Tobacco Settlement Agreement Fund Oversight Committee




<MeetMDY1> December 7, 2011


Call to Order and Roll Call

The<MeetNo2> meeting of the Tobacco Settlement Agreement Fund Oversight Committee was held on<Day> Wednesday,<MeetMDY2> December 7, 2011, at<MeetTime> 10:00 AM, in<Room> Room 149 of the Capitol Annex. Representative Wilson Stone, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Senator Paul Hornback, Co-Chair; Representative Wilson Stone, Co-Chair; Senators Carroll Gibson and Dennis Parrett; Representatives Royce W. Adams, James R. Comer Jr., Tom McKee, Fred Nesler, and Tommy Turner.


Guests: Roger Thomas, Joel Neaveill, Bill McCloskey, Angela Blank, Jennifer Hudnall, and Christi Marksbury, Governor’s Office of Agricultural Policy; Michael Plumley, Office of the Attorney General.


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


The November 2, 2011, minutes were approved, without objection, by voice vote, upon motion made by Representative Adams and second by Senator Gibson.


Governor’s Office of Agricultural Policy

The committee received the monthly report from Mr. Roger Thomas, Executive Director, Mr. Joel Neaveill, Chief of Staff, and Mr. Bill McCloskey, Director of Financial Services, Governor’s Office of Agricultural Policy (GOAP), regarding project funding decisions made by the Agricultural Development Board (ADB) in its November meeting.


Mr. Neaveill summarized the funding allocations made under the County Agricultural Improvement, Deceased Farm Animal Disposal Assistance, and Shared-use programs from the previous month. He also recapped amendments approved for previously funded projects. Mr. Neaveill and other GOAP staff members provided Co-chair Stone with some additional information about the dead livestock disposal program in Clinton County, such as funding sources and the locale to be used for disposal.


Next, Mr. Neaveill and Mr. McCloskey reviewed the board’s actions on the following projects: the Kentucky Vineyard Society, which received $515,000 in agricultural development funds to provide technical assistance and education to Kentucky’s vineyards and wineries for a two-year span; Washington County Extension District Board, $16,960 in county funds for the renovation of an old tobacco barn into a farm family educational facility; Metcalfe County Fiscal Court, $7,000 in county funds to renovate a livestock arena at the fairgrounds to expand access to the grounds for agricultural events; Hopkins County Board of Education, $19,000 in county funds to help build a greenhouse at Madisonville North Hopkins High School; Metcalfe County 4-H Council, $1,776 in county funds to assist youth with their country ham projects; Kentucky Horse Council, which was approved for $300,000 in state funds to conduct a comprehensive equine survey in the state; Taylor County Cattlemen’s Association Inc., $15,000 in county funds to help offer a heifer chain program to youth in the county; and the Kentucky Sheep and Goat Development Office, which received $40,000 in state funds to continue the services provided by the office for sheep and goat producers.


The GOAP officials responded to questions from Senator Gibson and Representative Adams about the Kentucky Vineyard Society project. Mr. Thomas noted that the last two state budgets had earmarked $250,000 per fiscal year – to be drawn from the tobacco settlement moneys going into the Agricultural Development Fund – to help sustain the state’s viticulture program. Under the current arrangement, the board itself granted the new round of funding. In addition, the University of Kentucky will fund an extension viticulturalist position in its budget.


Regarding the Metcalfe County Fiscal Court project, Mr. Thomas explained to Co-chair Hornback that applicants are urged to seek other funding sources for their projects, in addition to the ADB funding, but apparently the Metcalfe County applicants had explored all other possible funding sources.


The GOAP officials responded to Co-chair Stone that the Washington County Extension Board owns the property on which the old tobacco barn is located.


 As discussions proceeded, Co-chair Stone lauded the idea of funding the greenhouse at a Hopkins County high school. The GOAP officials responded to Senator Parrett that students attending Madisonville North Hopkins would be using the facility.


The Kentucky Horse Council project prompted comments from Representatives Adams, McKee, and Stone. In particular, Representative Adams said an equine survey will be beneficial for members of the General Assembly as equine issues are considered. He remarked that usable data on the number of pleasure horses in the state has not always been readily available.


Responding to Co-chair Stone, Mr. McCloskey explained the history of funding for the Kentucky Sheep and Goat Development Office. He reported the office had received $269,000 in agricultural development funds prior to the latest funding. Mr. McCloskey pointed out the Sheep and Goat Development Office is unique because it deals with two livestock breeds, rather than other associations, which deal with only one breed.


            Mr. Thomas responded to Co-chair Stone that the board routinely urges commodity groups to strive toward a level of sustainability, independent of the agricultural development funds. Co-chair Stone commented that organizations like the sheep and goat group should look at the tobacco settlement funds as seed money that will enable them to grow.



Office of Attorney General MSA Report

            The committee received a report from Mr. Michael Plumley, Assistant General, regarding the work of his agency in enforcing the requirements of the Master Settlement Agreement (MSA) in the state.


Mr. Plumley’s report covered three main areas – MSA payments, actions regarding nonparticipating manufacturers that are not parties to the agreement but sell cigarettes in the state, and a court case evolving from the withholding of 2003 payments by some manufacturers participating in the agreement. The case is in arbitration.


On the MSA payments, Mr. Plumley told the committee that Kentucky has received $1.38 billion in tobacco settlement funds since the pact was signed by settling states and territories and major tobacco companies in late 1998. The state received roughly $100 billion in 2011. Mr. Plumley allowed that the exact amount of each year’s payment is difficult to predict. Nevertheless, he said he anticipated 2012 payment will be about the same as this year’s payment. He responded to Co-chair Stone that the largest yearly payment received in the past was about $120 million.


According to Mr. Plumley’s testimony, AG’s Office has obtained 90 judgments against nonparticipating manufacturers for MSA-related violations since 2001. He pointed out the number of compliant nonparticipating manufacturers has dwindled in recent years, currently standing at 21. The nonparticipating manufacturers are required by law to deposit funds into an escrow account to cover possible future court claims. The total in escrow at this point in time stands at $45 million.


Regarding the arbitration, according to Mr. Plumley, $1.1 billion is in dispute; $20 million of that would be due to Kentucky under the MSA funding formula.


Mr. Plumley indicated to Representative McKee that incidents of nonparticipating manufacturers violating dictates of the agreement and state law have declined. He said NPM escrow deposits are nearly 100 percent of known cigarette sales. He also said SB 48 passed in the 2009 session was helpful in dealing with NPM violations. Among its provisions, the bill required that noncompliant cigarettes sold in retail outlets to be removed from shelves sooner than before.


According to his testimony, the arbitration is likely to be protracted because MSA states must explain their individual enforcement efforts to a three-judge arbitration panel. Also, some states could stand to lose if it is shown that the agreement has not been diligently enforced in their state. Mr. Plumley told the committee he feels Kentucky has a strong case and will be successful in its effort to recover withheld funds.


While it was pointed out that payments due in the years following 2003 will be disputed, he declined to predict how those disputes will come out. He indicated that each year under the agreement is different, with different laws, circumstances, and companies involved. Co-chair Stone observed that it would seem that a decision in the 2003 case would be a bellwether for future decisions.


Documents distributed during the committee meeting are available with meeting materials in the LRC Library.


The meeting adjourned at approximately 11:15 a.m.