Call to Order and Roll Call
The meeting of the Tobacco Settlement Agreement Fund Oversight Committee was held on Wednesday, April 1, 2015, at 10:30 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 C.B. Embry Jr., Carroll Gibson, Paul Hornback, Dennis Parrett, Robin L. Webb, and Whitney Westerfield; Representatives Mike Denham, Terry Mills, Ryan Quarles, and Jonathan Shell.
Guests: Joel Neaveill, Bill McCloskey, Angela Blank, and Brian Murphy.
LRC Staff: Lowell Atchley, Kelly Ludwig, and Kelly Blevins.
The January 7, 2015 minutes were approved, by voice vote, upon motion made by Representative Shell and seconded by Representative Quarles.
Co-chair Election
Following the roll call and confirmation of a quorum, Senate committee members, with staff presiding, nominated and elected by acclamation Senator Embry as the Senate co-chair.
Governor’s Office of Agricultural Policy
Mr. Joel Neaveill, Chief of Staff, and Mr. Bill McCloskey, Director of Financial Services, Governor’s Office of Agricultural Policy (GOAP), testified about project funding decisions made by the Agricultural Development Board (ABD) during its March meeting, and two previous meetings in January and February.
The January and February reports covered the board’s actions on the County Agricultural Improvement (CAIP) and Deceased Farm Animal Removal programs.
Senators Parrett and Webb posed questions about the reasons for the board’s denial in January of $331,778 in state funds to Hollison, LLC, a company that had proposed to conduct pilot studies on three pork producers’ farms to develop technology that could detect the porcine epidemic diarrhea (PED) virus in hog feed. Senator Parrett asked if any other entity such as the Office of State Veterinarian or the University of Kentucky was conducting any PED research. He noted the problems with PED in 2013 and 2014. Senator Webb inquired about the research methods.
Mr. Neaveill said he was not aware of additional research being done on the virus. He alluded to the board’s denial being based on the idea that the project was a basic research proposal that would not progress beyond the detection stage.
Mr. Neaveill described the board’s denial in February of funds to Athena Bioplastics, which had sought $940,000 to buy equipment for a bio-resin pellet production process. According to Mr. Neaveill, the applicant appeared to be looking at agriculture as a low-cost supplier of inputs.
Next, Mr. Neaveill reported on the March ADB meeting, beginning first with the CAIP and Deceased Farm Animal programs. Applicants receiving state funding commitments in that meeting included Lexington-Fayette County Urban County Government (LFUCG), $50,000 in state funds and $55,000 in multicounty funds over a two-year period for a local food coordinator of the Bluegrass Farm to Table Program; U.S. Geological Survey, Indiana-Kentucky Water Science Center, $490,860 in state funds for a three-year water monitoring study at sites on the Green and upper Ohio rivers; Kentucky Highlands Investment Corporation, $200,000 in state funds to establish a permanent revolving loan fund to provide financing to small farmers working primarily with Grow Appalachia in the Shaping Our Appalachian region counties of eastern Kentucky; Kentucky Agriculture and Environment in the Classroom, Inc., $71,384 in state funds to buy a new mobile science activity center for use primarily in eastern Kentucky; and Western Kentucky University Research Foundation (on behalf of the Kentucky Climate Center), $12,000 in Butler County funds to equip a Mesonet weather monitoring site in Butler County.
Mr. Neaveill and Mr. McCloskey responded to several questions about the LFUCG project from Senator Gibson, Representative Quarles, Senator Webb, and Co-Chair Stone. Mr. Neaveill described the salary arrangement and duties of a local food coordinator and farmer commitments to supply food. Senator Webb indicated she was concerned how certain foodstuffs would be promoted and indicated her desire that animal agriculture be a part of the mix. She asked for information on the mission of the program and its partners.
The USGS project prompted questions and comments from Representatives Denham, Mills, and Stone, and Senators Parrett and Hornback. According to Mr. McCloskey, the study will assess the quality of water flowing into Kentucky and flowing out, and look at the impact that agriculture has on waterways.
Senator Parrett characterized the funding as important and a “good use of our dollars.” Senator Hornback said water quality and water management in the state will be important in the future. Mr. Neaveill described the year-by-year funding arrangement with the USGS.
Senators Hornback and Webb, and Representative Stone asked questions about the Kentucky Highlands project. Responding to a question from Senator Hornback about the funding being a duplication of CAIP programs, Mr. McCloskey indicated smaller amounts to CAIP dollars are available in the eastern Kentucky region. Senator Webb asked for information on the mission and the messages of the partners in the project.
Mr. Neaveill responded to several committee members’ questions about the Mesonet project. He said he would obtain additional information for Co-Chair Embry about the timetable for the project. He responded to Senators Hornback and Parrett regarding the use of Mesonet data in crop insurance claims. Senator Parrett mentioned the use of Mesonet data in viewing spray drift claims. Representative Stone indicated many local governments look at their Mesonet station as a “good community project.”
House Bill 512 Discussion
Mr. Sean Riley, Chief Deputy Attorney General, reviewed House Bill 512, the bill passed in the 2015 Regular Session directed at protecting Kentucky’s tobacco settlement funds and making sure the state abides by the enforcement called for in the Master Settlement Agreement, signed in 1998 by states and major tobacco companies.
Mr. Riley described the events that led to the legislation, most recently the state’s settlement with tobacco companies last summer. That settlement followed an adverse arbitration ruling earlier which held that the state was not diligent in its enforcement of the agreement for the year 2003. The state was facing similar enforcement challenges for subsequent years. As an outgrowth of the settlement, over the next three years Kentucky was expected to receive, at least $57.2 million in additional MSA payments than initially budgeted. According to Mr. Riley, because of the settlement and other issues, Kentucky’s enforcement might not be challenged until 10-15 years from now.
Mr. Riley described to the some of the key “fixes” that were a part of House Bill 512. Those were: the requirement for a $50,000 bond to be posted annually by nonparticipating tobacco manufacturers (NPMs) in addition to the currently required escrow payments; joint liability of importers for both escrow and penalties; the abolishment of a 60-day period that gives NPMs a chance to sell off their products; stronger Department of Revenue licensing requirements; and tighter reporting obligations for cigarette manufacturers doing business in the state. He also mentioned the possibility of additional legislation in the future and formation of an MSA working group.
Responding to Representative Stone, Mr. Riley indicated that NPMs are complying with their current escrow requirements. He responded to another question from Co-Chair Stone, saying that some other states that lost their arbitration hearings are either settling with tobacco companies or are contemplating settling.
Some committee members complimented the Office of Attorney General for the settlement. Committee members mentioned the importance of the tobacco dollars for agriculture in the state.
Documents distributed during the committee meeting are available with meeting materials in the LRC Library. There being no further business, the meeting was adjourned.