APPROVED MINUTES

COMMISSION ANNUAL MEETING AND

REGULAR MONTHLY MEETING

TUCK LIBRARY - CONCORD, NH

MARCH 3, 1999

Commission Members in Attendance:

CT: Richard Allen, Robert Jacquier, Gabriel Moquin and Mae Schmidle,

MA: Gordon Cook, William Gillmeister and Mary Kassler

ME: Thomas Doak, Colon Durrell and Fred Hardy

NH: Powell Cabot and Debora Erb

R I: Al Bettencourt, Ron Newman, John Smith and Aaron Briggs

VT: Jacques Couture, Andy Dykstra, Harold Howrigan, Millicent Rooney and Bobby Starr

Commission Staff Present:

Kenneth Becker, Executive Director; Dixie Henry, General Counsel; Carmen Ross, Regulations Administrator; Becky Holden, Office Manager; Kelly Plastridge, Full Charge Bookkeeper; and Denise Little, Administrative Assistant

The Annual Meeting was called to order by Chair Mae Schmidle at 10:05 a.m.

Annual Reports of Officers and Committees:

The Chair read the 1998 annual report of former Chair Michael Wiers. Ron Newman made a motion to accept the 1998 annual officer and committee reports as presented in the Draft 1998 Annual Report. Motion was seconded by Bobby Starr. Motion passed by unanimous vote of the six State delegations.

Annual Audit Report:

Tom Doak presented the annual audit report. He explained the Commission contracted with the same auditing firm for two years of audit services, contingent on the Commission's acceptance of the first year 1997 audit. In anticipation of the acceptance of the 1997 audit, the firm has already begun preliminary work on the 1998 audit. He expects the 1998 audit to be ready for full Commission review in one to two months.

Ken Becker explained that once the 1997 and 1998 audits are approved, they will be incorporated into the respective Annual Reports and they will be published and distributed to Commission members and as required by the Bylaws and the Compact.

The Annual Meeting adjourned at 10:20 a.m.

The Regular Monthly Meeting was called to order by Chair Mae Schmidle at 10:21 a.m.

Public Participation:

No members of the public chose to speak.

Introductions and Guests:

Mae Schmidle announced that Tina Wisell resigned as Public Information Director effective February 26, 1999.

Mae Schmidle also announced that Harold Howrigan is now Chairman of the National Dairy Promotion and Research Board.

Gabe Moquin announced that the Commissioner of Agriculture has submitted a nomination to the Governor to fill the open Connecticut position on the Commission and is recommending the appointment of Robert Delausandro from the supermarket industry.

Consideration of Minutes - January 13, 1999 Meeting:

Bob Jacquier made a motion to accept the minutes of the January 13, 1999 Commission Meeting. The motion was seconded by Jacques Couture and amended by Bill Gillmeister for a correction to page 2, line 2 as follows: ". . . for the purposed of considering processors' petition on the administrative assessment, HEP-98-[001] 011." Motion to accept the minutes, as amended, passed by unanimous vote of the six State delegations.

Communications:

Mae Schmidle reported that Shirley Ferris sent a letter authorizing Gabe Moquin as her designee for this meeting. She also reported correspondence received from New York thanking the Commission for help provided to New York and a letter from the Governor of Connecticut.

Ken Becker reported that the Missouri Commissioner of Agriculture asked a Professor at the University of Missouri for a study of the impact a dairy compact would have in Missouri. The study concludes that a compact would be beneficial to Missouri dairy farmers. The Missouri House of Representatives passed compact language two weeks ago. The vote was 153 to 0.

Mr. Becker also reported that there has also been compact activity in Pennsylvania and Georgia. We have received numerous calls and questions about how our Compact Commission operates and how we address specific issues.

Financial and Budget Reports - Year Ending December 1998 and Month Ending January 1999:

Mary Kassler reported on the Yearly Expenditures to Budget through 1998 (Attachment I). That budget report shows total income compared to the projected budget is down about $158,000, due to the HEP-98-011settlement and waiver of administrative assessments for other processors. This income reduction will carry through to 1999 somewhat. Expenses for hearings were greater than anticipated, as were legal expenses. The Commission was significantly under budget for office expenses and outside services. Actual results are below budget for total expenses by approximately $23,000. For the year, net income ended under budget by about $135,000, due to the reduced income from settlement and waivers. The balance sheet as of December 31, 1998 shows total equity is down significantly to $70,000, due to a reduction in assets and the continuing obligation for bank debts. The Commission now has a payment schedule for those liabilities.

Ken Becker reported that the combined cost of the administrative assessment petition settlement and waiver of administrative assessments for all handlers for September and October 1998 milk was approximately $165,000.

Mary Kassler reported that the January 1999 Monthly Expenditures to Budget shows that total income is under budget by about $70,000 (Attachment II). This is the result of a new petition by handlers and the implementation of the waiver through credits to those handlers who were not a part of the settlement agreement. January expenditures are on or under budget. This has effected the Commission's balance sheet so that total equity is now about $34,000. The figure referred to as "other current liabilities" represents the bank loans. The Commission is on a payment schedule of three installments to repay these loans. A payment will be due the end of March of $48,000. Cash position will be corrected to $55,000, not $34,000 because the $22,000 listed as deferred revenue are credits to the handlers from last fall and there will have to be an accounting adjustment.

Mary Kassler, Treasurer, on behalf of the Committee on Administration, made a motion to file the financial reports for audit purposes for the year ending December 31, 1998 and the month ending January 31, 1999. No second was required. Motion passed by unanimous vote of the six State delegations.

Reports:

Chair:

Mae Schmidle reported that the Committee on Administration met on February 17, 1999 and decided to keep a minimal record of its meetings, but not formal minutes. The Committee also reviewed and discussed the Commission's financial reports and the Federal Market Administrator's invoices for December 1998 and January 1999. The Executive Director updated the Committee regarding the 1997 and 1998 audits. The Committee also reviewed and discussed the draft personnel manual. The Committee reviewed a letter from former Chair Mike Wiers formally terminating his membership on the Commission and announcing that Colon Durrell, the Chairman of the Maine Milk Commission, will be the new representative from the State of Maine. The Committee also reviewed the agenda for this Commission meeting.

Mae Schmidle also reported that Ken Becker informed the Committee that Tina Wisell had submitted her resignation effective February 26, 1999. The Committee expressed its deep appreciation for her work and dedication to the Compact cause.

Executive Director:

Ken Becker reported that Tina Wisell resigned and her last day was February 26, 1999. The search will begin immediately to fill the Public Information Director position. He reported that there has been no Compact over-order obligation in 1999 and there will not be one at least until April 1999. Indications are that milk prices are dropping rapidly and there will be a compact payment on April milk and throughout the summer.

The CCC escrow fund has a balance of about $410,000 and the Commission received nearly 1,000 applications from farmers for the refund. The Federal Market Administrator's office verified the information on the applications and staff is in the process of entering the data in preparation for issuing the refund checks. Most of the applications were easily verified, but about 100 required significant research and efforts on the part of the Market Administrator's office to verify the data. He stated he hoped to have the process concluded and the refund checks distributed in the next ten days to two weeks.

Mr. Becker attended the Southern Dairy Conference in Atlanta, Georgia in early February. The Dairy conference paid his expenses. There were about 150 people in attendance, including people from southern universities, state departments of agriculture, cooperatives and dairy processors. His presentation focused on the activities of this Commission and he also responded to numerous questions Mr. Becker also attended the St. Albans Cooperative annual meeting on February 27, 1999.

The 1997 audit is completed and the auditors have begun preliminary work on the 1998 audit.

Mr. Becker stated that the 1998 Annual Report was prepared by Tina Wisell. He commented that it was a great deal of work and she did an excellent job summarizing the information and putting it together in an attractive format that is also easy to read.

The settlement agreement and the decision to waive the September and October 1998 administrative assessments approved by the Commission in January resolved that pending hearing petition and did not bind either party regarding any future actions. In February, the Commission received a second petition challenging the administrative assessment from some of the same handlers and that is why the financial reports show January income under budget. Staff is processing the petition according to the regulations.

The personnel manual was prepared by staff and reviewed by the Committee on Administration, which made a few modifications to the draft manual. The draft personnel manual is now before the full Commission for consideration.

The Commission then briefly discussed the procedural posture of the recently filed hearing petition and the previously approved settlement agreement.

The Commission recessed at 11:00 a.m. to permit the Committee on Administration and the Committee on Regulations and Rulemaking to meet. The Commission reconvened at 12:10 p.m.

Treasurer's Report:

Mary Kassler stated that the Treasurer's report was outlined under the Financial and Budget Report. She concluded that although it is a difficult time, we are moving along well.

Committee on Administration:

Mae Schmidle stated that the Committee report was outlined under the Chair's report. The Committee also decided to postpone Commission consideration of the personnel manual for one month. The recommendation for payment of the Federal Market Administrator's Invoice will be brought up under New Business.

Audit Committee:

Tom Doak stated that all Audit Committee business will be taken up under old business.

Bylaws Committee:

The Committee had no report.

Committee on Regulations & Rulemaking:

Bobby Starr reported that the Committee met on February 25, 1999 to review the supply management issues. They considered many of the options including the split pool, two-tiered pricing, assessment/refund, and production base plans. The Committee discussed the current CCC escrow refund program. The Committee will continue to work on these issues and will present a recommendation at the May meeting.

The Committee recommends a change in the rulemaking regulation to modify the current ex parte provisions to at least permit the Committee on Regulations and Rulemaking to discuss the rulemaking proceedings and record, to analyze this information and to develop a recommendation for consideration by the full Commission. General Counsel Dixie Henry explained the Committee proposal would allow the Committee to meet publicly after the close of the rulemaking comment period and prior to the Commission's deliberative meeting. The current rule prohibits any discussion between Commissioners about the merits of a pending rulemaking proceeding from the initial public notice of the proceeding until the public deliberative meeting of the full Commission. Substantial discussion followed regarding the restrictive nature of and the reasons behind the current regulation. The discussion concluded with Mr. Starr stating that the Committee will reconsider how to revise this regulation in light of the discussion and return with another proposal.

The Committee recommended that the Commission take immediate action to extend the school milk exemption through the authorization period of the Compact. The current exemption regulation expires at the end of the 1998-1999 school year. Ms. Henry then reviewed the proposed rule. Mr. Starr, Chair of the Committee on Regulations and Rulemaking made a motion to enter rulemaking in order to amend and extend the over-order price regulation to exempt from the over-order obligation any fluid milk sold in eight-ounce containers distributed by handlers under open and competitive bid contracts and sold by School Food Authorities in New England through the termination of the Compact enabling legislation. No second was required. The rulemaking schedule would involve a public hearing on April 7, 1999, with a comment period through April 21, 1999 to be considered by the full Commission at the May 5, 1999 meeting. The motion passed by unanimous vote of the six State delegations.

Mr. Starr then recommended the Commission consider amending the hearing petition regulation in order to allow the Commission the option of providing an independent hearing officer to serve as the hearing panel, in addition to the current provision for a hearing panel of Commission members. With such an amendment to the regulation the Commission could assign either an independent hearing officer or a panel of Commission members, as appropriate under the circumstances, to hear and issue a recommended decision on the handler's petition. Discussion followed regarding the recommendation. Al Bettencourt made a motion to amend the Commission's rules of practice governing proceedings on handler exemption petitions to allow the Commission to appoint a hearing panel of either an independent hearing officer, or, as currently provided, an impartial hearing panel of Commission members, as appropriate in the circumstances. The motion was seconded by Bobby Starr. The motion passed by unanimous vote of the six State delegations.

Ron Newman made a motion to specify that the amended rule, just approved by the Commission to permit the option of providing an independent hearing officer, will apply to all petitions filed, or for which filing of a petition is perfected, after March 3, 1999. The motion was seconded by Debora Erb. The motion passed by unanimous vote of the six State delegations.

Mr. Starr made a motion to accept and acknowledge the study entitled 1996 Costs of Production in the New England Milk Market as contracted by the Commission and submitted by Professor Daniel A. Lass of the Department of Resource Economics, University of Massachusetts at Amherst. No second was required. Mr. Hardy asked that the minutes reflect that this Commission regulates Class I prices only, that producers are paid a blend price and therefore, this Cost of Production study demonstrates that the $16.94 Compact over-order price is certainly not over done.

Old Business:

Audit Committee Recommendation: Audit Report Year End 1997:

Tom Doak summarized the recommendations of the Audit Committee regarding the 1997 Audit Report. The Audit Report recommended changes in three internal procedures: 1) regarding segregation of duties; 2) ACH wire transmissions; and 3) offsite storage of backup financial data. Mr. Doak reported that Commission staff has already implemented changes in all three areas. The Committee recommends that these changes be written into any office procedural manual. Mr. Doak clarified that the recommendations are not the result of any problems, and that the changes already implemented strengthen internal control procedures. The Committee also recommended that Commission members receive a briefing from staff about the Y2K issue and what has been done. Mr. Doak also reported that a number of activities have already been concluded on the Y2K issue. Mr. Doak reminded the Commission that the contract with the audit firm provides that upon the acceptance of the 1997 audit, the same firm will perform the 1998 audit.

Tom Doak, Chair of the Audit Committee, made a motion to accept the 1997 Audit Report, as reported by Sullivan, Powers & Company, and as submitted to the Commission. Acceptance by the Commission of the 1997 Audit Report would include authorization to have Sullivan, Powers & Company complete the 1998 Audit Report. No second was required. Motion passed by unanimous vote of the six State delegations.

New Business:

Committee on Administration's Recommendations:

Ron Newman made a motion to approve payment of an invoice dated February 5, 1999 in the amount of $9,408 to the Federal Market Administrator's Office. The motion was seconded by Aaron Briggs. Motion passed by unanimous vote of the six State delegations.

The Committee on Administration is deferring consideration of the Draft Personnel Manual until the next meeting.

Appointment of Compact Reauthorization Committee:

Mae Schmidle clarified that the purpose of the Reauthorization Committee is to track the federal reauthorization legislation and report back to the Commission. This will be an informal Committee and members will include Bobby Starr, Harold Howrigan and Ron Newman.

Future Meeting Date:

The next meeting will be April 7, 1999.

Announcements: Opportunity for individual State comments:

Gordon Cook asked that the Commission staff write a letter to the Burlington Free Press to correct the impression in an article that misconstrues the price set by the Commission.

Public Participation:

Debora Erb noted that by not breaking for lunch the Commission does not offer a second opportunity for public participation. The Chair offered the opportunity for public participation prior to adjournment. No members of the public chose to speak.

The meeting adjourned at 1:20 p.m.

Respectfully submitted,

Secretary

The next Commission meeting will be held Wednesday, April 7, 1999, time to be determined by close of public hearing scheduled to commence at 9:00 a.m. on the same day at this location: Tuck Library Building, Chubb Auditorium, 30 Park Street, Concord, New Hampshire.