Tobacco Settlement Agreement Fund Oversight Committee




<MeetMDY1> June 2, 2010


Call to Order and Roll Call

The<MeetNo2> meeting of the Tobacco Settlement Agreement Fund Oversight Committee was held on<Day> Wednesday,<MeetMDY2> June 2, 2010, 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 Vernie McGaha, Joey Pendleton, and Damon Thayer; Representatives Royce W. Adams, James R. Comer Jr., Charlie Hoffman, and Tom McKee.




LRC Staff:  Lowell Atchley, Biff Baker, and Susan Spoonamore, Committee Assistant.


Minutes of the May 5 meeting was approved by voice vote and without objection on motions made by Senator Pendleton and seconded by Representative Adams.


Governor’s Office of Agricultural Policy Report

Mr. Roger Thomas, Executive Director, Governor’s Office of Agricultural Policy (GOAP), Mr. Joel Neaveill, GOAP Chief of Staff, and Mr. Michael Judge, GOAP Director of Operations reported on the actions of the Agricultural Development Board (ADB) at its May meeting.


Before beginning their testimony, they made note of a chart showing Kentucky Agricultural Development Fund county account balances that reflected the state’s 2010 Master Settlement Agreement payment. There were no questions.


Following a summary of the County Agricultural Investment (CAIP), Deceased Farm Animal Disposal, and Shared-use Equipment program activities, the GOAP representatives updated the committee on two state-funded projects – the Western Regional Center for Emerging Technology Inc., a multifaceted Calloway County project aimed at acquainting agricultural producers with bio-energy endeavors, and Commonwealth Agri-Energy LLC, a project geared toward saving energy costs at a Hopkinsville ethanol plant by reconfiguring a water-based cooling network.


Mr. Judge and Mr. Thomas responded to questions from Senator Pendleton regarding the end results of the Western Regional Project. According to testimony, the main objectives of the Western Regional Project are to expand acreage for bio-energy crops and trees, organize producer business relationships with bio-energy companies, and assist in establishing successful biomass producing businesses.


Responding to Senator Pendleton’s comment that such studies should be geared toward reality, Mr. Thomas indicated that the Agricultural Development Board wants to show farmers that bio-energy crops can be grown for a profit. Projects like the Western Regional Center should show what bio-energy crops are appropriate and if they can be grown at a profit.


Senator Pendleton had mentioned the need to study further the potential of industrial hemp as an energy crop. He suggested a legislative informational hearing on the issue.


In subsequent comments, Representative McKee, co-chair of the Interim Joint Committee on Agriculture, indicated the hemp issue should be explored.


In the midst of discussion of the Commonwealth Agri-Energy project, Mr. Thomas responded to Co-chair Sims’ question about the appropriate uses of CAIP funds. According to Mr. Thomas, the ADB decided to create CAIP to enhance “accountability” and “accessibility” of county funds. He noted that the Commonwealth Agri-Energy project did not use CAIP moneys.


Responding to a series of questions from Co-chair Gibson, Mr. Judge explained the need for the Commonwealth Agri-Energy funding. According to his testimony, the project, funded by state, county, American Recovery and Reinvestment Act (ARRA), and private funds, would lead to a savings of $128,000 per year in energy costs involved in cooling the ethanol plant. Mr. Thomas responded to the senator that the GOAP received use of $2 million in ARRA funds for on-farm energy projects and regional projects such as the Commonwealth Agri-Energy undertaking. In intervening discussion, Senator Gibson noted the positive aspects of the cost savings since, ultimately, the ARRA funds must be repaid.


Turning to other issues, responding to Co-chair Gibson’s question about the budget, Mr. Thomas indicated a concern about the funding of recurring agricultural groups like the Beef Network and the Horticulture Council because of reduced appropriations. FY 2012 will be problematic in particular, according to Mr. Thomas.


Responding to Representative Comer, Mr. Thomas indicated that funding requests to GOAP were down and loan requests to the Kentucky Agricultural Finance Corporation were holding steady.


Health Care Improvement Authority, Kentucky Access Reports

            Ms. Sharon Clark, Commissioner, Department of Insurance, reported on the activities of the Kentucky Health Care Improvement Authority (HICA), as well as the impact of federal health insurance reform, and Mr. Al Perkins, Director, Kentucky Access, reported on the Kentucky Access high-risk insurance program, which receives tobacco settlement appropriations as a part of its revenues.


            Ms. Clark updated the committee on the activities of HICA and the impact of federal health care reform. In explanatory remarks and in response to committee members’ questions, primarily Representative McKee and Senator McGaha, Ms. Clark explained the impact of the health insurance overhaul on Kentucky Access.


According to testimony, the federal government will spend $5 billion -- of which Kentucky will receive $63 million-- to provide coverage for people with high-risk health maladies. The $63 million will available for a new bridge pool, which will operate parallel to Kentucky Access until 2014, when practically everyone will be guaranteed to receive coverage from insurers regardless of pre-existing conditions. Ms. Clark told the committee that Kentucky will ultimately opt out of the high risk insurance arena and allow the federal government to assume the task.


            Responding to Representative McKee, Ms. Clark indicated her first reaction was the tobacco settlement fund appropriations will not be needed once provisions of the federal law take effect in 2014.


            Regarding the problem of assembling quorums for HICA meetings, Ms. Clark agreed with Senator McGaha, who mentioned having service guidelines for those serving on boards and commissions.


            Next, Mr. Perkins reviewed Kentucky Access enrollment, revenue and expenditure information, and demographics data. According to his presentation, as of March 31, 2010, Kentucky Access had 4,632 active members and 9,045 inactive members, or members who had been enrolled but who were no longer participating.


Switchgrass Project Update

            Finally, the committee heard a report from Dr. Ray Smith, Associate Professor, University of Kentucky College of Agriculture, on the second phase of a switchgrass propagation project in northeast Kentucky.


            Kentucky Forage and Grassland Council, with which Dr. Smith is affiliated, received $100,000 in agricultural development and $100,000 in ARRA funds to continue the project that involves farmers growing switchgrass on their farms. The grass will be converted into pellets to be used along with coal at a power generating plant near Maysville.


            Responding to Co-chair Gibson, Dr. Smith indicated coal producers seemed receptive to the idea of using the grass in tandem with coal. He also mentioned the grass is being grown on some reclaimed strip mine sites.


            Dr. Smith agreed with Representative McKee’s observation that use of the grass can be beneficial should a carbon tax on industrial emissions ever come to fruition.


            Responding to another question from Representative McKee, Dr. Smith indicated that farmers are paid the equivalent of land rental to grow the grass on their property. The power company is paying for the harvested grass, the pelletizing, and shipping.


            Senator Pendleton again mentioned the potential merits of industrial hemp. He noted that a state law allowed the University of Kentucky to seek to conduct research on the grass. He urged that UK revive that effort.


            As discussion ended, Dr. Smith responded to Senator McGaha that switchgrass has about two-thirds of the BTU value of coal.


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