Call to Order and Roll Call
The meeting of the Tobacco Settlement Agreement Fund Oversight Committee was held on Wednesday, October 1, 2014, at 10:00 AM, in Room 129 of the Capitol Annex. Senator Paul Hornback, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Paul Hornback, Co-Chair; Representative Wilson Stone, Co-Chair; Senators Carroll Gibson, Jimmy Higdon, and Robin L. Webb; Representatives Mike Denham, Tom McKee, Terry Mills, Ryan Quarles, and Jonathan Shell.
Guests: Mr. Roger Thomas, Mr. Joel Neaveill, Mr. Brian Murphy, and Ms. Angela Blank, Governor’s Office of Agricultural Policy; Ms. Kimberly Richardson and Ms. Johnna McHugh, Division of Conservation; Ms. Sandy Gruzesky and Commissioner Steve Hohmann, Department of Natural Resources.
LRC Staff: Lowell Atchley, Kelly Ludwig, and Kelly Blevins.
The September 3, 2014, minutes were approved, without objection by voice vote, upon a motion by Representative Mills and second by Representative Denham.
Governor's Office of Agricultural Policy
Mr. Roger Thomas, Executive Director, Mr. Joel Neaveill, Chief of Staff, Governor's Office of Agricultural Policy, summarized the project funding decisions by the Agricultural Development Board (ABD) during its September meeting.
At the request of Co-Chair Hornback, Mr. Thomas explained the differences between the Master Settlement Agreement payments Kentucky receives by virtue of a 1998 settlement between states and major tobacco companies, and the Tobacco Transition Payment Program (TTTP) or tobacco quota buyout, which ends this year after being in effect for a decade. Mr. Thomas said quota holders will receive a final small TTTP payment later this year.
Mr. Thomas discussed the MSA and a settlement reached earlier this year that resolved disputed claims between tobacco companies and states extending from 2003 to 2012. The settlement should provide a "measure of certainty" for the MSA payments in the immediate future.
In response to Senator Gibson, Mr. Thomas discussed the water and sewer project bonds supported with MSA funds. The debt service is about $28-$30 million per year. Water and sewer funding are paid through grants to local entities, not loans. Changing from a grant process to a payback process would be a policy decision by legislators. Co-Chair Hornback said there are other funding options, such as bonding at the local level, for water and sewer projects.
Mr. Neaveill discussed tobacco settlement funding allocations for the previous months under the County Agricultural Improvement (CAIP) and Shared-use Equipment programs, and summarized the cost-share grants awarded under the On-Farm Energy Program. Responding to a question from Co-Chair Stone about dairy farms leading the list of grants awarded, Mr. Thomas said the energy funds were sought by dairy farms for variable speed motors, improved lighting, energy-efficient water heating systems, and energy-efficient milk cooling systems. Responding to Representative Mills, Mr. Thomas said that a large percentage of funds awarded are used to upgrade existing systems.
GOAP reported on two projects that were awarded funding in the September ADB meeting: the Carlisle County Extension District Board, $50,000 in Carlisle County tobacco funds to be used with other funding to help build a new agricultural marketing and education center; and the University of Kentucky Research Foundation, $441,301 in state funds for a two-year viticulture program.
In a response to Representative Quarles, Mr. Neaveill said any wine produced under the viticulture program would be marketed within the confines of the University of Kentucky, not outside the university.
Mr. Neaveill explained a funding denial for the Kentucky Vineyard Society, which had sought almost $678,000 in tobacco funds to operate the organization and fund the UK viticulture endeavor. The project was denied because of inadequate spending benchmarks and lack of impact on the industry.
Responding to Co-Chair Hornback, Mr. Neaveill described the Kentucky Vineyard Society and the other groups that foster the wine industry.
Division of Conservation
Ms. Kimberly Richardson, Director, Kentucky Division of Conservation, reported on the Kentucky Soil and Water Quality Cost Share Program, which has received almost $112 million in tobacco settlement appropriations spanning over a decade.
Ms. Richardson discussed the history and purpose of the program, how it is implemented through conservation districts, its funding levels, the status of funding and implementation in 2014-2015, and leveraging the state cost share dollars with federal funds to undertake other initiatives such as the Green River Conservation Reserve Enhancement Program and the non-point source pollution grants. She said the review of best management practices is a constant process.
In response to Co-Chair Hornback, Ms. Richardson explained the shared cost process for agricultural runoff. Cost share rates are a maximum of 60-75 percent of the actual installation cost of a practice, not to exceed $7,500 per year for agronomic practices or $20,000 per year for animal waste practices.
Ms. Richardson said that, for 2014-2015, 1,872 applications for approximately $13 million were received. She said her office is taking a close look at the program and has formed a study group made up of several agency representatives.
Ms. Richardson referred to the new Regional Conservation Partnership Program (RCPP), which was in the new Farm Bill and included steps for form regional partnerships and also included funding for watershed areas. In response to Senator Higdon, she said the regional conservation partnerships will focus on livestock runoff.
Responding to Senator Webb, Ms. Richardson explained how the partnership process will work. There is a plan to undertake outreach before launching into programs. Senator Webb expressed concern about the guidance the United States Department of Agriculture will issue and who ultimately determines compliance. Ms. Richardson said she would report back on the specifics.
Responding to Co-Chair Stone, Ms. Richardson said the ratio of 48,806 applications received to 15,318 applications approved for the soil erosion and water quality cost share funds over the life of the program was the norm each year, depending on the funding level. She said that the quality of the requests is a factor.
In a response to Co-Chair Hornback, Ms. Richardson said 66 conservation districts benefit from a local millage tax.
Senator Hornback lauded the division and indicated the agency is supportive of farmers. He said there are "bad actors" in the state who need to be monitored by the division.
Responding to Representative McKee, who had looked at a list of project funding commitments by county, Ms. Richardson speculated why the number of projects and funding would vary, even though counties border each other. She mentioned the possibility of individual county promotion or the availability of other programs in counties. She said that the project ranking system might need to be reviewed.
The documents distributed during the meeting are available with all meeting materials in the LRC Library. There being no further business, the meeting was adjourned.