Tobacco Settlement Agreement Fund Oversight Committee




<MeetMDY1> December 2, 2009


The<MeetNo2> 10th meeting of the Tobacco Settlement Agreement Fund Oversight Committee was held on<Day> Wednesday,<MeetMDY2> December 2, 2009, 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 Dottie Sims, Co-Chair; Senators David E. Boswell, David Givens, Vernie McGaha, Joey Pendleton, and Damon Thayer; Representatives Royce W. Adams, James R. Comer Jr., Charlie Hoffman, Tom McKee, and Tommy Turner.


Legislative Guest:    Representative Will Coursey.


Guests:  Roger Thomas, Jennifer Daniels, Joel Neaveill, and Diane Fleming, Governor’s Office of Agricultural Policy; Michael Plumley, Office of the Attorney General; Dr. Ron Hustedde, Kentucky Entrepreneurial Coaches Institute; Bruce Harper, Department of Agriculture; Drew Graham, University of Kentucky College of Agriculture; Ronny Pryor, Tanya Chang, and Bob Rowland.


LRC Staff:  Lowell Atchley, Biff Baker, Stefan Kasacavage, Perry Nut, and Kelly Blevins.


The November 4, 2009, minutes were approved by voice vote and without objection on a motion made by Senator Givens, seconded by Representative Hoffman.


The presiding co-chair, Senator Gibson, invited Mr. Roger Thomas, Executive Director, Mr. Joel Neaveill, Chief of Staff, and Ms. Jennifer Daniels, Compliance Specialist, Governor’s Office of Agricultural Policy, to appear before the committee and report on the Agricultural Development Board’s (ADB) actions from the previous month.


Following Mr. Neaveill’s review of a relatively short list of local projects reviewed in the November ADB meeting, Mr. Thomas commented that the board reviewed possible policy changes when it met the previous month. The board would act on those changes in its December meeting, Mr. Thomas told the committee.


Next, the committee heard a report from Ms. Daniels, who updated the panel on the shared-use equipment program. According to her report, the intent of the program is to make pieces of farm equipment available to farmers through lease or rent. The lease or rental fees are used for maintenance and to buy additional pieces of equipment. A total of 67 counties have a program, with over $1.8 million invested in those counties.


Ms. Daniels explained to Senator McGaha that “delinquent programs” are behind in submitting their periodic reports. Ultimately, county shared-use programs can be placed on a “watch list” if they remain non-compliant.


Representative McKee mentioned that he had used some of Harrison County’s equipment and emphasized that the key to making the program work is keeping up with maintenance on the equipment. Ms. Daniels later indicated to Senator Givens that most of the participating counties’ agricultural extension offices house the shared-use equipment nearby and keep up with the maintenance. Some counties have multiple pieces of equipment. She acknowledged to Senator Givens that accounting for the program is separate from the regular county accounting system.


Following Ms. Daniels, GOAP’s Legal Counsel, Ms. Diane Fleming, explained how they monitor the shared-use equipment programs in counties.


Later in the meeting, Mr. Thomas responded to Co-chair Sims, who mentioned the shared-use equipment program and abuses of that and other county programs. Mr. Thomas explained that one of their goals in replacing the old model program system with the County Agricultural Investment Program (CAIP) was to make changes that allowed more farmers to apply for the county funds.


Both Mr. Thomas and Ms. Daniels explained the bid and purchase requirements for the shared-use equipment program.


Regarding another issue, Mr. Thomas explained to Senator Givens how county councils have found ways to break ties that happen occasionally when the councils score their CAIP applications. According to Mr. Thomas, the board discussed the issue during its November policy session.


In other discussion, Mr. Thomas told Co-chair Gibson that they have encouraged counties to invest in regional projects, but with limited success. He said a drought aid program was an example of a successful statewide program. Senator Boswell mentioned the Green River produce cooperative as an example of a regional program. Mr. Neaveill pointed out that Owensboro Grain Co. had received support from 22 counties for a project in that part of the state.


Mr. Thomas indicated his agreement with Co-chair Gibson, who had mentioned the importance of funding for the Murray State University Breathitt Diagnostic Center in Hopkinsville. According to Mr. Thomas, the commitment of county funds for the center to build or upgrade would be appropriate.


Next on the agenda, Co-chair Gibson called on Mr. Michael Plumley, Assistant Attorney General, to report on Master Settlement Agreement enforcement and payment issues. In his report, Mr. Plumley reviewed actions by the Office of Attorney General in making sure cigarette companies that have not joined the Master Settlement Agreement comply with state requirements. He also covered a legal action that stems from the refusal of some major companies to make an earlier Master Settlement Agreement payment. He also revealed the estimated 2010 payment, which totals about $116 million.


            Responding to Representative Adams, who asked about staffing levels in the wake of state agency budget cuts, Mr. Plumley indicated that staffing has shrunk, but litigation has decreased as well. He said his main focus is enforcement of the MSA. He noted that the Department of Revenue has a role in enforcement as well. Representative Adams said he did not want Mr. Plumley pulled away from his MSA duties if needed.


Mr. Plumley responded to Co-chair Gibson that there were no assurances in the original agreement that particular companies would receive a certain market share. Rather, according to Mr. Plumley, some larger companies have lost market share while others have gained in market share.


Next, Mr. Plumley answered some questions from Senators Givens, Pendleton, and McGaha regarding a proposal that Kentucky drop out of the MSA and at the same time require tobacco companies to pay the equivalent amount assessed currently on tobacco companies under the agreement. At one point in the discussion, Senator Givens asked if the net effect would be the same.


Mr. Plumley said the issue was discussed a few years ago. He said the Office of Attorney General was asked for an opinion on the matter. They opined that there would be many obstacles and negative results, should Kentucky opt out of the agreement. He said the settlement has provided Kentucky with a great deal of funding and settled lawsuits that may or may not have been settled. According to Mr. Plumley, Kentucky has cross-border sales that may be affected, should Kentucky enact taxes to replace the equivalent MSA assessment, which amounts to over $5 per carton.  


Responding to a question from Senator McGaha, Mr. Plumley indicated that the Centers for Disease Control determine smoking rates through surveys and the like. He also responded to Senator McGaha that additional MSA funds are distributed to state agencies in much the same way as regular MSA payments.


The committee witness told Representative McKee that most nonparticipating manufacturers (NPMs) are now making quarterly payments into their escrow accounts.
According to Mr. Plumley, the total escrow amounts have increased since the General Assembly changed a loophole that allowed NPMs to withdraw their escrow funds. Mr. Plumley also responded that, with the slight increase seen in smoking rates, total MSA payments could be affected, depending on what type cigarette companies are selling more cigarettes, those paying into the agreement, or those NPMs that are not.


            Following that discussion, the committee received a report from Dr. Ron Hustedde, Director of the Kentucky Entrepreneurial Coaches Institute. Based at the University of Kentucky, the institute has received two rounds of funding from the ADB to coach people from various parts of the state on how to develop economic, cultural, and public service opportunities in their communities. The institute has received a total of $2.1 million in Agricultural Development Fund moneys, with the most recent paying for programs in south-central Kentucky. In his report, Dr. Hustedde placed particular emphasis on accomplishments of institute trainees and possible economic benefits through job creation.


            Dr. Hustedde responded to Representative Comer that the grant funding has paid for travel, lodging, and food for institute participants, and or speakers. The funds also paid the salary of one full-time person and paid 30 percent of another’s salary. He clarified to Representative Comer that the overall funding came from the Agricultural Development Board and did not represent a budget earmark. A separate Appalachian Regional Commission grant to the institute was not included in the $2.1 million funding amount.


            In his presentation, Dr. Hustedde estimated that 218 jobs have been created because of the institute. Using the minimum wage as a multiplier, he estimated the economic impact at $2,790,400. During discussion, Senator Pendleton said it was his hope the jobs would pay more than minimum wage. He said the success of the program will be measured in jobs created.           


            Responding to Representative McKee, Dr. Hustedde said they continue to track graduates through alumni functions and follow-ups.


            Dr. Hustedde described their efforts to seek diversity in institute classes. He indicated they attempt to match persons with strong personalities with those who are not as strong. They consider geographic, gender, and personal background. In the current class, he said, about a third of the participants are entrepreneurs themselves. Also, half the participants must have a link to tobacco production.


            During the discussion, Senator McGaha talked about using tobacco settlement dollars to assist farm families. Dr. Hustedde said that, while the institute has a strong agricultural component, their focus is not exclusively agriculture. He pointed out that, while institute participants may have certain business ventures, they may also still live on or maintain family ties to a farm.


Documents distributed during the committee meeting are available with meeting materials in the LRC Library. The meeting adjourned at approximately 11:45 a.m.