Tobacco Settlement Agreement Fund Oversight Committee




<MeetMDY1> December 3, 2008


The<MeetNo2> 12th meeting of the Tobacco Settlement Agreement Fund Oversight Committee was held on<Day> Wednesday,<MeetMDY2> December 3, 2008, at<MeetTime> 10:00 AM, 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; Senators Charlie Borders and Joey Pendleton; Representatives Royce W. Adams, James R. Comer Jr., Charlie Hoffman, Tom McKee, and Tommy Turner.


Guests:  Roger Thomas, Joel Neaveill, Michael Judge, Angela Blank, Diane Fleming, Jennifer Hudnall, Todd Harp, and Mike Tobin, Governor’s Office of Agricultural Policy; Dr. Scott Smith, Dr. Will Snell, Dr. Craig Infanger, Dr. Rick Maurer, Dr. Gary Palmer, and Drew Graham, University of Kentucky College of Agriculture.


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


Minutes of the November 5, 2008 meeting were approved, without objection, by voice vote, upon a motion made by Senator Pendleton, seconded by Representative Hoffman.


Before beginning the business portion of the meeting, the committee held a moment of silence in honor of Senator Julie Denton, who recently lost a son in a traffic accident. Senator Gibson and Representative Rand also paid tribute to Senator Richie Sanders, a committee member who was retiring from the State Senate.


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


A $1 million grant to create the Kentucky Agricultural Leadership Program Endowment garnered some discussion. UK received $150,000 to fund the next 20-member class of the Kentucky Agricultural Leadership Program and $850,000 to set up a matching endowment to fund the program into perpetuity. The endowment funds are to be awarded in the form of a revocable grant, according to Mr. Neaveill.


Responding to Co-chair Rand, Mr. Thomas said the intent of the board and applicants was to develop a program that would be self-sustaining over time, putting UK in the position of not needing to make another request for agricultural development funds. He said the $850,000 match will present a significant challenge for the university. UK also is expected to match the initial $150,000. Participants in the leadership program are required to pay for some expenses, testimony revealed.


Next, Mr. Judge reviewed the particulars of a $3,330,000 grant to the Department of Agriculture to continue the promotion of the Kentucky Proud Program. He emphasized that the Department of Agriculture will work with the GOAP in developing promotional and marketing materials that acknowledge the ADB; a member of the board will sit on a Kentucky Proud Advisory Council; detailed quarterly progress reports will be required; and a periodic operational audit will be required.


Mr. Thomas reviewed the transfer of $5 million in funds to the Kentucky Agricultural Finance Corporation (KAFC). Of that amount, $4 million would be used continue existing KAFC loan programs and $1 million would be devoted to a new large animal veterinary program. Mr. Thomas said he was excited about the funds that will be made available to the KAFC to loan to licensed veterinarians to acquire the assets needed to serve Kentucky farmers. According to Mr. Thomas, the loan program would not solve the veterinarian problem, but would “hopefully send a message especially to young large animal veterinarians in practice that Kentucky is truly concerned about the issue.”


Following Mr. Thomas’s remarks, Representative Comer asked what $5 million would equate to in money available for borrowers. According to Mr. Thomas, KAFC loan funds are “partnered” with loans from private lenders. As an example, the $27 million that the ADB has put into the KAFC program thus far would have amounted to roughly $100 million in actual loan funds when other lenders’ funds are included.


Representative McKee said he was pleased about the veterinarian loan program and mentioned legislative efforts in that regard in the 2008 session. He asked how the veterinarian loan rates would compare with regular KAFC loan rates. Mr. Thomas responded that the program charges a 2 percent interest rate on its funds. Local lenders partner on the loans, offering loans at their rates and also receiving a 1 percent processing fee, according to testimony. He said they want to limit the loans to veterinarians for start-up ventures, for buying into a practice, or expanding a practice. He said no loan funds will be approved for pharmaceuticals or vehicles.


Responding to Representative McKee, who asked about the demand for the funds, Mr. Thomas said the $1 million “will not go far” and he would anticipate the funds would be exhausted in two years. Representative McKee said he appreciated the effort and indicated the issue is one that will need additional attention.


Mr. Neaveill also summarized the award of $50,000, $380,000, and $117,000 respectively to the Powell County Livestock Producers Association, the Nicholas County Fiscal Court, and Wolfe County Conservation District, all of which are setting up menu funds for various model programs in those counties.


On another issue, Senator Gibson asked Mr. Thomas about his vision of future uses of the agricultural development funds. Mr. Thomas said it would depend on the level of funding. He mentioned the sound investment approach of moving funds to the KAFC for loan programs. He also said more attention needs to be focused on the area of energy production.


Following that discussion, Mr. Judge briefed the committee on proposed changes to model programs that were scheduled to be acted on during the ADB’s December meeting. Among general guidelines, GOAP staff recommended a tightening of procedures to hamper model program applicants from acquiring multiple cost-share fund amounts by using more than one identification number.  Another suggestion was to create an “amnesty program” that would have model program funding disbursement records to begin anew to help better keep tabs on who receives the funding over a period of time. Mr. Judge said a new uniform tracking system would be set up to keep track of who has received model program funding. Mr. Judge also outlined proposed changes to individual model programs.


According to Mr. Judge, who responded to Representative McKee, they have discussed the policy regarding a tobacco production connection in order to receive the funds, but the policy would remain unchanged at this time. Representative McKee mentioned that he is aware of farmers who have purchased land for farming, but who are not tobacco farmers, and thus, are not qualified for the funds.


On another issue, Ms. Fleming responded to questions that Representative Comer posed during the last meeting regarding the status of loan repayments by the PIC USA. Ms. Fleming said they checked the records and determined that PIC USA was compliant in the amount of $160,000, made up of forgiveness credits and actual cash payments.


Representative Comer expressed his appreciation to Mr. Thomas for keeping him updated. The representative recalled sources told him that PIC was supposed to have used some if its loan proceeds to replace a building that burned, but actually collected an insurance payment for the structure.

Next, the committee heard a report by Dr. Craig Infanger, Dr. Richard Maurer, and Dr. Gary Palmer, all of the University of Kentucky, who reported on the evaluation of Agricultural Development Board investments on non-model projects, model programs, and KAFC loan programs for 2001-2007.


Among the points made in their presentation: the agricultural development program had resulted in $209 million in investments; those investments had clear, quantifiable impacts through enhanced farm and business diversification, improved technology adoption in production practices, new and expanded businesses resulting in over 500 new products, and the generation of income for farmers and agribusinesses; an estimated $1.87 in additional farm income was realized for every $1 of ADB investment; a total of 20 of the non-model projects had accomplished all their goals, resulting in clear impacts, but 21 projects had “serious” performance issues; comprehensive approaches through programs such as the Beef Network and Horticulture Council have been effective; small projects “work” and generate $3 in income for every $1 invested; there is a clear need to more marketing technical assistance to small entrepreneurs; a need exists for the ADB and KAFC to collaborate on new ventures to provide a balance of grant and loan funding; as for KAFC programs, the Beginning Farmer Loan Program had the most significant impact per each dollar of ADB funding; and some of the major model programs increased net income, improved animal health and human and animal safety, increased science-based decisions, provided long-term returns, resulted in the purchase of thousands of bulls, improved herd health, and reduced hay and straw losses because of hay storage.


Responding to Co-chair Rand regarding what to focus on as the investment program has matured, Dr. Infanger said they learned a lot about which investments had worked and which had not. But, he said, times have changed in agriculture with a drop in commodity prices and rising costs. He indicated the effort in seeking new markets needs to continue, and he expressed a hope that the board would continue to fund opportunities that may exist.


Responding to Representative Comer, who observed some counties process more requests for funds than others, Dr. Palmer said the board has placed limits on how much applicants can receive at one time and over a lifetime of applying. Also, model programs offered vary from county to county.


Dr. Maurer mentioned that they conducted site visits to 15 counties and found that, in general, county councils were well-meaning and paid attention to how they dispensed the funds, although some were more organized than others. He also reiterated the fact that guidelines and scoring procedures used in screening applications varied. He indicated a decision may be needed regarding the tobacco dependency scoring and whether to broaden the program beyond the tobacco production criteria.

Responding to Senator Gibson, Dr. Infanger said they kept in close contact with GOAP staff during the study and reported significant issues back to them. He mentioned two recommendations for the GOAP, that they attempt to interact more often with those receiving funding, and that they analyze the effectiveness of the program about once every three years.


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