Tobacco Settlement Agreement Fund Oversight Committee




<MeetMDY1> September 5, 2007


The Tobacco Settlement Agreement Fund Oversight Committee met on<Day> Wednesday,<MeetMDY2> September 5, 2007, at<MeetTime> 10:00 AM, in<Room> Room 131 of the Capitol Annex. Senator Carroll Gibson, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Senator Carroll Gibson, Co-Chair; Senators Dan Kelly, Joey Pendleton; Representatives Royce W. Adams, James R. Comer Jr, Charlie Hoffman, Tom McKee, and Tommy Turner.


Guests:  Mr. Keith Rogers, Executive Director of the Governor's Office of Agricultural Policy; Mr. Tim Thomas, Executive Director, and Ms. Suzanne Anderson, Financial Analyst, Kentucky Infrastructure Authority; Mr. Steve Coleman, Executive Director, Kentucky Division of Conservation.


LRC Staff: Lowell Atchley and Lindsey Murphy, Committee Assistant.


The Committee approved minutes of the July 5 and August 1 meetings, without objection, on motions by Senator Pendleton and seconded by Representative Comer.


Before turning to Committee business, Sen. Co-chair Gibson informed members that Rep. Denham, the House co-chair, was absent so he could attend to his mother’s continuing medical problems.


The co-chair next asked Mr. Keith Rogers and Mr. Tim Hughes, Executive Director and Deputy Director respectively of the Governor’s Office of Agricultural Policy (GOAP), to report on the county and state projects considered for funding during the August Agricultural Development Board (ADB) meeting.


After reviewing the model programs recommended for approval at the recent ADB meeting, Mr. Rogers turned to state and non-model projects.


As Mr. Rogers described the state projects, Rep. Comer, Rep. Adams and Co-chair Gibson asked for additional information about the Bluegrass Lamb & Goat LLC project, which received $200,000 in forgivable loan funds from the state and $10,000 in grants from Garrard and Owsley counties.


Mr. Rogers explained the circumstances leading to the previous owners’ sale of the business to Bluegrass Lamb & Goat.


The current company would accept animals for slaughter from a variety of sources, but the applicant planned mainly to purchase animals, process them, and market the meat, Mr. Rogers explained. Because some farmers invested their own funds into the project and would be marketing value-added meat products, the undertaking represented a “model we look for,” Mr. Rogers told the Committee.


Tobacco settlement funds awarded to the University of Louisville Research Foundation prompted some Committee discussion. The Agricultural Development Board approved $19,953 in funds to assist the research foundation in creating a plan for the state to follow, leading to the realization of the national 25X25 vision and action plan.


Following Mr. Rogers’s remarks, Sen. Pendleton asked what the state could expect from the foundation’s study. According to Mr. Rogers, considerable information should result from the study, in particular what would be required for the state to achieve a target of producing 25 percent of its energy from farm and forest products by 2025.


Sen. Pendleton, the acres of renewables needed to produce adequate fuel could be determined. But more importantly, he told the Committee, the biofuels produced must be made accessible to consumers. The senator said he was concerned that currently, there was only one set of E-85 pumps in the state. Mr. Rogers said he expected the study to be comprehensive, taking in the marketing aspect.


In further discussion, Rep. McKee said he believed it was important for the plan to consider all types of renewable fuels, such as grain ethanol, biodiesel, and cellulosic ethanol. The representative said he hoped the study would have some “hard numbers” regarding the production of cellulosic ethanol.


Following the project reviews. Mr. Rogers responded to questions from Co-chair Gibson about the county model program process. He indicated the county councils had some leeway regarding the establishment of their model programs. According to Mr. Rogers, the ADB followed the lead of county councils in approving or disapproving model projects.


Next, Rep. Comer asked about the possibility of using tobacco settlement money to subsidize the transportation of hay to Kentucky livestock producers hit by the drought conditions. Rep. Comer said he had received calls from farmers about the situation. According to the representative, farmers would be buying hay to feed their livestock. He also asked if there were any state efforts to deal with the effects of the drought and what assistance the federal government might offer.


According to Mr. Rogers, various entities were assessing the impact of the drought on the farming community and were reviewing options to pursue. He pointed out the Governor had recently requested a U.S. Department of Agriculture disaster designation because of the drought.


He said there were “a number of concerns about doing down this road” of using agriculture development funds in the manner described. While not mentioning financial assistance or drought assistance, the tobacco settlement statute could allow for such expenditures, according to Mr. Rogers. Estimates of pasture and hay losses range from $180 million to $492 million, he said. “Even if you took every dollar that the ag development fund has in it, you can only scratch the surface,” the GOAP official said.


There may be other opportunities for farmers to obtain needed forage, such as rolled cornstalks and rolled, unharvested soybeans, Mr. Rogers described.


Rep. McKee said he supported Rep. Comer regarding the use of the tobacco settlement funds. He said considerable tobacco settlement funds had been invested in hay handling equipment, but “it doesn’t do a lot of good if you don’t have any hay to handle.” He said Kentucky’s livestock numbers had been increasing and it would be unfortunate if producers had to sell off their cattle. He encouraged the GOAP and the Department of Agriculture to work together on the issue and “don’t rule out” utilizing state funds in providing drought-related assistance.


Rep. Adams suggested that the state explore seeking assistance from the federal government and possibly utilizing railroads in transporting hay.


Sen. Pendleton discussed the stresses on the livestock industry and the fact that producers were having to sell their cattle.


As discussion continued, Rep. McKee made a motion that the Committee “direct the state board to look at all options” related to drought assistance. According to Sen. Kelly, said it was appropriate for the Committee to express its desire regarding the use of the funds. The motion passed unanimously.


Next, the presiding chair asked Mr. Tim Thomas, Executive Director, and Suzanne Anderson, Financial Analyst, Kentucky Infrastructure Authority, to report on KIA’s water and wastewater projects.


According to their presentation, KIA had or would provide $1.1 billion for loan and grant projects, with funding made available for approximately 1,500 projects. They reviewed the many KIA loan and grant programs, particularly the grant programs operating with tobacco settlement funds.


Following the KIA speakers’ remarks, Sen. Kelly discussed the intent of SB 409, passed in the 2000 General Assembly session. The senator said two things helped to effectively use the water funds – encouraging cooperation between various local municipalities, communities, and utilities, and leveraging the funds with borrowed money and federal funds.


Sen. Kelly continued, saying the water and wastewater program needed to be mindful of other issues in the future – that there were hard-to-serve areas that continued to need water, and tax dollars should not be substituted for expansions brought about by routine development. Rather, he said tax dollars should now be centered on wastewater development.


In continued discussion, Mr. Thomas said most communities now seemed comfortable with the KIA water planning process.


Responding to Co-chair Gibson, Mr. Thomas described why some water districts lagged behind others in their growth patterns. He said some districts were reluctant to raise rates, even to the point of not keeping up with inflation. Sen. Kelly pointed out some community water districts could exhibit a lack of vision compared to others.


Following that discussion, Sen. Gibson called on Mr. Steve Coleman to report on the Division of Conservation soil erosion and water quality cost share program.


Mr. Coleman described how the program worked and reviewed how the program obtained its funding.


Following the presentation, Mr. Coleman explained to Rep. McKee that tobacco funds continued to remain important for the program. He said the funds were critical in helping beef cattle operators deal with some of their environmental issues, and in helping farmers control erosion as they put land back into production.


Mr. Coleman explained to Sen. Kelly that restricted funds listed on the budgetary sheet represented unused Department of Agriculture pesticide program proceeds and other unused funds that were rolled back into the program on a yearly basis.


He told Co-chair Gibson that 7 to 10 percent of farmers cancelled planned projects, and when they did, those funds were recommitted to future endeavors. He said planned practices were approved for funding up-front and farmers had two years to see their agriculture and projects completed.


Documents distributed during the Committee meeting are available with meeting materials in the LRC Library. The meeting ended at approximately 11:45 a.m.