Tobacco Settlement Agreement Fund Oversight Committee




<MeetMDY1> April 3, 2013


Call to Order and Roll Call

The<MeetNo2> meeting of the Tobacco Settlement Agreement Fund Oversight Committee was held on<Day> Wednesday,<MeetMDY2> April 3, 2013, at<MeetTime> 10:00 AM, in<Room> Room 129 of the Capitol Annex. Senator Paul Hornback, 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, Jimmy Higdon, Dennis Parrett, and Robin L. Webb; Representatives Terry Mills, Ryan Quarles, and Tommy Turner.


Guests: Mr. Roger Thomas, Mr. Joel Neaveill, Mr. Bill McCloskey, Ms. Angela Blank, Mr. Brian Murphy, and Mr. Biff Baker, Governorís Office of Agricultural Policy; Mr. Michael Plumley, Office of the Attorney General.


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


The March 5, 2013, minutes were approved, without objection, by voice vote, upon a motion by Representative Mills and second by Representative Turner.



Co-chair Election

Following roll call and confirmation of a quorum, committee members, with staff presiding, nominated and elected by acclamation the Senate and House committee co-chairs. Senate members elected Senator Paul Hornback as co-chair and House members elected Representative Wilson Stone as co-chair.


Governorís Office of Agricultural Policy

Mr. Roger Thomas, Executive Director, Mr. Joel Neaveill, Chief of Staff, and Mr. Bill McCloskey, Director of Financial Services, Governorís Office of Agricultural Policy (GOAP), testified about project funding decisions made by the Agricultural Development Board (ABD) during its March meeting.


GOAP officials summarized funding allocations for the previous month under the County Agricultural Improvement (CAIP), Deceased Farm Animal Disposal Assistance, the On-Farm Energy, and Shared-Use Equipment programs. Responding to Co-chair Hornback regarding a Nelson County Fiscal Court deceased animal removal program, GOAP officials indicated that the county had received the funds in the past and funds are available to applicants on a yearly basis and are limited to $7,500 per applicant.


Mr. McCloskey reviewed the only statewide project receiving board-approved funding in the previous ADB meeting Ė a Pennyrile Area Development District (PADD) proposal to develop a database on Kentuckyís agricultural assets and resources, including potential agricultural development sites, agricultural industrial sites, food production and supply facilities, and other agricultural infrastructure locations.


The board approved $100,000 for the PADD project contingent on the applicant receiving an $800,000 grant from the U.S. Economic Development Administration. Other area development districts will participate as well. The total cost of the project is estimated at $1 million.


Responding to Senator Parrett, GOAP officials said the applicant is awaiting final approval of the federal grant after receiving tentative approval.


Replying to Co-chair Stone, Mr. Thomas said reports on the undertaking will be available within a year of the project startup. Mr. Thomas also noted that, as a part of the proposal, each area development district must create its own agricultural development strategy.


Representative Stone predicted the project will reveal more agriculture assets than what is readily evident.


Mr. Thomas summarized a greenhouse funding report provided as a result of a request made in a previous committee meeting. The report consisted of a list of applicants that had received agricultural development funding for greenhouse projects since 2001. Several projects, either greenhouse expansions or new construction efforts, were listed. Some were located on school grounds while others were built elsewhere, sometimes as a part of on-farm markets.


Responding to Senator Gibson, Mr. Thomas said there was no rationale for greenhouses being built mostly in larger urban areas versus rural areas, other than potential applicants in rural areas not applying.


Mr. Thomas likened the greenhouse projects to farmerís market projects by virtue of making a connection between farmers and consumers.


Office of Attorney General MSA Report

††††††††††† Mr. Michael Plumley, Assistant Attorney General, reported on work to enforce the requirements of the Master Settlement Agreement in Kentucky.


††††††††††† Mr. Plumleyís report covered three main areas: (1) the current arbitration to help decide a disagreement over certain terms in the 1998 Master Settlement Agreement; (2) 2012 enforcement of tobacco companies doing business in Kentucky; and (3) the estimated 2013 tobacco settlement payment.


††††††††††† †The arbitration process centers on a disagreement between states and cigarette manufacturers who are party to the agreement over whether states are diligently enforcing the rules of the agreement against manufacturers who are not party to the agreement. The disputed year is 2003 and subsequent years also could be disputed. While the arbitration has taken longer than anticipated, Kentucky will appear before an arbitration panel in May. The Office of the Attorney General expects a decision by the end of the year.


††††††††††† Replying to Co-chair Hornback, Mr. Plumley said that, for Kentuckyís part, about $20 million is in dispute, although that figure may change depending on what states are ruled to not have adequately enforced the agreement.


††††††††††† Mr. Plumley also complimented GOAP and other agencies for assisting his office in the arbitration effort.


††††††††††† Responding to Senator Gibson, Mr. Plumley described the dispute in some detail. He said the MSA is designed to continue so long as tobacco companies sell cigarettes in the United States. Intervening disputes will occur over how much should be paid to states. He said that he would obtain a copy of agreements with private sector attorneys involved in the arbitration.


††††††††††† In a response to Senator Higdon, Mr. Plumley described the stateís statutory escrow requirement for companies not party to the agreement. The companies escrow funds based on their sales to cover potential future legal claims. The funds are to be escrowed for 25 years. Most participating states have similar escrow statutes.


††††††††††† Replying to a question from Senator Higdon later in the meeting, Mr. Plumley pointed out disputes over the payments arise every year. As for Kentucky, $150 million has been disputed through the life of the agreement.


††††††††††† Responding to Senator Hornback, who asked if a decision in the current disputes would have a bearing on future disputes, Mr. Plumley said the Attorney Generalís Office is prepared to defend each year.


††††††††††† On the other issues, Mr. Plumley indicated there is nearly a 100 percent compliance rate from cigarette manufacturers doing business in Kentucky. There were 21 nonparticipating manufacturers approved in the state last year. Those companies sold about $250 million worth of cigarettes. About $70 million was placed in escrow based on those sales. Escrow deposits are declining, which is an indication of declining sales.


††††††††††† In addition, the 2013 tobacco settlement payment to Kentucky was expected around April 15. The amount would be similar to the 2012 payment of about $100 million. Through the life of the tobacco settlement agreement, Kentucky has received about $1.5 billion.


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