Tobacco Settlement Agreement Fund Oversight Committee




<MeetMDY1> November 5, 2008


The<MeetNo2> 11th meeting of the Tobacco Settlement Agreement Fund Oversight Committee was held on<Day> Wednesday,<MeetMDY2> November 5, 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; Senator Charlie Borders; Representatives Royce W. Adams, James R. Comer Jr., Tom McKee, and Tommy Turner.


Guests:  Roger Thomas, Joel Neaveill, Diane Fleming, and Angela Blank, Governor’s Office of Agricultural Policy; Tim Hughes, Kentucky Agricultural Finance Corporation; and Steve Coleman, Kentucky Division of Conservation.


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


Minutes of the October 1, 2008 meeting were approved, without objection, by voice vote, upon a motion made by Representative Rand, seconded by Senator Borders.


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


Co-chair Gibson asked a series of questions related to two projects – Foothills Products and Services Inc., and Johns Custom Meats LLC, two meat processing companies. In its October meeting the ADB approved a total of $498,500 in county grants and a loan from state funds for the Foothills project, but decided to allow only county grants totaling $20,000 for the Johns Custom Meats project. Johns Custom Meats had received an earlier forgivable loan.


According to Mr. Thomas, responding to a series of questions from the co-chair, Foothills, located in Wayne County, had participation from several people and the project would serve many farmers in the area. According to Mr. Thomas, the board wanted to wait to allow the forgivable loan requirements on the Johns Custom Meats project to begin and then perhaps “tweak” the financial arrangement at that time.


During discussion, Co-chair Gibson suggested that GOAP staff specify the employment opportunities that projects might create.


Regarding the Foothills project, Mr. Thomas said the board has been supportive of small processing facilities that enable farmers to retail their products.


Following the projects review, Ms. Fleming described some of the ways the GOAP is working to comply with recommendations contained in the recent Allied Food Marketers West audit. She mentioned creation of a financial disclosure and conflict of interest statement and an on-going review existing contracts. She also said GOAP project analysts will be following up on existing projects through site visits.


Representative McKee complimented the agency for undertaking the changes and reviews. He also cautioned the agency regarding forgivable loans. According to the representative, GOAP officials should check the forgivable loans to assure that loan recipients are meeting their obligations. Mr. Thomas said they agreed with that observation.


On some other issues, Mr. Thomas noted the United States Department of Agriculture had approved a disaster declaration for 108 Kentucky counties affected by drought and damaging winds during the summer. He said a total of $11,114,135 had been authorized for distribution under the Kentucky Agricultural Relief Effort. Further, discussions were under way to expand the farmers’ markets to state grounds in addition to the Capitol complex.


Mr. Thomas also responded to some questions from Representative Comer regarding two issues – the recent Allied Food Marketers audit and a forgivable loan granted in 2004 PIC USA Inc.


Representative Comer asked about the business dealings of Allied and whether the audit would lead to further conclusions. According to Mr. Thomas, responding to the representative, Allied is still a registered company and did some other marketing work similar to the work for the ADB. Mr. Thomas mentioned a University of Kentucky evaluation of the effectiveness of tobacco settlement fund investments in agriculture, agribusiness, and leadership since the inception of the agricultural development program. Mr. Thomas said the study will show a return of $3.15 for every dollar invested in the agricultural diversification effort. He said it will also show the marketing and promotion by the Department of Agriculture through Kentucky Proud was more successful than the Allied effort.

Mr. Thomas also responded to questions from Representative Comer regarding the status of a forgivable loan granted in 2004 to PIC USA to construct a swine breeding facility in Allen County. Since that time, PIC moved its Kentucky operations from Simpson County to Tennessee. According to Mr. Thomas, a prior agreement required PIC USA to financially support Kentucky Pork Producers and Kentucky Young Farmers’ annual meetings as a part of the loan forgiveness credit. The firm will be repaying the obligation, minus the annual meeting financial support, according to testimony. Mr. Thomas said he had met with a PIC official regarding the loan. Representative Comer asked about taking legal action against PIC USA. Mr. Thomas said he would ask Ms. Fleming to review the contract to determine if there is any leeway in that regard.


Next, the Co-chair Gibson called on Mr. Steve Coleman, Executive Director of the Kentucky Division of Conservation, to address the committee regarding the Soil Erosion and Water Quality Cost Share Program and the Environmental Stewardship Program, both largely funded with tobacco settlement revenues.


During his presentation, Mr. Coleman spoke briefly about the history of the program, persons affected, the administration of the program, and the priority and criteria system used to grant cost share funding. According to the report, funds are used to combat agricultural pollution problems. Many types of best management practices are emphasized.


Continuing, Mr. Coleman discussed funding for the programs. Tobacco settlement moneys ranging from $9 to $11 million have been granted to the programs since 2000.  Several environmental and conservation practices are eligible for funding. According to Mr. Coleman’s report, the application process consists of initial application and a site visit, an application ranking and approval, engineering designs and permits, contractor selection and construction, practice completion and inspection, and cost reimbursement.


Mr. Coleman told the committee that applications rose significantly from 2007-2008 to 2008-2009, going from 2,204 to 13,094. The speaker also discussed efforts by his agency to deal with watershed issues. The speaker updated the committee on the status of the Agriculture Water Quality Act and the corrective measures undertaken under the law.


Mr. Coleman discussed the progress made by the Green River Conservation Reserve Enhancement Program, which, in a decade, has resulted in $110 million in federal, state, and private funds going toward environmental and conservation work in the Green River area. He also mentioned a smaller conservation project, the Mill Branch stream restoration project in Knox County.


Committee members raised some questions during the presentation. Mr. Coleman responded to Co-chair Gibson that the programs have been funded mostly with tobacco settlement funds and some Department of Agriculture funds in recent years. He indicated there has been a “tremendous demand for funds by landowners,” but by leveraging state appropriations with federal funds, they hope to still meet demand without asking for added funds.


Mr. Coleman discussed various conservation environmental grants offered by the division, such as dead farm animal disposal. Responding to Representative Rand, he said the Department of Agriculture has had to curtail its grant funding to counties for dead animal removal. The Division of Conservation still offers individual grants, totaling a maximum of $7,500. He said the cost of dead farm animal removal is rising. Counties provide some funding as well, according to Mr. Coleman. Also, he said they are working with the Department of Agriculture and the Office of State Veterinarian to foster alternatives to removing dead farm animals to rendering facilities, such as on-site disposal.


Responding to Representative Adams, Mr. Coleman indicated funding for tire pickup is seldom requested because of a separate state tire disposal program.


The speaker responded to questions from Co-chair Gibson regarding the scope of the Green River Conservation Reserve Enhancement Program, which has funded improvements on 100,000 acres of farmland in 14 counties. Mr. Coleman indicated to the co-chair that there have been discussions regarded expanding the existing area of the program or undertaking similar programs in other areas. He said the rules for granting federal funds have tightened.


In continuing discussion, Representative McKee recalled the work on House Bill 611 in the 2000 session and dialogue regarding conservation. He observed that the annual $9 million appropriation forms the base for the soil erosion, water quality, and environmental stewardship programs.


Mr. Coleman indicated that conservation needs remain and recently, droughts and wind damage have impacted farmers. He said environmental problems for landowners are constantly changing. Also, farm operational approaches change.


Representative Rand, who sponsored the original Water Quality Act, observed that land improvements brought about by the environmental and conservation programs are evident throughout the state.


Documents distributed during the committee meeting are available with meeting materials in the LRC Library. The meeting ended at approximately 11:15 a.m.