Tobacco Settlement Agreement Fund Oversight Committee




<MeetMDY1> October 10, 2006


The<MeetNo2> meeting of the Tobacco Settlement Agreement Fund Oversight Committee was held on<Day> Tuesday,<MeetMDY2> October 10, 2006, at<MeetTime> 1:00 PM, in<Room> Room 169 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, Joey Pendleton, and Richie Sanders Jr; Representatives Adrian K Arnold, James R Comer Jr, Charlie Hoffman, Thomas M McKee, and Tommy Turner.


Guests:  Keith Rogers, Brian Furnish, Joel Neaveill, and Bill McCloskey, Governor's Office of Agricultural Policy; Jody Hughes, Debby Milton, and Suzanne Anderson, Kentucky Infrastructure Authority; Kaycie Len  Carter, Community Farm Alliance; Roger Recktenwald, Kentucky Association of Counties; Tonya Chang, Kentucky Lung Association; and Laura Knoth, Kentucky Farm Bureau.


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


Minutes of the September 12 meeting were approved, without objection, by a voice vote upon a motion by Sen. Boswell and seconded by Rep. McKee.


Chairman McGaha asked Mr. Keith Rogers and Mr. Brian Furnish, Executive Director and Deputy Director respectively of the Governor’s Office of Agricultural Policy to present their monthly report of state and county projects reviewed at the previous Agricultural Development Board (ABD) meeting.


During discussion of Wildside Vines, an agritourism project, Representative McKee asked about the procedures used to check compliance on forgivable loans. Once applicants begin repaying loans under the forgiveness structure, there are spot checks and sometimes more thorough reviews if complaints occur, according to Mr. Rogers.


Chairman McGaha asked about the propriety of paying an executive director’s salary under the $184,000 Kentucky Sheep and Wool Producers grant. Mr. Rogers responded that the ADB only approved two years of funding for the new organization. He said the board made it clear to the organization that it would need to be self-funded. According to Mr. Rogers, the Sheep and Wool Producers may seek legislation establishing a check-off system to generate funding. He called the ADB funds “seed money.”


In further discussion regarding a previously funded organization, the Kentucky Dairy Development Council, Mr. Rogers said the dairy group operated for a year with tobacco settlement funds and formulated an operational plan during that time. He said he expected the Sheep and Wool Producers to create their own strategic plan. Chairman McGaha emphasized his reservations about using the tobacco settlement money to pay salaries.


During discussion of two projects to extend broadband service to producers, Mr. Rogers said producers could keep their equipment after the service period. He noted there was a maximum on the cost of equipment purchased.


In the course of discussing projects denied funding, they told Senator Boswell that 97 percent of applicants discuss their projects with GOAP staff, who are open and honest about the prospects for funding. Even though chances for funding were not promising, some applied anyway, according to the officials.


Next, Representative Comer asked Mr. Rogers for an update on the $800,000 forgivable loan approved for PIC North America, which was moving from Simpson County to a location at Hendersonville, TN. Mr. Rogers said he recently met with PIC representatives. He said they would not repay early and would abide by the terms and conditions of the loan. The first loan payment would be due in August 2007. He said GOAP staff was continuing to review what forgiveness the company may have earned to that point.


Responding further to Representative Comer, Mr. Rogers described a multi-level compliance review process that would be undertaken to determine if PIC had met its loan forgiveness requirements. Representative Comer urged Mr. Rogers to “stay on this one.” He stressed the importance of accurate verification of forgiveness earned on the loan. Mr. Rogers estimated the company had earned $20,000-$25,000 in forgiveness.


Next, Chairman McGaha asked a series of questions pertaining to wineries and grape production. In September, the ADB awarded agritourism funds to two wineries. The chair asked the GOAP officials if they were tracking grape production in Kentucky. He also asked how closely they were monitoring grape purchases that wineries used to earn forgiveness on loans.


Mr. Furnish said it was his understanding that wine grape production had increased in Kentucky. He said the new wine grape production expert at the University of Kentucky had been instrumental in advising growers about what varieties suited Kentucky’s climate.


Regarding the loan forgiveness, Mr. Rogers said wineries earn their forgiveness based on tons purchased from growers. According to him, they have monitored transactions closely to make sure wineries were earning credit for grape transactions. He gave an example of a producer who sold six tons of grapes, but had a growing capacity of only a ton.


As a result of the discussion, the GOAP officials said they would provide information on wine grape production in the state.


Chairman McGaha also asked a series of questions regarding GOAP monitoring of its many loans and grants that were in effect. According to Mr. Rogers, the GOAP had a staff complement of 16, but only three people spent most of their time on compliance. He said they had attempted to concentrate more on compliance and reporting, but were limited. He said it was not uncommon for a report to remain unprocessed for 30, 40, even 60 days. The GOAP officials said they would provide a summary of existing grants and loans for the committee.


Next, Mr. Rogers updated the committee on the Phase II amnesty program that provided tobacco payments to producers who did not receive payments under the previous Phase II final payout.


According to the report, 8,028 claims were certified under the amnesty (out of 21,858 forms mailed), for a total of $1,829,752. Phase II checks totaling $1,483,003 had cleared. Representative McKee thanked the GOAP officials for their work on the amnesty program.


Finally, the committee heard a report from Kentucky Infrastructure Authority officials on the water and wastewater tobacco grants authorized by the General Assembly. Mr. Jody E. Hughes, KIA Executive Director, Debby L. Milton, Financial Analyst, and Suzanne Anderson, Financial Analyst, reported to the committee.


According to their report, KIA had provided or would provide about $1.1 billion for approximately 1,500 projects. In particular, they reviewed the status of the tobacco grants, including the “2020” grants authorized by the 2000 General Assembly, the Tobacco Development Fund created by the 2003 General Assembly, the Infrastructure for Economic Development Fund for Tobacco Producing Counties authorized by the 2005 General Assembly, and the Infrastructure for Economic Development Fund created by the 2006 General Assembly. The report included information on grant moneys going to each county in the state.


In his remarks to the committee, Mr. Hughes stressed the importance of planning in utilizing the funds. He told the committee everyone must work together to ensure the best use of the money. Also, planning must be a Kentucky initiative, “pulling together plans created at the county, district, ADD district, watershed and river basin level,” he told the committee.


Responding to Representative McKee, the witnesses indicated counties might be delayed in drawing down their funds because of design or planning, or they might be putting construction packages together using funds from multiple years.


Chairman McGaha brought the committee’s attention to letters from the state Purchase of Agricultural Conservation Easement Corporation (PACE) and the Lexington-Fayette County Purchase of Development Rights program (PDR). Representative Arnold noted that PACE was not funded in the current budget. He expressed a hope the program would be funded in the future.


Documents distributed during the committee session are available with meeting materials in the LRC Library.


The meeting ended at approximately 2:10 p.m.