Tobacco Settlement Agreement Fund Oversight Committee




<MeetMDY1> May 6, 2009


The<MeetNo2> 3rd meeting of the Tobacco Settlement Agreement Fund Oversight Committee was held on<Day> Wednesday,<MeetMDY2> May 6, 2009, at<MeetTime> 10:00 AM, in<Room> Room 129 of the Capitol Annex. Representative Dottie Sims, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Senator Carroll Gibson, Co-Chair; Representative Dottie Sims, Co-Chair; Senators Charlie Borders, David E. Boswell, David Givens, 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, and Tim Hughes, Governor’s Office of Agricultural Policy;  Bill McCloskey, Kentucky Agricultural Finance Corporation; Tom Keene, University of Kentucky; Bruce Harper, Kentucky Department of Agriculture; Drew Graham, University of Kentucky College of Agriculture; Dave Maples, Kentucky Cattleman’s Association; and Bob Rowland.


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


A motion to approve the April 15, 2009 minutes was made, seconded, and adopted.


Co-chair Sims invited the first speaker, Mr. Tom Keene, a University of Kentucky Agronomy Specialist, to brief the committee on a UK project, funded with tobacco settlement dollars, to grow test plots of switchgrass in northeast Kentucky. Some of the switchgrass produced under the UK demonstration was combined with coal to generate electricity at East Kentucky Power’s Spurlock Station in Maysville.


After viewing two short film clips on the propagation of the grass on the test plots, and a project to use the grass as an alternative energy source for electricity production, the committee posed several questions about the grass and its potential. Responding to questions from Co-chairs Gibson and Sims, and Senator Borders, the speaker explained some of the growth characteristics and yield of switchgrass, potential income for farmers, transportation requirements, and how the state compares with other states in production of the grass.

Mr. Keene responded to Senator Borders that 5, 10, perhaps 12 percent of switchgrass could be mixed with coal to generate electricity. The grass can be ground or pelletized, testimony showed. The senator referred to the emissions reductions that could be achieved through the use of a coal-switchgrass mix. Mr. Keene said it could help in terms of carbon reduction. Before coal is outlawed, the senator commented, perhaps some “will realize we’re doing things to help our community and nation.”


Mr. Keene responded to Representative Adams that they are working on the curing process for the grass. He noted the grass needs to be dry when it is mixed with coal for electricity production. He told the representative that the 70 tons used in the East Kentucky Power demonstration would have been a “blip on the screen” in emissions reduction.


Mr. Keene responded to Senator Boswell that UK has done some work with miscanthus grass, and is looking at the potential for other grasses, including sweet sorghum.


As discussion continued, Senator Pendleton indicated that consideration also should be given to propagating industrial hemp. He mentioned the 2000 legislation that allowed research to be conducted on the plant. The senator said certain federal regulations on propagating the plant have been eased. He noted that hemp was produced to make rope during World War II and hemp currently is being used in a variety of ways, including automobile parts production.


Next, Mr. Keene detailed the outcomes from some demonstration plots in northeast Kentucky in 2007 and 2008. He responded to another round of questions from committee members regarding nutrient applications and how well the grass competes against noxious grasses and weeds.


Responding to Senator Boswell, he said work related to the grass is being done at the Center for Applied Energy Research, in particular the area of converting cellulosic material to ethanol. Finding the enzyme that is a key to the conversion will represent a “gigantic leap for ethanol,” he told the committee.


Representative McKee mentioned the potential income that could be earned from switchgrass. Farmers can readily produce the grass if the profit potential is evident, according to Representative McKee, who added that some of the research would need to be done around the profit potential of the grass. Mr. Keene said that subsidies may become available if “green energies” are mandated.


Responding to Senator Givens, the speaker said some take-home messages from a multimillion-dollar Tennessee switchgrass project were that, with proper seeding, fertilization, adequate rainfall, weed control, the grass can be harvested in the first year. He also said they need to be judicious about how they go about touting the grass. Responding further to the senator, he said the worst thing would be to paint a picture that the grass is a panacea for farmers and industry.


Senator Givens discussed the possibility of incorporating the grass into the Conservation Reserve Enhancement Program (CREP) in his region. He said there are many acres CREP program that contain native grasses that will not be harvested. He mentioned the impact of the idle acres on farm production and on businesses that sell to farmers.


Responding to Senator Boswell, Mr. Keene said some plots have been planted on reclaimed strip mine land.


According to Mr. Keene, responding to Representative Hoffman, if utilities use the grass for electricity production, they would probably buy it under contract with specifications regarding quality.


Responding to Co-chair Sims about the future potential for switchgrass, Mr. Keene said they will submit another proposal to the Agricultural Development Board for funds to increase the size of the project and include more counties. But as of now, he said, the current program is full. On the other hand, people can raise the grass at this time and graze it or put it to other uses.


Senator Borders responded to Co-chair Sims about collective efforts on the issue. The senator indicated that perhaps Kentucky can join with other states on the switchgrass issue.


According to Senator Boswell, other energy issues have come and gone through the years, particularly as administrations change in Washington. He recalled the state and federal money put into synthetic fuels projects in the 1970s that never came to fruition.


Next, Co-chair Sims called on Mr. Roger Thomas, Executive Director, and Mr. Michael Judge, Director of Operations, and Mr. Joel Neaveill, Chief of Staff, Governor’s Office of Agricultural Policy (GOAP), to report on the projects considered by the Agricultural Development Board (ADB) during the April meeting.


Mr. Judge began by reviewing projects the ADB approved for funding. One project prompted some questions from the committee, the approval of $300,000 in state funds to pay for a feasibility study to analyze the effects of either renovating or replacing the Breathitt Veterinary Center in Hopkinsville.


Co-chair Gibson noted the importance of the facility. During discussion, he said its status comes up often at farm group meetings that he attends. The senator asked why the board decided to reduce the amount sought for the study from $450,000 to $300,000. According to Mr. Judge, a board committee reviewing the application felt that two deliverables could be deleted – provisions for a preliminary building design and a building site evaluation. Mr. Judge said Murray State officials indicated they could do some of that work.


Senator Pendleton said he agreed with Senator Gibson about the importance of the facility. He asked who would do the study. Mr. Judge responded that a request for proposals would be issued, with a timely turnaround anticipated. Senator Pendleton observed that, since it has been publicized that the board would commit $300,000 for the study, RFP responses were apt to be close to that figure.


Senator Pendleton said he toured the building and found that a new building is needed there. He talked about the cramped conditions in the facility and its importance in testing for avian influenza and other maladies. “I’m for building the facility. I think we need to start looking at the design and getting ready for 2010,” the senator told the committee. The senator went on to talk about how recreational and residential areas have grown up around the facility since it was built some 40 years ago.


Mr. Judge told the committee that the study would look at what space needs would be required for the facility, and what the building would cost based on design and needs. He said a proposal presented to the Legislature earlier was an estimate.


Referring to the RFP, Mr. Thomas indicated funds to pay for the diagnostic center study had to be assured before the RFP was issued. According to Mr. Judge, the study could cost less than the amount committed.


Committee members also asked some questions about the board’s denial of funding to the Western Kentucky University Research Foundation, which requested $125,535 to develop a pilot program in Owensboro for a food manufacturing laboratory. No county funds were committed to the project.


Responding to Co-chair Gibson, Mr. Neaveill and Mr. Thomas indicated that it is helpful if a project has a local commitment of funds. Mr. Neaveill went on to explain the process involved in reviewing project applications, from the initial review by a project analyst, GOAP’s general review, and an occasional board committee scrutiny. Mr. Thomas noted that a board committee that reviewed the Breathitt Veterinary Center project also looked at the WKU Research Foundation project.


According to Mr. Neaveill, responding to Senator Boswell, Daviess County did not commit funds to the project, but he was not certain why. Senator Boswell said that was “baffling” and vowed to find out why since some major commodity processors are located in Owensboro.

A pended project generated some discussion, that of the Thoroughbred RC&D Council proposal to use $883,400 in state funds and $5,000 in Scott County funds to create a purchase of conservation easement program in Scott County.


According to Representative Hoffman, the Scott County conservation easement had its roots in the creation several years of the Lexington-Fayette County purchase of development rights program. That program led to the preservation of farmland, but had the effect of contributing to urban sprawl in adjacent counties, according to Representative Hoffman. If Scott is successful in its endeavor, according to the representative, other counties may go forward with similar programs. He asked how local governments could help facilitate the endeavor.


Mr. Thomas agreed that farmland preservation is important. But he pointed out that the 2008 biennial budget limited state Agricultural Development Fund appropriations to $6 million each fiscal year. He said some, including the committee, would have questioned such a large commitment of funds to a project in one county. Mr. Thomas said a farmland preservation committee would be looking at the overall issue and reporting back to the Agricultural Development Board.


Representative Hoffman expressed his concern about the commitment of tobacco settlement funds to pay off water and sewer bonds issued through the Kentucky Infrastructure Authority. According to the representative, the extension of rural water service hastens the demise of farmland.


On other issues before the meeting ended, Mr. Thomas reported that some recent GOAP workshops in various counties had been “very positive.” He said an issue had emerged, that of labor being a non-cost share item for those seeking tobacco settlement funds.


Responding to Representative McKee, Mr. Neaveill said a new tobacco dependency policy had not been an issue in the meetings, once people understood it. They explained to Representative McKee that tobacco dependency receives priority on a new project scoring sheet. According to the witnesses, project scoring is done on a yearly basis and because one does not receive funding in one year, that does not necessarily mean he or she will be in line for funding the following year.


Documents distributed during the committee meeting are available with meeting materials in the LRC Library. The meeting adjourned at approximately noon.