Call to Order and Roll Call
The second meeting of the Budget Review Subcommittee on Transportation of the Interim Joint Committee on Appropriations and Revenue was held on Thursday, July 25, 2013, at<MeetTime> 10:00 AM, in Room 131 of the Capitol Annex. Representative Leslie Combs, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Jimmy Higdon, Co-Chair; Representative Leslie Combs, Co-Chair; Senators Ernie Harris and R.J. Palmer II; Representatives Hubert Collins, Tim Couch, Jim Gooch Jr., Keith Hall, Dennis Keene, Sal Santoro, John Short, and Jim Stewart III.
Guests: Senator Chris Girdler; Representatives Rocky Adkins, Denny Butler, Kim King, Adam Koenig, Reginald Meeks, Sannie Overly, Tanya Pullin, Arnold Simpson, Diane St. Onge, and Addia Wuchner; Jim Reed, Environment, Energy, and Transportation Group Director, National Conference of State Legislatures (NCSL); Mike Hancock, Transportation Cabinet Secretary; Russ Romine, Executive Advisor to the Secretary, Transportation Cabinet; Tammy Branham, Executive Director, Office of Budget and Fiscal Management, Transportation Cabinet; Steve Waddle, State Highway Engineer; Transportation Cabinet.
LRC Staff: Chuck Truesdell, Jennifer Anglin, Spring Emerson, and Benjamin Thompson.
Chair Combs requested a motion to approve the minutes of the last meeting. A motion was made by Representative Collins and seconded by Representative Gooch, and the minutes were approved without objection.
Representative Collins said that several years ago he strongly opposed to Public-Private Partnerships (P3s), but after visiting Washington, D.C. with the Council of State Governments and hearing discussions on the subject, he is becoming convinced that the use of P3s is a good idea.
Chair Combs said the use of P3s should be fully understood before decisions are made. It could create a lot of opportunity and potential that Kentucky might not otherwise have, but due to the complexity of the issue, it must be considered carefully.
Public-Private Partnerships
Jim Reed, NCSL, provided an overview of the use of P3s in other states, as well as other modes of funding.
Chair Combs said the United States is behind the curve on the use of P3s, and some foreign countries have used it fairly extensively for a while. While the discussion today revolves around the use of P3s for roads, they can be used for other major projects as well.
In response to questions from Representative Collins regarding the possibility of an entity not providing maintenance or perhaps going bankrupt, Mr. Reed said a fund could be created as a contingency for those types of problems. The fund would need to be capitalized initially and then contributed to annually in order for it to grow, which would be similar to posting an insurance bond.
Cabinet Secretary Hancock and Mr. Romine provided an overview of funding sources in use in Kentucky.
In response to questions from Representative Keene, Secretary Hancock said the Transportation Cabinet’s total annual budget is approximately $2 billion. Mr. Romine said approximately $250 million would be supported by toll receipts.
In response to questions from Representative Overly, Mr. Reed said NCSL does not currently have guidance for the use of P3s outside the transportation sector, but he agreed that it could be used for more. He also mentioned the use of shadow tolls, funding through other resources, with tolling as a good user fee. Secretary Hancock agreed, stating that P3 discussions should be separate from discussion of the use of tolls. Mr. Romine said Indiana has concessions to support debt for the Louisville-Southern Indiana Ohio River Bridges project, by pledging a project-specific appropriation to support the debt that has been issued. He said their availability payment concession has a 35-year term, and they intend to recoup that expense with the use of toll revenues. Chair Combs asked that Mr. Reed take the discussion on non-road P3s back to NCSL for consideration.
In response to questions from Representative Adkins, Secretary Hancock said TIFIA loans are project-specific. States must formally apply through the U.S. Department of Transportation which works directly with the Department of the Treasury to create low interest loans for states that are attempting to do projects bigger than they can typically afford. Mr. Romine added that negotiations are ongoing and Kentucky’s request for TIFIA support has been maximized.
In response to a question from Representative Meeks regarding the Louisville-Southern Indiana Ohio River Bridges project, Mr. Reed said the Indiana toll contract includes increases over time. He added that the use of managed lanes is also an option, such as that being used in Colorado.
In response to a question from Representative Santoro, Secretary Hancock said it takes a variety of options to make a mega-project work. He said all financial mechanisms are considered.
Senator Higdon thanked the Cabinet for their accessibility, and noted what an important issue project funding is. He plans to continue the discussion in future meetings.
Representative Simpson thanked Chair Combs for her willingness to have a candid, open discussion. He said P3s are a reality in many states, and as a consequence, discussions are very necessary. He thanked the Chair for extending an invitation to non-members to participate in the discussion. He said that, going forward these discussions, he hoped that two points would be considered: one, the concern of disproportionate impact; and two, what other states are doing about local control.
Project Lettings and Design/Build Projects
Steve Waddle, State Highway Engineer, testified on project lettings and design/build projects.
In response to a question from Representative Overly, Mr. Waddle said information regarding the projects let during fiscal years 2012 and 2013 would be provided to the committee at a later date.
Tammy Branham overviewed the Road Fund Cash Balance, and Secretary Hancock outlined the State Bond Funds and State Funding Priority (SPP) Projects current authorized funding versus scheduled program funding as of July 1, 2013.
In response to a question from Representative Adkins, Secretary Hancock said in order for projects to qualify for design/build status, construction costs can be up to $30 million.
In response to a question from Representative Hall, Secretary Hancock said the projects included in the 2012 Highway Plan are currently being worked on. Ms. Branham said in fiscal year 2013, $5.98 million was spent per calendar day and $8.4 million was spent per work day.
In response to questions from Representative Overly, Secretary Hancock said the cabinet would share more information on design/build projects within the next couple of weeks. He added that a floor amount of $150 million would be a fair target amount to keep as the cash balance.
Representative Couch requested information on the TIFIA loan program. Chair Combs asked that the cabinet provide all information requested during the meeting to staff for distribution to the committee at a later date.
There being no further business before the committee, Chair Combs requested a motion to adjourn. A motion was made by Representative Collins and seconded by Representative Santoro, and the meeting was adjourned without objection at 12:23 PM.