Tobacco Settlement Agreement Fund Oversight Committee




<MeetMDY1> October 1, 2008


The<MeetNo2> 10th meeting of the Tobacco Settlement Agreement Fund Oversight Committee was held on<Day> Wednesday,<MeetMDY2> October 1, 2008, at<MeetTime> 10:00 AM, in<Room> Room 131 of the Capitol Annex. Representative Rick Rand, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Representative Rick Rand, Co-Chair; Senators Charlie Borders, David E. Boswell, and Joey Pendleton; Representatives Royce W. Adams, James R. Comer Jr., Charlie Hoffman, Tom McKee, and Tommy Turner.


Guests:  Roger Thomas, Joel Neaveill, Diane Fleming, Sandra Gardner, and Angela Blank, Governor’s Office of Agricultural Policy; Bill McCloskey III and Tim Hughes, Kentucky Agricultural Finance Corporation; and John Covington, Debby Milton, and John Herald, Kentucky Infrastructure Authority.


LRC Staff:  Lowell Atchley, Tanya Monsanto, Stefan Kasacavage, and Kelly Blevins.

Minutes of the September 12, 2008 meeting were approved, without objection, by voice vote, upon a motion made by Senator Pendleton and seconded by Representative Adams.


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 September Agricultural Development Board (ADB) meeting. Accompanying him were Mr. Joel Neaveill, Chief of Staff, and Ms. Diane Fleming, General Counsel.


Mr. Neaveill began by reviewing county model projects, and then turning to state projects approved for funding or denied funding during the recent ADB meeting.


Responding to a question from Co-chair Rand about an aquaculture education project for Lawrence County High School, Mr. Neaveill observed that there seemed to be a growing interest in aquaculture in Kentucky high schools. According to Mr. Thomas, Kentucky State University would be contributing its aquaculture expertise to the projects.


A project denied funding prompted some committee discussion. Underwater Ranchers LLC was denied $21,500 in state funds. The company had sought the funds to develop the state’s first red claw hatchery in Anderson County, but was unsuccessful because of the lack of Anderson County funds in the project.


Responding to Representative McKee, Mr. Thomas said the project was probably submitted to the local county council, which may have had available funds, but by the time it came to the state board for consideration, the local funds were exhausted. Representative McKee asked about a project being denied with a high priority from the local level. According to Mr. Thomas, county councils will sometimes give a project a high priority for funding, realizing the state board may deny it because the project does not comply with board’s goals and priorities.


Next, Ms. Fleming spoke to the committee about the board and GOAP’s continuing effort to comply with the recommendations contained in the August 15 audit of the Allied Food Marketer’s West project, which raised a number of issues related to legal agreements, project management, and accountability.


Ms. Fleming is reviewing and revising existing contracts and is putting standards into new contracts as per recommendations by the State Auditor and the Finance Cabinet. A memorandum outlining what is being done was made available to committee members. She estimated there are about 200 state contracts, some dating back to 2001 that will need to be revised, according to testimony. They will not be revising local, non-model contracts because they are of a shorter duration.


Co-chair Rand referred to some previous testimony before the committee by county council members, who were critical of the variations in non-model contract reporting requirements. In response, Mr. Thomas described the challenge of dealing with the many contracts with program administrators in 118 counties of the state. He said it would be difficult to have a programmatic “template” that would fit every county. But he said there are specific things that each program administrator has to abide by.


On another issue, Mr. Thomas told the committee that about $11 million in state and county tobacco funds had been set aside for the KARE agricultural drought relief effort.


Mr. Thomas next introduced Mr. Bill McCloskey and Mr. Tom Hughes of the GOAP to give a presentation on the Kentucky Agricultural Finance Corporation. According to Mr. McCloskey, 249 loans totaling $26.5 million have been approved under the program to date. He reviewed the purpose, interest rates, requirements, and eligible loans available under four programs – Beginning Farmer Loan Program, Agricultural Infrastructure Loan Program, Coordinated Value-Added Assistance Loan Program, and Agricultural Processing Loan Program.


Thus far, about $4.2 million has been loaned under the Beginning Farmer Loan Program, over $12 million under the Agricultural Infrastructure Loan Program, over $976,000 under the Coordinated Value-Added Assistance Loan Program, and some $9.3 million in the Agricultural Processing Loan Program.


Following their presentation, Mr. Thomas addressed some questions from Representative McKee, who asked about the availability of loan funds and loan requests. Mr. Thomas referred to the current economic downturn and predicted that, with the availability of affordability credit, the demand may be greater in the future than in the past. As the program continues to grow, Mr. Thomas said, funds coming into the program through interest and principal payments will increase, but those moneys will not address the needs that are prevalent. In the short term, he said, funding will be stable, but later, the KAFC may seek another set-aside of funds from the Agricultural Development Board.


Representative McKee noted the importance of the moneys being made available through the KAFC loan programs.


Mr. Thomas recalled that during the crafting of HB 611 in the 2000 General Assembly, access to capital was deemed to be an important aspect of the program.


Senator Pendleton complimented Mr. Thomas on the program and predicted even more loan applicants will be assisted. He commented on the importance of restoring the $17 million shifted from the Agricultural Development Fund in the recent budget process. 


In his response, Mr. Thomas said he believes the need remains for the agricultural funding.


Co-chair Rand said the KAFC is building a strong portfolio and indicated the program represents a “good investment.”


In closing, Mr. Thomas recognized Mr. Hughes as the first full-time staff person who worked with KAFC in publicizing the loan program.


Next, representatives of the Kentucky Infrastructure Authority, John Covington, Executive Director, John Herald, Executive Assistant, and Debby Milton, Financial Analyst, appeared before the committee to update members on the agency’s water and wastewater funding programs.   


The speakers reviewed the history KIA and the General Assembly’s commitment of funds, in particular, tobacco settlement moneys. They discussed the local and regional planning that goes into projects, the current status of waterlines and water treatment plants in the state, local sources of water, wastewater treatment plants and sewer lines. They also discussed funding made available. According to their report, over the next biennium, an additional $225 million in grants will be made available for 598 projects. 


They discussed the General Assembly’s commitment of tobacco settlement funds to the agency in 2000, 2003, 2005, 2006, and in the recent 2008 session, during which bond funding totaling $150 million was committed for 436 projects in 83 counties.


The report also showed that Kentucky ranks in the top 5 nationally by virtue of having 92 percent of the state population with access to community water systems.

Mr. Covington said future challenges for KIA include, continuing to improve the drinking water and wastewater planning process, meeting wastewater needs, and maintaining and upgrading existing infrastructure.


Following the presentation, Senator Borders asked about the possibility of public water service increasing beyond the current 92 percent coverage. According to Mr. Covington, there are parts of Western Kentucky where less water service exists because ground water can be accessed with wells. However, there are areas of Eastern Kentucky that do not have water service but are seeking it. Counties in those areas are seeing progress made in extending service, according to Mr. Covington.


Responding further to Senator Borders, Mr. Covington said water lines generally last longer than sewer lines. But at the same time, water lines placed in areas of significant residential growth will need to be replaced sooner. Loans on treatment plants are typically for 20-30 years, which usually represents the life a plant. Sewer lines are generally more expensive to install than water lines, according to Mr. Covington, who also said the availability of sewer service tends to increase the demand for water.


In continuing discussion, Representative McKee emphasized the need to assure that watershed sources are sufficient.


Representative McKee also asked about KIA funds that may be unused as projects linger over time. Ms. Milton said some communities wait through one funding cycle into another in order to obtain additional grant funding. The speakers discussed how they review projects that may linger in an attempt to move them through the completion process.


Responding to questions from Co-chair Rand, Mr. Covington discussed how one treatment plant may serve multiple counties. He said they have encouraged regional projects. The speaker described KIA’s role as that of providing information for the planning process, and providing data, but allowing local governments at the regional level to design for their own needs.


The speakers responded to the co-chair that there are many inter-connected systems throughout the state. According to Ms. Milton, several budget line items allowed for system interconnections.


Regarding the extension of sewer lines, Mr. Covington responded to Co-chair Rand that several factors are involved in extending sewer service. He mentioned that the demand for sewer service is not as great as water. Also, there are fewer sewer service providers in rural areas. According to Mr. Covington, municipalities are sometimes reluctant to run sewer lines outside city limits because they are not always assured that customers will sign up for service.


Documents distributed during the committee meeting are available with meeting materials in the LRC Library. The meeting ended at approximately 11:30 a.m.