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Since 2001, local farmers have been encouraged to move away from tobacco and into more diverse agricultural production involving livestock, vegetables and even wineries, using monies made available through a lawsuit against tobacco companies. This year, many farmers won’t see much, if any, of those funds as a result of a lawsuit.
And only an act of the General Assembly has made it possible for counties to receive any funds at all.
“The governor’s budget did not allow for money for county accounts,” said Representative Rick Rand, who serves as the budget committee chairperson. “I recommended that $6 million go to the counties. It was important to get some money back to the counties for them to invest.”
The Tobacco Master Settlement Agreement (MSA) was entered into in November 1998, originally between the four largest U.S. tobacco companies and 46 states. The states settled their Medicaid lawsuits against the tobacco industry for recovery of their tobacco-related healthcare costs.
In exchange, the companies agreed to modify or even cease certain tobacco marketing practices, as well as compensate the states for some of the medical costs associated with treatment of smoking-related illnesses. In the original MSA, the original participating manufacturers agreed to pay a minimum of $206 billion over the first 25 years of the agreement.
Half the money Kentucky receives from the settlement goes toward public health and early childhood development, while the second half is applied toward agricultural programs. The Kentucky Agricultural Development Fund was created by the General Assembly in 2000 to distribute the monies meant to diversify Kentucky’s farms and their products through cost-share programs intended to support that effort. As of January 2010, the state had invested more than $300 million to tobacco settlement money into those agricultural products.
The Kentucky Agricultural Development Board oversees distribution of funds and invests in innovative proposals that increase net farm income and affect tobacco farmers, tobacco-impacted communities and agriculture across the state by stimulating markets, finding new ways to add value to and exploring new opportunities for Kentucky agricultural products and farms.
Rand said that the tobacco settlement funds had “changed the face of agriculture in Kentucky,” helping to transition most of the counties in his district predominantly into cattle producing counties and supporting other diversification projects like wineries, agri-tourism, farmers markets, Kentucky Proud products and more.
“This more than anything in my lifetime has had the biggest impact on agriculture in Kentucky,” Rand said. “These monies have given people an opportunity to do other things beside tobacco.”
But a recent lawsuit will result in a drastic reduction of those funds this year.
In September of 2013, an arbitration panel issued a ruling regarding disputed funds associated with the MSA. The MSA required states to collect escrow payments from tobacco companies that were not part of the MSA in order to help ensure that companies that were part of the original lawsuit did not lose market shares. The four tobacco companies that were part of the original MSA claimed that several states, including Kentucky, had not diligently enforced escrow payments from the tobacco companies that did not participate in the MSA and therefore did not fulfill their requirement to collect funds from those other tobacco companies.
Kentucky chose to satisfy the arbitration in one payment, resulting in the dramatic reduction in funds this year, but if there are no additional developments, the county allocation amount will be back to normal payment level next year.
“It’s a matter of short-term pain for long-term gain,” Rand said.
Since 2001, county Agricultural Development Boards have been tasked with reviewing applications from farmers interested in utilizing these monies. If applications are approved at a county level, they move on to the state board for approval.
In Oldham County, funds usually run about $45,000 a year, according to Traci Missun, Oldham County’s agriculture extension agent. But the funds will be cut 58 percent like other counties this year, she said.
“That’s money that helps farmers, but we don’t get as much as Shelby and Henry counties,” she said.
Missun estimated Oldham County would receive between $20,000 and $22,000 this year and most of that money, if not all, has already been accounted for, she said.
“Our county agriculture development council has already met,” she said. “They had two projects before them… so they committed $2,500 to dead animal removal for Oldham County Fiscal Court and $20,000 for the meat market in Henry County.”
The funds given to the meat market were $5,000 less than the market asked for, Missun said. And because of a reduction of funds, the council decided dead animal removal and helping a new meat market open one county over would be more beneficial in a low funding year, Missun said. But it also means no individual cost-sharing program in Oldham County for 2014, she said.
And despite already allocating money for 2014, there’s uncertainty on whether it will actually come through at all.
“In our case, we still don’t have final approval to disburse funds for this year,” Missun said.
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