Tobacco Settlement Agreement Fund Oversight Committee




<MeetMDY1> March 3, 2008


The<MeetNo2> Tobacco Settlement Agreement Fund Oversight Committee meeting was held on<Day> Tuesday,<MeetMDY2> March 3, 2008, at<MeetTime> 2:30 PM, in<Room> Room 129 of the Capitol Annex. Representative Rick Rand, Chair, called the meeting to order, and the secretary called the roll.


Present were:


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


Guests:  Mr. Roger Thomas, Executive Director, Governor's Office of Agricultural Policy; Mr. Joel Neaveill, and Mr. Tim Hughes, Governor's Office of Agricultural Policy.


LRC Staff:  Lowell Atchley and Lindsey Murphy, Committee Assistant


The Committee approved the minutes of the February 2008 meeting without objection, on motions respectively by Senator Pendleton and Senator Gibson.


Following approval of the minutes and a discussion concerning the April meeting date, Co-chair Rand invited representatives of the Governor's Office of Agricultural Policy (GOAP) to come before the committee. They included Mr. Roger Thomas, GOAP Executive Director, Mr. Tim Hughes, Deputy Executive Director, and Joel Neaveill, Director of Operations.


Following Mr. Neaveill's review of model project funding approvals, Mr. Thomas explained in some detail the Grasshopper's Distribution LLC project, a distribution company that would deliver Kentucky grown products to restaurants, retailers, and individuals in the Louisville metro area.


According to Mr. Thomas, Grasshopper's Distribution owners appeared before the Agricultural Development Board (ADB) last summer. The project ultimately was revised, leading to the board's approval in February of $126,480 in state funds and $56,500 in county funds for capital expenditures to aid in the distribution of agricultural products.


Senator Pendleton said he applauded the board for approving the project. He called it a "link in the chain" of farm product distribution.


According to Mr. Thomas, in responding to Co-chair Rand, Grasshopper's would act as a distributor of farm products. He mentioned an example of a company in West Louisville that would buy products and then sell them at retail. He also said the distribution network could lead to farm products being sold on college and university campuses in Louisville, which was in line with Co-chair Gibson's suggestion of farmers' markets on campuses.


Next, Mr. Neaveill reviewed several other state-funded projects that prompted no committee discussion: Lee's Plant Farms, Mason County Extension District Public Properties Corp., Pulaski County Conservation District, Pulaski County Cattlemen's Association, Pulaski County Horticulture Association, and Johnson County Agricultural Advancement Council Inc.


The speakers next reviewed projects denied funding. Those included: Voice, Video, and Data Services Inc. (projects in three counties), Trigg County Conservation District, and Elliott County District Extension Council Inc. The Voice, Video, and Data Services projects to bring wireless broadband Internet to rural areas had been routinely denied in other counties. In lieu a pilot broadband service program, the board had established a technology model program aimed at offering technology services to improve farm efficiency and net farm income.


Committee members commented specifically on the Trigg County project, which involved a request for $15,000 in Trigg County funds to acquire a pre-existing building for a farm service center in Trigg County. GOAP staff recommended no funding for the application because it did not fall within Agricultural Development Fund guiding principles for board action. Senator Pendleton complimented the board's action, saying such approval would have opened the door for similar project requests. According to Mr. Thomas, GOAP staff were reticent about the project and explained their position to the applicants.


Following that discussion, the speakers turned to a review of recent changes to model program guidelines, and also to Kentucky Agricultural Finance Corporation programs. The board approved changes to eight model programs. At least two, Forage Improvement and Utilization and On-Farm Water Enhancement were altered to cover the construction costs or hook-up costs to a county or city water system.


According to Mr. Hughes, who responded to a question from Co-chair Gibson, funds could be used to help pay for water meter hook-ups, but not extending water lines from a water source.


Responding to Representative McKee, Mr. Neaveill said they could report back on the progress of the Northern Kentucky hay market that received funding earlier.


The speakers next turned to the KAFC changes. Generally, available loan amounts were increased in the Agricultural Infrastructure Loan Program and in the Beginning Farmer Loan Program.


Mr. Thomas commented to the committee that he believed the KAFC, largely a farm loan program, would serve as a lasting component of the Agricultural Development Fund.


After reviewing the changes, Mr. Hughes described the loan terms to Representative Comer. He told the representative that the KAFC participates with local banks and other lenders in making the loans. Loans were made under local banks' forms and lending terms. He said the KAFC was in a position subordinate to local banks, with local banks, in essence, holding first mortgage.


Co-chair Rand asked if banks were reluctant to partner with the KAFC in the loans. According to Mr. Hughes, formerly with the KAFC, when he first started with the programs, lenders were reluctant because of the "hoops" and paperwork. But, according to his description, they now had a two-page application form. Most other documents were under lenders' terms. Also lenders collected payments from borrowers and remitted proceeds to the KAFC. In further discussion, Mr. Hughes said some banks charged origination fees or perhaps additional fees for high-risk loans, but appraisals were generally handled by the lenders.


Mr. Thomas pointed out to the committee that about 30 lending institutions statewide participate with the KAFC in making loans.


Documents distributed during the Committee meeting are available with meeting materials in the LRC Library. The meeting ended at approximately 3:30 p.m.