Tobacco Settlement Agreement Fund Oversight Committee



<MeetMDY1> December 5, 2007


The<MeetNo2> Tobacco Settlement Agreement Fund Oversight Committee meeting was held on<Day> Wednesday,<MeetMDY2> December 5, 2007, at<MeetTime> 10:00 AM, in<Room> Room 129 of the Capitol Annex. Representative Mike Denham, Chair, called the meeting to order, and the secretary called the roll.


Present were:


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


Guests:  Mr. Michael Plumley, Assistant Attorney General; Mr. Keith Rogers, Executive Director, and Mr. Tim Hughes, Deputy Executive Director, Governor's Office of Agricultural Policy; Mr. Bill McCloskey, Director of Financial Services, Kentucky Agriculture Finance Corporation.


LRC Staff:  Lowell Atchley, Biff Baker, and Lindsey Murphy, Committee Assistant


The Committee approved minutes of the November meeting without objection , on motions respectively by Senator Pendleton and seconded by Representative Adams.


Before beginning, Senator Borders announced that Co-chair Gibson had been appointed majority whip in the Senate.


Next, Co-chair Denham called on the first speaker, Mr. Michael Plumley, Assistant Attorney General, to update the committee on the latest developments related to the Master Settlement Agreement (MSA).


In prepared remarks, Mr. Plumley told the committee that Kentucky’s participation in the MSA had resulted in yearly payments of over $105 million to the Commonwealth from participating tobacco companies. The agreement  required the Office of Attorney General to devote substantial resources since the agreement was signed in 1998, according to Mr. Plumley.


“Not only must the MSA be continually monitored and enforced in terms of both payments and marketing prohibitions, but the nonparticipating manufacturer escrow statute, which was passed in 2000 and amended in 2003 and 2004 to deal with the tobacco manufacturers who do not participate in the MSA, must be diligently enforced to prevent Kentucky from losing a percentage of its MSA payments each year under the NPM adjustment,” Mr. Plumley said. they were continuing to pursue $40 million in past NPM adjustments through litigation, he said, noting also that the Attorney General had defended the MSA and statutes against “numerous antitrust and constitutional challenges, successfully thus far.


Mr. Plumley reviewed the office of his office related to the escrow statute, the complementary legislation added in 2003, the allocable share repeal in 2004, Attorney General actions since 2001, and 2008 payment estimates.


The speaker estimated Kentucky should receive at least $110 million in MSA funds 2008, with a potential for $120 million depending on some circumstances. But he indicated it would be “very difficult to predict annual payment amounts due to sales, withholding, and other defaults which are still unknown.”


Responding to Representative Adams, Mr. Plumley said the NPM adjustment litigation was progressing through the courts and could be resolved next year.


He told Representative McKee that the Office of Attorney General and Department of Revenue continually screen tobacco companies doing business in Kentucky. He also explained the quarterly payment process required of NPMs paying into their escrow accounts.


Representative McKee emphasized the importance of tracking NPMs in bolstering the soundness of the program.


Mr. Plumley responded to Representative Hoffman that he had met briefly with the new incoming Attorney General and expected the office to continue its MS monitoring and enforcement efforts, especially in light of statutory requirements.


Subsequent to that discussion, the Committee voted unanimously to send a resolution to the new Attorney General recognizing the efforts of the current Office of Attorney General in monitoring and enforcing the MSA in Kentucky and encouraging a continuation of that work under the new Attorney General.


In final questions from Representative McKee and Co-chair Gibson, the Assistant Attorney General explained the calculations used to determine how much states reconceived in MSA funds. During the discussion, he indicated that some believe Kentucky should receive more than it gets because of the high volume of sales in the state.


Next, Co-chair Denham called on Mr. Keith Rogers and Mr. Tim Hughes, Executive Director and Deputy Executive Director respectively of the Governor’s Office of Agricultural Policy, to report on the Agricultural Development Board projects reviewed and approved for state and county funding during its November meeting.


Representative Comer raised a question about the local match available in a Morgantown competitive farmers’ market grant. According to Mr. Rogers, the board decided earlier that it would allow funds from a local bank, association, and the like to be used to as a match. He described the process as a new way to leverage the local dollars.

Co-chair Denham said he appreciated the work of the GOAP staff in working with the Buffalo Trace Area Development District forage equipment cost-share project.


Mr. Rogers elaborated at some length on the Kentucky BioProcessing LLC project. The Owensboro company, the former Large Scale Biology concern and currently a subsidiary of Owensboro Medical Health System, received $487,500 in state funds to purchase technology known as GENEWARE, a protein system developed in tobacco plants. The research project would involve 12-15 farm families.


Addressing Representative McKee, Mr. Rogers said the project had potential for tobacco farmers in Kentucky, perhaps requiring hundreds of producers.


Mr. Rogers also spent several minutes discussing the Grasshopper’s Distribution LLC project, which had been denied funding. The applicant sought tobacco settlement funds to help finance distribution company that would deliver Kentucky grown products to restaurants, retailer, and individuals in the Louisville metro area. Mr. Rogers indicated the board at first denied funding, but in its most recent meeting, had placed the project into a “deferred” (pending) status.


Next, Mr. Rogers presented to the committee some documents pertaining to tobacco settlement usage. Included were: a chart showing all projects awarded state funding since the duration of the program; a listing of 2007 county payments and fund balances; and a listing of projects awarded funding within the ..............(KCADE) program.


Following that presentation, Mr. Rogers turned to the annual Kentucky Agricultural Finance Corporation report. Mr. Bill McCloskey, KAFC Director of Financial Services, joined them at the table.


According to the report, the ADB had provided the KAFC with $26 million in funding, with about $19.5 million committed or disbursed as of November 30, 2007. The detailed activities in four main KAFC programs: coordinated value-added assistance loan program; beginning farmer loan program; agricultural infrastructure loan program; and agricultural processing loan program.


The speakers illustrated each program with some case studies of individuals or companies that had received loans.


During the ongoing discussion, Representative Comer remarked that the beginning farmer loan program presented a good opportunity for those getting into agriculture.


According to the speakers, one of the most active programs, the agricultural infrastructure loan program, had resulted in almost $7.8 million in loans for various types of farm infrastructure. Those loans were part of infrastructure investments totaling over $25 million.


Following the formal presentation, Representative McKee emphasized the need to preserve the KAFC funds during upcoming legislative budget discussions.


Before adjournment, the committee, acting on a motion from Representative McKee, approved a resolution commending Mr. Rogers on the work that he had done for agriculture in Kentucky during his tenure as GOAP executive director. It was revealed during the meeting that Mr. Rogers would be resigning his post. Several committee members lauded Mr. Rogers during the vote on the resolution.