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Although a tobacco settlement arbitration that was not in Kentucky’s favor could have led to deep cuts to Kentucky Agricultural Development Funds, a new agreement with tobacco manufacturers will restore almost all of those monies, according to agricultural and state officials.
It looked like a losing arbitration against the state was going to cut the Kentucky Agricultural Development Funds to less than half, said Rep. Rick Rand, who is the chair of the House Appropriations and Revenue Committee.
“We had been bracing for steep cuts in these areas, but now will have $58 million more than had been predicted for last fiscal year and the current two-year budget,” Rand noted in his legislative column. “This will boost such things as farm grants, lung-cancer research, and a program that helps first-time parents.”
Half of the funds will continue to go to agricultural programs with the remainder to be split between early childhood development and healthcare programs, he said.
This is good news compared to what lawmakers thought would happen after the state lost the arbitation.
“The governor’s budget, when it came out, they had zeroed out these [county ag funds] accounts,” Rand said. “We had restored it to $6 million, and with the settlement, it has been restored to the whole $14 million for the county funds statewide.”
For Henry County, that meant the usual disbursement of $320,000 in tobacco funds could have fallen to $140,000, a reduction of 58 percent.
Had that happened, the Henry County Cattlemen’s Association as administrator of the funds would have had to consider cutting award amounts to farmers and projects.
When announcing the end of the dispute, a news release from Gov. Steve Beshear’s office noted that Kentucky would receive $110.4 million in tobacco settlement payments and would avoid a protracted legal battle.
The agreement also brought payments under the Master Settlement Agreement up to $157.7 million, or $67.9 million more than the state had budgeted in fiscal year 2014.
“Through the Kentucky Agricultural Development Fund or KADF, Kentucky has invested more than $400 million in MSA funds for an array of county, regional and state projects designed to increase net farm income and create sustainable new farm-based business enterprises,” according to a news release about the settlement. “Since the inception of KADF in January 2001, Kentucky has funded more than 4,800 projects.”
Besides supporting farmers’ activities, funds from the settlement agreement also go towards lung cancer research and early childhood oral and mental health assistance, according to a news release.
Tobacco companies sought the arbitration because they felt Kentucky and other states had not diligently enforced collecting escrow payments from the tobacco companies that did not participate in the Master Settlement Agreement, a requirement of the original settlement. The companies argued that the state did not meet their requirement to collect funds from those other tobacco companies.
In 2013, the arbitration panel sided with the tobacco companies.
Kentucky and 45 other states entered into the Tobacco Master Settlement Agreement in 1998, which settled Medicaid lawsuits against the tobacco industry for recovery of monies spent on healthcare costs stemming from tobacco use.
Tobacco companies, for their part, agreed to change or stop certain tobacco marketing practices, as well as compensate states for some of the medical costs associated with treatment of smoking-related illnesses.
The agreement set payments by tobacco manufacturers at a minimum of $206 billion over 25 years.
Kentucky used settlement funds to help encourage many farmers to diversify their production into livestock, vegetables and value added products, such as wine.
Typically, farmers apply for a 50-50 cost-share of a $5,000 project.
For the coming funding cycle, had the tobacco settlement monies been reduced, that amount might have been reduced to $2,500.
But state officials were able to work out a new agreement with the tobacco companies to keep the settlement monies from being cut, Rand said.
“I thought we got a good settlement,” he said. “Losing the arbitration put us in a really bad negotiating position, so I think the attorney general did a really good job getting that worked out.”
As a result of the settlement, $274,211 has been added to the Henry County fund, noted Steve Moore, the agriculture extension agent.
The fund administrators have already made a commitment to provide $57,500 to projects, including to the meat processing plant to be built in Campbellsburg. Moore noted that brings the remaining fund balance is $216,711.