asking for clarification regarding operating losses of the cooperatives, Representative McKee said it was his hope that producers did not suffer monetary losses because the cooperatives’ problems were not their fault.

During the discussion, the witnesses referred to a chart in the study that predicted a consolidated cooperative showing a projected net income of 3.6 percent, after subtracting expenses from gross profit.


Following the review of the CoBank report, Co-Chair McGaha asked Mr. Jody Hughes, Executive Director, Kentucky Infrastructure Authority (KIA), Mr. John Covington, and Ms. Sandy Williams, KIA Treasurer and Financial Analyst respectively, to report on the water and wastewater projects administered by KIA.


Mr. Covington explained the many KIA loan and grant programs, are funded with tobacco settlement dollars. According to the report, KIA will provide almost $1.1 billion for approximately 1,500 statewide water projects. Mr. Covington said a significant portion of those projects are being funded with tobacco settlement dollars. The latest round of tobacco settlement bond funds approved by the 2005 General Assembly will provide almost $121 million in water grants.


Following the presentation, Representative McKee asked about the progress of the 2020 Projects. Mr. Covington responded that it would not be feasible to provide water to every household in the state by 2020, but it is possible at least to assure the quality of water is available to citizens. According to Mr. Hughes, one of the critical aspects of providing water to state residents involves the maintenance of existing lines. He also said the “bigger picture” must include adequate supply.


Responding to Representative Comer, Mr. Hughes said the funds provided by the 2005 General Assembly have been available to local governments since late September. He said many local governments were prepared to utilize the funds, but some were ahead of others in their project planning processes.

During continuing discussion, Representative Hoffman said he attended a recent regional water meeting in which 159 projects were prioritized and seemingly all areas were represented.


The Kentucky Infrastructure Authority materials are on file with meeting documents in the LRC Library.


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