Tobacco Settlement Agreement Fund Oversight Committee




<MeetMDY1> June 4, 2008


The<MeetNo2> 6th meeting of the Tobacco Settlement Agreement Fund Oversight Committee was held on<Day> Wednesday,<MeetMDY2> June 4, 2008, at<MeetTime> 10:00 AM, in<Room> Room 129 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; Representative Rick Rand, Co-Chair; Senators Charlie Borders,† Joey Pendleton, and Richie Sanders Jr; Representatives James R. Comer Jr., Charlie Hoffman, and Tom McKee.


Guests:† Roger Thomas, Michael Judge, and Joel Neaveill, Governorís Office of Agricultural Policy; William Ginn, Trimble County; Jim May, Lincoln County; and Keith Smith, Harrison County; Rusty Thompson, Woodford County; and Harry Young, Marion County, representing Agricultural Development Councils.


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


Minutes of the May 7, 2008 meeting were approved, without objection, by voice vote, upon motion made by Senator Pendleton and seconded by Co-chair Rand.


The presiding chair, Senator Gibson, asked Mr. Roger Thomas, Executive Director, Governor's Office of Agricultural Policy (GOAP), to report on the projects considered for funding during the May Agricultural Development Board (ADB) meeting. Accompanying him were Mr. Joel Neaveill, Chief of Staff, and Mr. Mike Judge, Director of Operations.


Mr. Neaveill gave the totals for model programs recommended for approval and summarized model projects approved for funding and denied funding.


The Rebekah Grace Food and Supplements for Life project prompted some discussion, with Co-chair Gibson asking for explanation regarding the award of $375,000 in state funds, even though $500,000 was sought. Mr. Neaveill said GOAP staff believed that, based on previous funding amounts, the applicant could operate on the lesser amount. Rebekah Grace provides direct marketing infrastructure, warehousing, and distribution for new and emerging Kentucky Proud producers.

In continuing discussion, Mr. Thomas said GOAP staff wanted to look at that project and others like it to determine if they could formulate a new way to fund such endeavors, perhaps using a request for proposals (RFP) approach, something that would give the agency a better control. According to Mr. Thomas, the board agreed to the funding with an eye toward developing an RFP approach in conjunction with the Department of Agriculture.


Responding to Representative McKee, Mr. Thomas said Rebekah Grace is moving toward being self-sustaining, but is not at that level now. According to the GOAP official, the firm charges 20 percent for its services, but the amount of products moving through its distribution channels is not at an optimum level. The firm could not operate without some assistance, according to Mr. Thomas.


Representative McKee asked if Rebekah Grace is providing a beneficial service. Mr. Thomas responded that they are. He said 68 farm families have received assistance in marketing their products. But he added that they need to, and GOAP needs to encourage them, to expand their number of producers and expand their product offerings.


Following the review of projects, Mr. Thomas updated the committee on some other GOAP activities. He said 80 counties had taken advantage of funds in the Kentucky
Agricultural Relief Effort (KARE). A total of 40 counties could still apply. The deadline for applying was July 1, he said.


The GOAP executive director also said staff had developed an electronic newsletter for the Kentucky Agricultural Finance Corporation (KAFC) that would be sent to lenders in the state.


On other issues, Representative Rand asked them to elaborate on a requirement that program administrators be bonded. According to the GOAP officials, program administrators who "write checks" must be bonded. They said the requirement was made effective in 2005-2006.


Next, Co-chair Gibson mentioned the rising cost of gasoline and diesel and its impact on beef and grain farmers. He asked if the GOAP had considered offering some incentives or other relief to offset the cost of fuel.


In his response, Mr. Thomas mentioned that GOAP staff, in discussing topics for consideration during a board planning retreat in July, had discussed the idea of providing some type of relief to applicants to cover fuel costs. He mentioned a tax credit or cost reimbursement, and whether those would be consistent with HB 611.


Senator Borders said he was pleased to learn the agency was looking at the issue. The objective of HB 611 was diversification and accomplishments have been realized, according to the senator. He suggested considering some relief on a short-term basis, particularly if high fuel costs may be a factor in the success or failure of a project.


As discussion ended, Mr. Thomas expressed his hope, as the current fiscal situation in the state improves, that the $17 million transferred in the budget process could take care of efforts such as the fuel cost relief.


Next on the agenda was a panel discussion by members of County Agricultural Development Councils. Appearing before the committee were: Mr. Harry Young, Marion County, Mr. Jim May, Lincoln County, Mr. William Ginn, Trimble County, Mr. Keith Smith, Harrison County, and Mr. Rusty Thompson, Woodford County.


Speaking first, Mr. Young said most Marion County funds have been directed toward beef herd and genetic improvements. Funds also have been put into hay storage projects, in addition to agriculture diversification and goat projects. He said Marion County funds were used to help build a multipurpose agriculture center that serves as a livestock sales facility, plus meeting place. According to Mr. Young, the Marion County Council has maximized its model program funding by limited awards to $2,000. The council has attempted to fund all applicants, even if it takes multiple years to do so, according to the speaker. Mr. Young also said the council has adopted a three-phase criteria to be used in awarding funds ― the financial risk of the applicant in a project, specific income from farming, and farm management on a weekly basis.


In his remarks, Mr. May mentioned the decline in tobacco production in Lincoln County. In pre-buyout years, he said, tobacco accounted for over 40 percent of the county's agriculture income. Currently, the figure is about 10 percent, according to his report. Livestock receipts account for $21 million of the $30 million farm income currently generated in Lincoln County. He said the mission of his county's council is to invest Phase I dollars as a catalyst for the agriculture community, maximizing the impact of the tobacco moneys, educating farmers on ways to improve production practices, requiring applicants to invest their own funds in projects, and administering the funds in a fair and equitable manner. Mr. May described the popularity of its model programs. Through 2007, he said, $2.1 million in tobacco funds had been invested in Lincoln County, with an estimated return of $10-$11 million.


According to Mr. Ginn's testimony, Trimble is a small county, but has an active farming community. He mentioned tobacco production, horticulture crops, corn and soybeans, and cattle. Because of the agricultural development funds, he said, the county's cattle herd has improved, with some producers attending special cattle production programs. According to his report, Trimble County's council has granted funding for 1,145 projects totaling some $1.6 million. Forage improvement, cattle handling, and agricultural diversification remain popular model programs, he said. Mr. Ginn said the council desires to see a continuation of the current Master Settlement Agreement funds distribution method. He mentioned some concerns. First, people who receive maximum funds through the agricultural diversification are unable to receive funds in other programs, thus precluding them from moving to another potential agriculture market. He noted how counties are limited regarding how much they can award, but there are not such limits at the state level. Also, he said it would be helpful to see marketing plans shared among counties, rather than being used solely in one area.


Speaking next, Mr. Smith said a total of 1,846 projects have been completed in Harrison County using funds totaling almost $2.4 million. With a strong emphasis on tobacco diversification, Harrison County continues to offer several programs to help farmers generate income on their farms and stimulate business within the community, he told the committee. He mentioned the emphasis being placed on improving cattle genetics and noted an increase in cattle handling projects. He also referred to a large number of hay and grain storage facilities in the county. "It is very difficult to put a quantitative number on the results in our county, he said, but it is very evident that farmers are trying to make an effort to do things in different ways from the past." Mr. Smith indicated a concern that sometimes in the past, his board had trouble obtaining legal advice from the GOAP on certain matters.


In his remarks, Mr. Thompson discussed the decline in tobacco production experienced in Woodford County following the national buyout program. He said tobacco is not the economic "monster" it once was. Of the model programs offered in Woodford, he said, agriculture diversification is the "hot ticket item." He mentioned a restaurant and a winery assisted with tobacco funds. According to Mr. Thompson, Woodford allows applicants up to $5,000 per model program. Adequacy of funding is not a concern. During his remarks, Mr. Thompson referred to the energy situation, and said hay and forage could be used to produce energy. He also questioned the usage of tobacco funds to pay for water and sewer bonds, particularly if water and sewer projects lead to the creation of subdivisions.


Following their presentations, Co-chair Gibson asked about the difficulty of getting people to serve on the councils. According to one speaker, people may be reluctant to serve, but find the service worthwhile once they join the council.


Representative McKee said he sensed from their testimony that there are more applicants than available funding. He said he would like to see a return to the ratio of 50 percent of MSA funds going into the Agricultural Development Fund.


Representative Hoffman referred to one speaker's reference to the loss of farmland that is occurring in the state. The representative mentioned the irony of using tobacco settlement funds to extend water and sewer lines that ultimately lead to urban sprawl. In response, Mr. Ginn said there is discussion in his county of a farmland preservation program. Mr. Thompson said two things are needed for farming to occur -- it needs to be profitable and has to have people willing to farm. He mentioned the value of the KAFC beginning farmer loan program.


As discussion continued, Senator Borders commented on the usage of tobacco funds to help bond water and sewer projects. He said in his early years as a legislator, he remembered a constituent who brought him a jar of brackish water and asked for help. He said he would never apologize for supporting that type funding, adding that he hears from a many people who are forced to haul water.


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


The meeting adjourned at approximately 11:45 a.m.