Millions of dollars set to come to Kentucky’s tobacco farmers at the end of the year may be held up because tobacco companies have asked for a full refund on their 2004 Phase II payments.

These payments are part of the National Tobacco Grower Settlement Trust fund which provides twelve years of compensation for tobacco quota owners, growers and tenants for lost income caused by the National Tobacco Settlement with states' attorneys generals. The funds will be adjusted annually based upon the rate of inflation and the change in United States cigarette sales. The program would have run through 2010 and Kentucky farmers were expected to receive about $125 million on Dec. 31.

With passage of the tobacco buyout, the grower settlement, commonly called "Phase II," is eliminated. The question is when does it end? Is it with passage of the legislation which would be 2004, or when companies first are assessed to begin paying for the buyout which is in 2005?

Keith Rogers, executive director of the Governor’s Office of Agricultural Policy, said the status of Phase II payments is quickly becoming the No. 1 issue in agriculture.

Rogers said the language in the tobacco buyout bill is clear that the intention was for 2004 Phase II payments to be paid.

A North Carolina court will have a hearing on the tobacco companies' refund request on Nov. 16. The payments could be held up as the request goes through the court process and could become bogged down in a lengthy appeals process.

Will Snell, a tobacco policy specialist with the University of Kentucky College of Agriculture, said the 2004 payment is in question and any reduction or elimination of that money will have a significant impact on the state’s farm economy. Almost all Kentucky’s 120 counties potentially could lose their Phase II funding, with an estimated 24 counties potentially losing more than $2 million of funds that were expected to flow into the local economy from Phase II payments.

“Not only do you have to think about the farmers but the lenders, agribusinesses and many small, local retailers,” he said. “We are talking about some significant money out there that we thought was in our back pocket but all the sudden is somewhat in jeopardy.”

Snell said the intent of the members of Congress who drafted the language in the bill was to retain the 2004 Phase II payments.

“We are keeping our fingers crossed and hope that the judge in North Carolina will rule in farmers’ favor,” he said. “Farmers have bills to pay on this year’s crop that they’re counting on that $125 million to help pay.”

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