Tobacco Settlement Agreement Fund Oversight Committee




<MeetMDY1> September 12, 2008


The<MeetNo2> meeting of the Tobacco Settlement Agreement Fund Oversight Committee was held on<Day> Friday,<MeetMDY2> September 12, 2008, at<MeetTime> 8:30 AM, in<Room> the Weldon Room at the E.S. Good Barn at the University of Kentucky. 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:  Dean Scott Smith, Dr. Nancy Cox, and Drew Graham, University of Kentucky; Roger Thomas, Joel Neaveill, Michael Judge, Angela Blank, Christi Marksbury, Todd Harp, Jennifer Hudnall, and Diane Fleming, Governor’s Office of Agricultural Policy; Dennis Griffin, Wayne Hunt, Rodney Dick, Sam Lawson, and Troy Rankin, Agriculture Development Board; Dr. Jay Perman, M.D., University of Kentucky School of Medicine, Dr. Robert T. Means, Jr. M.D., Lewis Kelly, Ph.D.; Markey Cancer Center; John W. Eaton, Ph.D., Brown Cancer Center; Nick D’Andrea, University of Kentucky.


LRC Staff:  Lowell Atchley, Stefan Kasacavage, Susan Spoonamore, and Kelly Blevins.


The meeting began with welcoming remarks by Dr. Scott Smith, Dean of the University of Kentucky, College of Agriculture. Minutes of the August 6, 2008 meeting were approved, without objection, by voice vote, upon a motion made by Senator Pendleton and seconded by Representative McKee.


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

Mr. Judge reviewed the county model program list and the listing of state projects receiving funding approval and denied funding at the previous ADB meeting. Responding to a question from Representative Comer about the Chaney’s Dairy Barn project, Mr. Judge said that, because Chaney’s sought a second round of state funding, the board decided to approve the use of Warren County funds on the project, but not to award state funds, instead direct the applicant to other funding avenues.

Mr. Judge pointed out to Senator Gibson that a Jessamine County Fiscal Court project would provide a place for producers to safely and legally process their products. He gave examples of jam, jelly, or salsa processors.

The $50,000 Buffalo Trace Area Development District project aimed at hillside reclamation prompted Senator Gibson to ask about the use of federal funds in conjunction with the state tobacco settlement funds. According to the GOAP officials, federal funds could be used, but not as a part of the cost-share. Those applying for funds would be required to share the cost of reclamation work on a 50-50 basis.

Following the projects review, Chairman Rand recognized Senator Pendleton who asked about the rationale of the ADB’s approval in June of $200,000 in state funds for the Kentucky Agricultural Council (KAC) to coordinate, implement, and continue development of the “Strategic Plan for Agriculture” over a two-year period. According to the senator, the funding would lead to the creation of a new entity and a new level of bureaucracy.

Mr. Thomas gave some background on the creation of the plan, which was an outgrowth of the Task Force on the Future of Agriculture, and was made up of a number of agriculture-related groups. The KAC administered the task force using staff support from the GOAP and Department of Agriculture (KDA). According to Mr. Thomas, the KAC would continue to guide implementation of the plan. The agricultural development funds would be used to pay for professional services, interim management, administrative, and other expenses. He said there was hesitancy in having the group attached to the GOAP or KDA to not give the appearance of it being a political or state-driven effort.

The discussion revealed that applications were sought for an entity to take on the on-going project. Also, terms for the second year of funding call for the KAC to raise $25,000 in member dues.

Senator Pendleton responded that he thought the GOAP and KDA were capable of seeing the project through. He asked about accountability if the project is not housed with the state executive bodies. He subsequently said he would have no problem with someone with the GOAP or KDA overseeing implementation of the project. But Mr. Thomas said the GOAP did not have the staffing available to carry forth the effort.

Following that discussion, Mr. Thomas turned to a recent Auditor of Public Accounts examination of contracts awarded by the board to Allied Food Marketers West Inc., Louisville, for a period of May 2005 to March 2008. The board granted $4,891,561 in grants and loans to the company. Findings in the audit included: the ADB’s contract with Allied was not sufficient to protect the Commonwealth’s interest in multiple areas; a conflict of interest existed in Allied’s second ADB contract; GOAP did not have adequate monitoring procedures in place to detect or prevent grantee misappropriation during the period under examination; and GOAP did not have adequate documentation procedures in place to ensure project modifications were properly noted and communicated to the ADB.

The issue came to light as a result of a study being undertaken by the University of Kentucky that looked at the efficiency and effectiveness of Rural Development Fund grants and loans, Mr. Thomas said. Concerns were raised in some areas, particularly regarding the Allied contract. Mr. Thomas told the committee that after he joined the GOAP in early January, agency staff began examining the Allied contract. Eventually the board asked the Auditor of Public Accounts to review the contract.

According to the GOAP official, in hindsight the mistakes should not have been made, but the endeavor was a new initiative aimed at addressing a need in Kentucky, that of getting producers’ products to market.

The audit contained several recommendations, most of which the agency agreed to. Mr. Thomas indicated that GOAP staff viewed the audit and resulting recommendations as an opportunity to improve the process. In particular, Mr. Thomas discussed ways his staff would be attempting to tighten up GOAP contracts and legal agreements. He said there are over 200 non-model contracts that will need to be modified to meet the audit recommendations contained in the audit.

In committee discussion, Co-chair Rand complimented the agency for being proactive and asked about the current status of the Allied contract. Mr. Thomas said the last contract expired on June 30 and was not renewed. Another Allied application for funding has been put on hold.

In response to another question, Mr. Thomas said he did not want to judge the value of Allied’s work, rather wanted to wait until UK completes its evaluation. Although he did say that markets were opened to Kentucky producers that would not have been opened, had it not been for the Allied contract. One example cited was a deal to place Kentucky producers’ products in Rempke grocery stores.

Representative McKee commended Mr. Thomas and the board for recognizing a problem and clearing the air on the situation. What is important, the representative said, is to not let the Allied incident tarnish the image of the GOAP and the work being done to diversify Kentucky agriculture.

According to Mr. Thomas, they would be hard-pressed to find a program anywhere comparable to Kentucky’s agricultural diversification program.

As discussion continued, Senator Gibson cautioned the agency to adhere to the recommendations offered by the State Auditor. According to the senator, similar problems in the future would invite close scrutiny from the committee.

Representative Comer mentioned that when the contract was first approved, he supported the concept, but the cost of the contract seemed excessive. He said the endeavor may have accomplished some good things, but asked if producers received sales comparable to the value of the contract. Mr. Thomas said he wanted to wait until the UK study is complete before considering the cost benefits. He reiterated that markets were opened up because of the contract.

Responding further to Representative Comer, the witnesses said the Allied contract consumed about 10 percent of state agriculture development funds over the span of time it was in effect. It was later pointed out that the contract represented from 75 to 96 percent of Allied’s revenues in those years.

According to Representative Comer, the program may have made a difference, but he noted it is the committee’s duty to make sure the state gets its money’s worth.

The witnesses explained the conflict of interest cited in the audit, that of an Allied employee also being involved with a company being assisted by Allied.

As the discussion ended, Representative Turner asked if the issue would be revisited once the UK study was completed. Co-chair Rand indicated it would. Mr. Thomas said he wanted to report periodically on progress being made as an outgrowth of the recommendations contained in the audit. In addition, the co-chair indicated that Allied representatives could be invited to an upcoming meeting.

The next speakers were Dr. Robert T. Means, M.D., Interim Director of the Markey Cancer Center at the University of Kentucky, and John Eaton, Ph.D., Deputy Director of the Brown Cancer Center at the University of Louisville. The two speakers updated the committee on progress made at the two institutions in lung cancer research.

Preceding them was Dr. Jay Perman, M.D., Dean of the University of Kentucky School of Medicine. Dr. Perman welcomed the committee to the university and acknowledged the importance of legislators in contributing to lung cancer research.

Speaking first, Dr. Means discussed some of the components of the Lung Cancer Research Program. He updated the committee on the Marty Driesler Cancer Project, a lung cancer screening study, on the Our Lady of Bellefonte Hospital UK lung cancer screening study, the solitary pulmonary nodule study at UK, the biospecimen core program at the Markey Cancer Center, the Kentucky Clinical Trial Network, which has seen an increasing number of Kentuckians participating, and on investigator-initiated research. Dr. Means listed a number of studies that could ultimately impact patients. He also said they continue to pursue National Cancer Institute designation, which will be important once achieved.

In his remarks, Dr. Eaton, said the Brown Cancer Center continues to grow and expand and has obtained a more than 200-fold growth in research funding since 1999. The speaker said state support has been critical for the Brown Cancer Center’s growth because of tobacco funds appropriated to the Lung Cancer Research Program, appropriations to the Bucks for Brains program, revenues from a part of the cigarette excise tax, grant funding from the Office of New Economy, as well as new research space. He said the institution is using the funds to leverage for additional funds. In return, he said, they have been able to develop an internationally recognized drug development program, including a cervical cancer vaccine, have created a university-owned biotech company, to establish the Owensboro Research Program, to fund 10 state of the art multidisciplinary clinics, laboratories for clinical research, and to launch a “Manhattan Project” for lung cancer diagnosis and prevention.

Following their remarks, Co-chair Rand turned to two final speakers, Agricultural Development Board members Mr. Dennis Griffin and Mr. Wayne Hunt.

Speaking first, Mr. Griffin said that from his many years of business experience, he saw the need and value of audits. He said he favored the recent audit of the Allied contract. But Mr. Griffin said he was concerned about how the board was characterized by the State Auditor when the audit was made public. Mr. Griffin said he phoned the State Auditor to express his displeasure.

Speaking next, Mr. Hunt first praised the legislation that established the agricultural diversification program. Before entering into the Allied contract, he said they had struggled to find a market for small farm-based producers. He said they did not enter into the contract lightly and believed they could do some good. He indicated that about 187 producers were assisted under the contract. According to Mr. Hunt, they had wanted to end the contract earlier, but could not do so because of the legal agreement in place.

As the meeting ended, Senator Pendleton said regardless of the number of audits performed, one “bad actor” can create problems. Overall, according to the senator, the agricultural diversification program has a worthwhile record.

Representative Comer said his previous remarks were not meant to be critical of the board. But he said he thought the Allied contract amounts were excessive.

Documents distributed during the committee meeting are available with meeting materials in the LRC Library. The meeting ended at approximately 10:10 a.m.