Tobacco Settlement Agreement Fund Oversight Committee




<MeetMDY1> May 5, 2010


Call to Order and Roll Call

The<MeetNo2> meeting of the Tobacco Settlement Agreement Fund Oversight Committee was held on<Day> Wednesday,<MeetMDY2> May 5, 2010, 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, Joey Pendleton, and Damon Thayer; Representatives Royce W. Adams, James R. Comer Jr., Charlie Hoffman, Tom McKee, and Tommy Turner.


Guests:  Joel Neaveill, Michael Judge, Michael Tobin, Christi Marksbury, Jennifer Hudnall, Todd Harp, Sandra Gardner, and Kylee Palmer, Governor’s Office of Agriculture Policy.


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


Minutes of the January 6 and March 3, 2010 meetings were approved by voice vote and without objection on motions made by Sen. Boswell and seconded by Rep. Sims.


The presiding co-chair, Senator Gibson, asked staff with the Governor’s Office of Agricultural Policy (GOAP) to appear before the committee and report on the Agricultural Development Board’s (ADB) tobacco settlement grant and loan actions from the March and April meetings. Appearing before the committee were Mr. Joel Neaveill, GOAP Chief of Staff, and Mr. Michael Judge, Director of Operations. Mr. Roger Thomas, GOAP Executive Director, was absent from the meeting.


Before reviewing projects approved by the ADB, Mr. Neaveill mentioned two occurrences in recent days. First, the Governor has requested that the United States Department of Agriculture approve disaster assistance for state farmers because of storm and flood damage.


Mr. Neaveill also pointed out that settling tobacco companies had made their 2010 Master Settlement Agreement payment to Kentucky in the amount of $105 million, which was down from the $111 million estimated earlier by budget forecasters. Mr. Neaveill and Mr. Perry Nutt, an LRC Staff Economist who joined in the discussion, answered questions from committee members regarding the payments. Because of declining cigarette sales, the impact of nonparticipating manufacturer sales, and other factors, the annual MSA funds are anticipated to decline in the future. Budgetary provisions are made for payment decreases as well as increases. For example, Mr. Nutt mentioned that in 2009 Kentucky actually received about $6 million in additional MSA funds, which were distributed to the agriculture development fund and to the health-related agencies receiving the moneys.


Funded projects reviewed during the committee meeting included: Grasshoppers Distribution LLC, Jefferson County; Kentucky Forage and Grassland Council, Fayette County; Matt Jackson, Henry County; Garrard County Board of Education; Kentucky Center for Agriculture and Rural Development (KCARD), Hardin County; South Kentucky Rural Electric Cooperative Corporation, Pulaski County; and Mammoth Cave Resource and Conservation and Development Area, Warren County.


Mr. Judge provided a detailed explanation of the Grasshoppers Distribution project, which was approved for $35,000 in state agricultural development funds as a zero interest loan to assist in the distribution of Kentucky farm products to urban markets. The project review had continued for over a year before the board approved the funding during its March meeting.


Mr. Judge explained to Senator Pendleton that “clients” of the business are consumers who pay an annual subscription fee to producers in order to receive produce and other commodities throughout the year. “Third party audits” were being required of producers who sell their produce under that type arrangement.


            Responding to Representative Comer, he listed the principals involved in the endeavor and indicated that they had signed personal guarantees on the loan.


            Mr. Judge verified to Senator Gibson that Grasshoppers had received tobacco settlement funding in the past and had matched those funds with some federal funds. Mr. Judge said GOAP staff had received a breakdown of the earlier spending. KCARD had reviewed the company’s operations and had made some observations. The board was not unanimous in its approval of the project.


            Testimony revealed GOAP staff had originally suggested that the board not fund the project. Mr. Judge explained to Senator Gibson that the board sometimes votes contrary to staff recommendations. For example, it recently not only disagreed with staff’s no-funding recommendation on a project, but increased the amount of agriculture development funds sought. The committee chair noted for the record that he hoped that, in the future, GOAP staff and the board would agree on funding decisions.


            Mr. Judge and Mr. Neaveill responded to several questions from Co-chair Sims about the Grasshoppers project and the philosophy driving how the agricultural development funds are used.


            Asked about the company’s projected operating expenses, Mr. Judge said the total had dropped as the project was scaled down from the original request. The board felt strongly that the company was doing good work and had progressed. The board also wanted to assure that producers would be paid in a timely fashion. Mr. Judge explained the audit and reporting procedures and described the Grasshoppers’ producer network, which stretches as far as Logan County.


            As discussion continued, Mr. Neaveill described the county and state funding processes. According to Mr. Neaveill, the Grasshoppers project will have a regional impact.


            The presenters turned to the next project, Kentucky Forage and Grassland Council, which was approved for $100,000 in state funds and $100,000 in American Recovery and Reinvestment Act (ARRA) energy funds to continue a switchgrass renewable energy project in northeast Kentucky.


            Commenting on the project, Senator Pendleton pointed out that other types of plants should be the object of research as well. He mentioned industrial hemp as having biomass possibilities. Citing a need to look at the broad picture, he said that hemp can be grown throughout Kentucky.


            According to Mr. Judge, responding to Representative McKee, the board had earlier committed $800,000 to be leveraged against the ARRA funds to develop multicounty energy projects in the state. He mentioned other projects funded by the board in March and April and others that were pending.


            Regarding another project, Mr. Neaveill detailed for Co-chair Sims the funding arrangement for the South Kentucky Rural Electric Cooperative, which will be using $10,150 each in state, ARRA, and county funds to undertake a feasibility study for regional biomass potential. Counties thus far had committed $8,000 of the $10,150 needed.


            Next, Mr. Neaveill and Mr. Judge, who were joined at the table by Ms. Kylee Palmer, Senior Compliance Specialist, updated the committee on activities related to recent County Agricultural Investment Program (CAIP) policy changes and workshops held throughout the state to acquaint local officials with the changes. According to testimony, the cost of soil testing is now eligible for reimbursement for CAIP-eligible crops. The costs of seeds, lime, and equipment remain as cost-share eligible items, Mr. Judge told Senator Gibson. Fertilizer was dropped as a cost-share item because fertilizer expenses are considered to be on-going, routine operational costs.


            Ms. Palmer updated the committee on the workshops for extension agents, CAIP program administrators, and county council members. GOAP staff conducted 11 workshops throughout the state, she said, with 279 people attending from 109 counties. The workshops were used to provide updates on policy and program changes for 2010 and to present an overview of reporting requirements.


            She told Senator Pendleton that contacts will be made in those counties not represented.


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