Kentucky, along with five other states, could lose a substantial amount of its annual portion of tobacco settlement funds, after a September ruling by an arbitration board that the states were “non-diligent” in requiring escrow payments.
Roger Thomas, executive director of the Governor’s Office of Agricultural Policy (GOAP), recently testified in front of the Interim Joint Committee on Agriculture. He told members the office and the Kentucky Agricultural Development Fund (KADF) depended primarily on the Master Settlement Agreement (MSA) funds and emphasized how important the funds have been, not only to Kentucky agriculture but to the state as a whole.
He also noted a long list of investments made by the KADF that have helped support farmers and benefited consumers. Because of the reinvestment of these funds made over the past 10 years, the state’s agriculture industry has benefited and diversified greatly.
Thomas identified investments in the Kentucky Beef Network, the Kentucky Dairy Development Council and the Kentucky Horticulture Council, among others, as being very successful for thousands of farmers and farm families that have benefited from the programs funded by these organizations, all of which were created thanks to ag development funds.
In addition to these more traditional programs, Thomas mentioned the new ventures the KADF has supported as well as the $12 million that has been invested in the Kentucky Proud marketing program over the past decade.
“If it were not for ag development funds, I believe [Agriculture] Commissioner [James] Comer would be the first to tell you that the Kentucky Proud program would not be and could not be the program that it is today,” he said.
The more than $200 billion settlement, the MSA, was reached in 1998 among 46 state attorneys general, five U.S. territories and the District of Columbia and the country’s largest tobacco companies to recover health care-related costs and rewrite tobacco marketing guidelines. The money was to be paid over a 25-year period. For the original participating tobacco companies, that meant annual payments based on each company’s market share in the neighborhood of nearly $10 billon.
Many states opted to put their shares into general funds. Kentucky leadership, however, decided half of this money should go back into agriculture to help farmers move away from a tobacco economy and into a more diversified agriculture environment.
With that, GOAP deals primarily with that diversification effort and oversees the KADF, the fund that receives those agriculture-related MSA dollars.
The agreement, through a “model statute,” mandated non-participating tobacco companies to make escrow payments based on their annual sales in states that had participated in the settlement.
Despite all the successes achieved by agricultural investments, Thomas told committee members challenges were forthcoming this year.
“I think we would all agree that as we look forward, the federal programs, the federal support for agriculture, will be diminished. I think that’s the optimistic way of saying it,” he said.
Thomas mentioned the likely end of direct payments after a new farm bill is passed. He also mentioned that next year farmers will be receiving their last tobacco transition payments. Those dollars were paid to tobacco quota owners due to the demise of the federal quota system in 2004.
“I think it’s easy to see and determine that federal monies coming to Kentucky agriculture in the way of incentives or program payments are going to be much, much less in the future than they have been in the past,” Thomas said.
But it is the possibility of losing some or all of those MSA funds for the coming year that could prove to be the most detrimental to farmers in this state.
Thomas told the committee the loss of those funds could have a very dramatic effect on the KADF and the programs it supports.
“It’s still too early to say what that means for 2014. We won’t know until March 2014 what the payment to Kentucky and the other states will be for their MSA payments,” he said.
In 2013, the state received more than $100 million, and an anticipated $90 million was expected in 2014, an amount that has been figured into the current state budget. The amount that will be lost, if any, has yet to be determined.
“It all depends on these various state MSA courts and what their rulings are on motions to vacate. It could be $45 million, it could be $5 million — it just depends on the actions of the state MSA courts.”
Thomas added that there is even a possibility that the state’s payment due in March 2014 will not be reduced, depending on the timeliness of the court actions.
Kentucky officials have said the state was diligent in its efforts to comply with the model statute and the ruling is being appealed. A decision is not likely until spring.