Monday, January 22, 2001

Allocating tobacco payments keeps lawmakers occupied

By Mark R. Chellgren
The Associated Press

        FRANKFORT — As any lottery winner can attest, a big pile of money is followed shortly by all kinds of advice on how to spend it.

        So it is with the billions of dollars the major cigarette manufacturers have agreed to pay the states and a related fund to pay tobacco growers.

        The settlement was osten sibly to repay the states for the health-related costs of smoking, such as Medicaid payments to treat lung cancer.

        Similarly, the payments to tobacco growers were theoretically to compensate them for the financial losses they could be expected to suffer as cigarette sales declined and with it the demand for tobacco.

        Once the money started moving, however, things got turned around, especially in Kentucky where tobacco carries political clout that is quickly outstripping its economic importance.

        The General Assembly last year spent half of the tobacco settlement money on things having little to do with health or tobacco. A chunk went to the “Bucks for Brains” program to foster research development at the University of Kentucky and University of Louisville. Another large piece went to early childhood development programs.

        The portion that was set aside specifically for farmers prompted perhaps the most contentious debate of the session.

        Many legislators wanted to make sure as much money as possible would go to local farmers and communities to let them decide how to spend it. The other view was to use the money for broad agriculture initiatives and not dilute it.

        The statewide proposal won most of the money, but even part of that must be sent back to individual counties.

        A similar debate has been raging over how to spend the money that is supposed to go to farmers, often called Phase Two payments. And it once again pits the philosophy behind the settlement payments with political reality.

        Members of the Tobacco Settlement Trust Corp., the government agency set up to apportion the money, debated for more than three hours last week before deciding to continue apportioning the to tal pot with one-third each going to owners of the quota — the legal authority to sell a certain amount of burley leaf — the owners of the property on which the crop is raised and the labor. Often one individual fills all three roles and gets three checks. But the practice of leasing tobacco, where the quota owner rents his legal authority to someone else to raise and sell, is widespread.

        The board also decided that the portion for quota owners would be based on the quota figures for the 2000 crop. The other two segments, land and labor, would get their shares based on an average of the amount of tobacco that could be sold and the amount actually sold during 1998, 1999 and 2000.

        Most important, the board decided it would not exclude future payments to people who are not now in the business of raising tobacco.

        The board split into two camps — one with the position that the settlement payments are compensation for losses for tobacco growers; the other that the payments are something akin to an entitlement, at least for the remaining nine years of the settlement.

        “I want my son to get into it and make a better living than I do,” said Gary Cecil of Owens boro, representing the entitlement view.

        John-Mark Hack, Gov. Paul Patton's agriculture policy adviser and president of the trust group, unsuccessfully argued the other side.

        “This fund was not created as an incentive fund for people to get into the business,” Mr. Hack said. “People entering the business now or in the future have not incurred losses as a result of the (settlement).”

        Mr. Hack said leaving an impression that the settlement payments are like money in the bank for future tobacco farmers could be dangerously misleading because the future of the industry is bleak.

        The tobacco economy is changing dramatically.

        The federal quota and price support systems, which have all but guaranteed a profit for growing tobacco for decades, are increasingly under fire.

        Philip Morris USA, the largest purchaser of tobacco, started this year buying directly from growers, bypassing the auction warehouse system.

        Wilson Stone, a board member from Scottsville, said younger people should not be discouraged from growing tobacco.

        “We're going to be an old bunch of tobacco hangers in 10 years,” he said.


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