Call to Order and Roll Call
The meeting of the Tobacco Settlement Agreement Fund Oversight Committee was held on Wednesday, June 4, 2014, at 10:00 AM, in Room 129 of the Capitol Annex. Representative Wilson Stone, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Representative Wilson Stone, Co-Chair; Senators Carroll Gibson, Jimmy Higdon, Dennis Parrett, Robin L. Webb, and Whitney Westerfield; Representatives Mike Denham, Tom McKee, Terry Mills, Ryan Quarles, and Jonathan Shell.
Guests: Roger Thomas, Joel Neaveill, Bill McCloskey, Angela Blank, Brian Murphy, Angie Justice, Beth Herbert, and Ray Arnold, Governor’s Office of Agricultural Policy; Shannon Morgan, Governor’s Office of Agricultural Policy legal counsel; Charles Greenwell, Goldberg Simpson; and Sean Riley, Office of the Attorney General.
LRC Staff: Lowell Atchley, Kelly Ludwig, and Kelly Blevins.
The May 7, 2014 minutes were approved, without objection by voice vote, upon a motion by Senator Gibson and seconded by Representative McKee.
Governor's Office of Agricultural Policy
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, summarized the project funding decisions made by the Agricultural Development Board (ABD) during its May meeting.
Mr. Neaveill discussed the tobacco settlement funding allocations for the previous months under the County Agricultural Improvement (CAIP), Deceased Farm Animal Disposal Assistance, and Shared-use Equipment programs. Mr. McCloskey presented the On-Farm Energy Program funding decisions.
Mr. Neaveill responded to questions from Co-Chair Stone and Representative McKee on the deceased animal removal program. He indicated during the discussion that an analysis of all programs in the state showed a number of counties provide free-of-charge pickup service to livestock producers.
Regarding the On-Farm Energy Program, Mr. McCloskey explained the ADB is attempting to publicize the program in a series of meetings throughout the state, with one upcoming in the Ashland area.
In a response to Senator Higdon, Mr. McCloskey said the ADB had committed funds to alternative energy endeavors, such as solar and green energy, in the past, but now the emphasis is on energy efficiency. The senator said he had a constituent who was interested in funding for alternative energy production.
Mr. Thomas observed that energy efficiency projects taken on by producers in the early years of the program continue to pay off.
The GOAP officials reviewed the regional and county projects approved for funding. Those included: Henry County Meat Market LLC, approved for $500,000 in state and county funds to build a USDA-inspected meat processing facility and retail outlet in Henry County; Jessamine County FFA Alumni Association, approved for $8,000 in Jessamine County funds for a youth cost-share program for agriculture-related projects; Hopkinsville Elevator Co., Inc., approved for $11,000 to conduct a feasibility study on possibly expanding the co-op's operations to central Kentucky; Mulberry Orchard LLC, approved for $35,000 to construct and equip a facility to house a commercial kitchen in Shelby County; and Owen County 4-H Fair and Horseshow Inc., approved for $20,000 to repair and upgrade a 4-H livestock barn in Owen County.
Commenting to Senator Parrett, who asked a series of questions about the Henry County meat processing project, Mr. Thomas indicated the ADB earlier committed tobacco settlement funds to a similar project in Wolfe County. Mr. Thomas said there are several other similar endeavors in the state. The board, according to Mr. Thomas, has funded smaller meat processing projects in lieu of larger ones.
Mr. Thomas responded to Senator Gibson that he had not heard of any objections from other privately funded meat processors about the state funding commitment. The senator expressed his concern about the competition with private businesses. Mr. Thomas responded that the board looks at projects like that as a resource for local farmers to add value to livestock production. Mr. Neaveill mentioned a feasibility study that revealed no other businesses were willing to take on meat processing in the affected area.
During a subsequent discussion of the Hopkinsville Elevator project, Senator Parrett alluded to Senator Gibson's earlier remarks. He indicated that he did not want to do anything that would jeopardize local businesses. He mentioned similar businesses in the area, such as the new Meade County Riverport. Mr. Thomas indicated that if the Hopkinsville project could benefit farmers, the feasibility study would be worthwhile. According to his testimony, most of the counties to be studied border or are near Hardin County.
Senator Webb mentioned the need by the board to focus on the eastern Kentucky region. Mr. Thomas referred to the energy meeting in Ashland as an example of the board's emphasis on that area.
The GOAP officials reviewed one project denied funding, Jessamine County FFA Alumni Association, which sought $1,000 in Jessamine County funds to provide financial assistance for a farmers back-to-school program. Senator Webb mentioned that she would support funding for programs that educate people on technology.
Following the projects review, Representative Quarles alluded to Kentucky's potential impending hemp industry and asked whether the GOAP is prepared to consider hemp production projects.
In his response, Mr. Thomas said the Kentucky Agricultural Finance Corporation offers an agricultural processing loan. He mentioned the Chop Shop in Wolfe County as an example a commodity processing project that had regional support.
Representative Quarles said he anticipated that many people will be processing hemp into a variety of products, such pharmaceutical and fiber products.
Both Mr. Thomas and Mr. Neaveill responded to Representative Shell, who asked if the current county loan programs would apply to hemp production. Mr. Thomas indicated that every year, the ADB looks at its programs and considers changes that need to be made. He said his guess is the county programs could be modified to allow farmers producing hemp to apply. Mr. Neaveill added that program modifications would require knowledge of what production methods would be allowable.
Master Settlement Agreement Report
Mr. Shannon Morgan, Legal Counsel for the Governor’s Office of Agricultural Policy, Mr. Charles Greenwell of the Goldberg Simpson law firm, and Mr. Sean Riley of the Office of the Attorney General, reported on current issues related to the Master Settlement Agreement arbitration.
The report dealt with the ramifications of an arbitration panel's ruling last fall that Kentucky and other states in 2003 failed to diligently enforce escrow provisions aimed at tobacco companies not participating in the MSA. The adverse ruling could mean a future MSA payment reduction of an estimated $45-$50 million.
Mr. Riley explained the Office of the Attorney General had filed two motions in Franklin Circuit Court – one calling on the court to set aside the arbitration ruling and another to set aside an earlier settlement agreement involving tobacco companies and several other states. The state court had previously heard arguments on the motions and denied a motion that would have resulted in an immediate delay in this year's MSA payment reduction. Mr. Riley told the committee the lawsuits are in a dormant phase at this time.
Responding to Senator Westerfield, Mr. Riley explained that the latest ruling only involves the state's enforcement of the MSA in 2003. By virtue of the arbitration panel's decision, the tobacco companies that were party to the litigation will be able to reduce the amount of this year's payment. Mr. Riley told the senator that the Franklin County Circuit Court judge has asked for the decisions handed down in a Missouri court and a Pennsylvania court. Those states, also found to be nondiligent for 2003, received favorable rulings in their respective courts.
Mr. Morgan told the committee that the Franklin County Circuit Court judge has requested that parties to the litigation settle. Through the last few months, according to Mr. Morgan, settlement discussions have been under way.
Mr. Riley responded to Representative Quarles that Kentucky has been in contact with other states similarly affected. Each state has its own MSA issues, but the states have worked together collectively in the MSA enforcement issue, according to Mr. Riley.
In a response to Senator Webb, who asked why the years 2003 and 2004 were unique related to MSA enforcement, Mr. Greenwell indicated that in 2003 Kentucky did not have in place the "complementary" MSA statutes, and some "allocable share" legislation did not pass until 2004. Senator Webb pointed out that the state had a better statutory structure after 2004.
Mr. Greenwell said he would not speculate as to what the state court will do, but the judge has reviewed the decisions in Missouri and Pennsylvania.
Mr. Greenwell and Mr. Morgan responded to Senator Gibson, who asked how the rulings in Missouri and Pennsylvania affect those states' MSA payments. Mr. Greenwell noted that the court in one of the states told an MSA independent auditor to recalculate that state's payment. Mr. Morgan said the Pennsylvania Attorney General has pressed forward in efforts to obtain that state's MSA funding.
Responding to Representative Shell, who asked about possible litigation past 2003, Mr. Riley said each year stands on its own and he does not know about 2004. According to his testimony, any adverse rulings affecting 2004 and beyond would result in winning tobacco companies receiving a reduction in their current MSA obligation.
Documents distributed during the committee meeting are available with meeting materials in the LRC Library. There being no further business, the meeting was adjourned.