The 5th meeting of the Capital Planning Advisory Board was held on Friday, October 12, 2001, at 10:00 AM, in Room 111 of the Capitol Annex. Representative Perry Clark, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Representative Perry Clark, Chair; Bill Hintze, Vice Chair; Senator Albert Robinson; Susan Clary; Debra Gabbard (representing James Codell); Lou Karibo; Cicely Lambert; Glenn Mitchell; Norma Northern; Laurel True; Garlan Vanhook; and Judge Edwin White.
Guests: Dr. Gary Ransdell, President, Western Kentucky University; and Doug Robinson, Governor’s Office for Technology.
LRC Staff: Pat Ingram, Staff Administrator; Mary Lynn Collins; Nancy Osborne; and Dawn Groves.
Mr. Hintze's motion to approve the minutes of the September 17 meeting was seconded by Ms. Northern. It was approved by voice vote.
Chairman Clark said he was pleased to learn yesterday that Ms. Northern had been appointed to a new four-year term on the Board. He then asked the Board’s Staff Administrator Pat Ingram to review the Information Items included in the members’ folders.
Ms. Ingram said October 1 was the deadline for agencies to submit amendments to their 2002-2008 capital plans and that the first Information Item was a report of the amendments received since the Board’s meeting on September 17. She highlighted amendments that had been submitted by the Justice Cabinet, the Kentucky Infrastructure Authority, and several of the postsecondary institutions. Ms. Ingram said the second Information Item was an update on the new real properties database which indicates that the Department for Facilities Management is currently working with the software company to obtain a cost estimate for the project. Ms. Ingram said the final Information Item related to the Council on Postsecondary Education’s (CPE) development of its 2002-04 capital budget recommendation. It reported on the current calculation of the postsecondary education space needs model, the review of proposed projects by the CPE’s consulting architect, and the expected recommendations of CPE staff relative to the capital renewal and maintenance pool.
Chairman Clark next introduced Western Kentucky University (WKU) President Gary Ransdell to report on changes in WKU’s proposal for renovating Diddle Arena since it was presented to the Board in July. President Ransdell said the last time he met with the Board it had been WKU’s intention to transfer the deed to the building to the City of Bowling Green, which would issue General Obligation bonds to fund the renovation. The plan no longer includes transferring the deed, and since it will continue to be a state building, the project has been put on hold until authorization can be sought from the General Assembly in 2002. The fund source will continue to be General Obligation bonds to be issued by the city with student fees to pay the debt service.
Mr. Hintze said he was very familiar with the project, and this appears to be the best approach. He asked about the impact of the delay, especially relative to the pledges for the corporate suites. President Ransdell said there will be some challenges in trying to renovate the facility during the academic year, but the big issue will be the corporate suites. He said the suites will have to be completed in time for the basketball season to begin or risk losing those contracts which will provide approximately $300,000 toward balancing the Athletic Department budget.
In response to Mr. True’s question, President Ransdell explained that student fees will be used to pay debt service on the bonds to be issued by the City, with approximately $1 million remaining to be directed toward other activities in WKU’s Athletic Department budget. If the fee were to become insufficient to reimburse the City for the debt service, the WKU Board of Regents has the authority to adjust it accordingly.
Chairman Clark said at the Board’s last meeting, the Finance and Administration Cabinet had reported on Phase One of its feasibility study on construction and financing alternatives for new state office space in Franklin County. He said today Glenn Mitchell, Deputy Secretary of the Cabinet, would report on Part Two of the study as well as the master plan that has been developed for the use of state-owned land in Franklin County.
Mr. Mitchell noted that staff was distributing both documents (Part Two of the feasibility study and the land use master plan) to members of the Board. He said in Part One of the feasibility study, the consultants in conjunction with staff of the Finance and Administration Cabinet had focused on developing office building prototypes for state government. He said Part Two of the study reviewed four approaches to financing the 127,000 square foot prototype building. They are: 1) Commonwealth of Kentucky ownership with the state issuing the bonds; 2) local government ownership with the city or county issuing the bonds and the state lease-purchasing the building over the period of the bonds; 3) private ownership with the state leasing the space; and 4) private ownership with the state lease-purchasing the building. Mr. Mitchell noted that the first approach is the conventional method for state ownership, the second approach would preserve the state’s debt capacity, and the third approach is the conventional leasing approach but is not typically used for such a large building.
Mr. Mitchell referenced the economic analysis pages included in the Part Two document, as well as a separate summary that varied some of the inputs used by the consultant in his analysis. He said that, based on a total 20-year present value cost, Commonwealth of Kentucky ownership with bond financing would be $26,504,885; local government bond funding with lease purchase by the state would be $26,896,098; private development with state leasing would be $29,307,425; and private development with lease purchase by the state would be $32,733,732.
Ms. Clary asked how much the agencies that are expected to relocate to a new building are currently paying for leases. Mr. Mitchell said the current lease costs are lower than this analysis assumes for a new building, because they are not in buildings of the same quality as those being proposed.
In response to Mr. True’s question about how much construction costs are increasing annually, Mr. Mitchell said he would try to get those figures. Mr. True also noted that the Board had previously recommended the construction of new office space in Franklin County and if that had been done 10 years ago, one-half of the cost would already have been paid by now.
Mr. Hintze noted that while private developers usually try to recover their costs in a relatively short time, the state is usually still leasing the space after that period. Mr. Hintze further noted that other states have problems with state office space similar to Kentucky, and asked what they have done to address the situation. Mr. Mitchell said a lot of states have used the approach involving local government financing, and there are options in the tax law to allow the creation of a quasi-governmental agency that exists solely to finance these types of projects. This type of agency, which is a partnership between state and local government, sells the bonds and owns the building until the bonds are repaid, after which the state takes ownership and the entity is dissolved.
In response to Chairman Clark’s question, Mr. Mitchell said the state’s lack of debt capacity should not impact the ability of local government to issue bonds since they are considered separately. Mr. Hintze noted that while the state has financial difficulties, its credit rating in the market is good because the state has not, and has no intention of, defaulting on any debt. He said the steps needed to ensure that a good credit rating is maintained may be difficult, but they will be taken.
Mr. Mitchell next discussed the Frankfort Master Plan that had been distributed. He noted that the Finance Cabinet is required by statute to develop a plan for housing state agencies in Frankfort. The first step in that process was the Fantus Study in 1997 which concluded that the state was overutilizing leased space. The current study looks at how to remedy that situation by examining the suitability of six major state-owned parcels of land in Frankfort as sites for office buildings. Barrett Properties, Inc., a Lexington-based planning and landscape architecture firm, considered six sites where the state owns substantial acreage. Those sites were identified as the Libraries and Archives Complex, Berry Hill, the Central Lab Complex and Carpenter Farm, the Capital Corridor, Capitol View Park, and the Boone National Guard Center/Frankfort Airport property.
Mr. Mitchell said the consultants sited the prototype buildings on the properties in various configurations, but said no one should expect all of them to suddenly be built. He said this is essentially a capacity analysis, which shows that an additional three million square feet of office space could be provided if all of the sites were fully developed. Mr. Mitchell noted that for each site the plan includes information on existing conditions, the utilities available, and natural factors.
Mr. Mitchell next presented maps reflecting the land use plan of each of the six sites. He said the Berry Hill plan is the most ambitious in that it calls for the relocation of Lafayette Drive to eliminate the dangerous entrance to the property where Lafayette Drive merges into US 60. One of the small prototype office buildings is identified to be located on the site. Relative to the Libraries and Archives Complex site, Mr. Mitchell said the plan calls for the construction of a large “monument” office building and a smaller complex of support offices. He noted this has previously been discussed as the possible site of a new building for the Administrative Office of the Courts. Mr. Mitchell said the Boone Center site would involve the acquisition of some adjacent land, and construction of various specialized facilities that have previously been identified including a Military Museum, an Armory, and additional hangars for the airport. The plan also provides for the construction of some office space at the site. Relative to the Capital Corridor, Mr. Mitchell noted that the state has begun acquiring some property along the Kentucky River on Old Lawrenceburg Road, and the Master Plan calls for an Interpretive Center to be located in that area. He said at the Capitol View Park site, the city has developed some of the southern section of the state-owned property as ball fields, etc. The plan provides for the construction of office buildings and for a straightening/realignment of Glenn’s Creek Road on the northern section of the property. Relative to the Central Lab Complex and Carpenter Property, Mr. Mitchell noted that part of the land is owned by the state and part is owned by the City of Frankfort. The city’s long-range highway plan includes construction of a road through the property that would eventually be extended to connect with I-64. This site has the most capacity for office buildings. According to Mr. Mitchell, on one area of the state-owned property the prototype buildings could be configured to provide approximately 300,000 square feet of office space, which is the amount consistently recommended by this Board in recent years.
There being no further questions, Chairman Clark thanked Mr. Mitchell for his presentation, and said the Board would continue its work on recommendations for the 2002-2008 Statewide Capital Improvements Plan. He stressed that all of the recommendations would remain subject to change until final action is taken on the entire plan at the October 26 meeting.
Ms. Ingram was asked to review the policy recommendations included in the members’ folders. She said the Board had reviewed most of the recommendations at the last meeting. Wording changes requested at that meeting had been made, and the supporting narratives had been shortened by combining material from the separate background and rationale sections.
Ms. Ingram said the first recommendation on “Funding for Major Capital and Maintenance” states the following:
The Board recommends that legislation be enacted by the 2002 General Assembly to establish programs to fund major capital renewal and maintenance needs of state facilities.
Based on Ms. Clary’s request, Chairman Clark asked that staff add language to the outlines of the proposed programs that would exempt the two funds from budget reductions. Mr. Vanhook’s motion to approve the recommendation was seconded by Mr. Mitchell. It was approved by voice vote.
Ms. Ingram said the next recommendation entitled “Development and Implementation of a Real Property/Facilities Management Database” received a lot of discussion at the last meeting. She read the revised recommendation as follows:
The Board recommends that KRS 42.027 be amended to include in the duties and responsibilities of the Department for Facilities Management (DFM) the development and maintenance of a comprehensive real property/facilities management database for the Executive Branch, and to specify that all state agencies and postsecondary institutions are to work cooperatively with the Department in this effort.
Following a complete evaluation of the needs and a determination of the cost of a database to meet the needs by the Department, the Board also urges the Secretary of the Finance and Administration Cabinet to allocate amounts from the Capital Construction and Equipment Purchase Contingency Fund to address non-recurring costs associated with implementing the project.
Ms. Ingram said that given Commissioner Russ’ report of the work that is already underway on developing the database, language outlining a specific planning process to be followed has been moved from the recommendation to the background narrative. Also, the recommendation no longer proposes to use amounts from the Contingency Fund for planning of the database and only urges the Finance Secretary to allocate Contingency Funds for implementation of the project. Mr. Mitchell’s motion to approve the revised recommendation was seconded by Ms. Clary. It was approved by voice vote.
Ms. Ingram read the next revised recommendation entitled “Information Requirements for Recommended Capital Projects” as follows:
The Board urges that the Executive, Judicial, and Legislative branches adhere to the requirements contained in KRS 45.760(2)(b) relative to reporting the total estimated cost of completing a recommended project.
The Board also recommends that KRS 45.760 be amended to require that if the total cost of completing the project is greater than the estimated cost during the biennium 1) the recommendation must clearly describe the work to be completed with the funding that is recommended for the biennium, and 2) the recommendation must certify that, if additional amounts for the project are not forthcoming, the work described is sufficient to provide for a viable project that addresses the agency’s needs.
Ms. Ingram said this recommendation is also shorter than when it was reviewed at the last meeting because it now focuses on projects that are being funded in phases. She noted that at the last meeting, members discussed other issues about project authorizations and decided to defer those for further review after this planning process. Mr. Hintze’s motion to approve the revised recommendation was seconded by Ms. Northern. It was approved by voice vote.
The next recommendation addressed “Funding for Maintenance Pools.” It stated:
The Board recommends the following regarding funding for agency maintenance pools:
- That the 2002-04 and subsequent budgets include a maintenance pool for each agency with responsibility for administering/managing state property.
- That in preparing the 2002-04 and subsequent budgets, funding for maintenance pools be calculated in an equitable manner across all agencies and that an appropriate offset to the calculated need for state funds be established for those agencies with restricted or facility-generated funds available to use for this purpose (e.g., Center for the Arts, State Fair Board).
- That a goal be established to achieve maintenance pool funding of at least $1.50 per square foot annually for all agencies by FY 2005/06.
- That the Governor’s Office for Policy and Management and the Department for Facilities Management work to develop a formula for maintenance pool funding that takes into account not only square footage, but also condition of facilities and other relevant factors. Periodic reports on this effort should be presented to the Capital Planning Advisory Board.
- That when Investment Income revenues are insufficient to adequately finance the agency maintenance pools, the state General Fund or other appropriate revenues should be used.
Ms. Ingram pointed to two changes from the wording that was presented in September. She said in the third bullet, the funding goal had been set at $1.50 per square foot, but was changed to at least $1.50 per square foot in response to comments that the original goal might be too low. She also said in the previous draft the fourth bullet stated that the formula to be developed should take into account square footage, age of facilities and other relevant factors; the revised recommendation substitutes “condition” in place of “age” as one of the specific factors to be considered. Mr. True’s motion to approve the revised recommendation was seconded by Mr. Hintze. It was approved by voice vote.
Ms. Ingram said recommendations in the next two agenda items had been in the same item when reviewed by the Board at the last meeting, but it was felt to be more appropriate to separate them. Recommendations in the first item entitled “Responsibilities and Resources of the Department for Facilities Management” were as follows:
The Board recommends that KRS 42.027 be amended to specify that the Department for Facilities Management (DFM) shall have the authority and primary responsibility for developing and implementing policies applicable to all state agencies to ensure effective planning for and efficient operation of state offices and shall provide appropriate assistance regarding the planning and efficient operation of all state facilities.
The Board recommends that additional resources (funding and personnel) be provided to the DFM in the 2002-04 and subsequent biennial budgets to address the expanded responsibilities that the Department has assumed in recent years and that are anticipated in the future.
Ms. Ingram said staff had worked with Mr. Mitchell on language to clarify that the Department’s primary responsibilities relate to office space, but that it also has a role in providing assistance in some areas (e.g., energy efficiency) for other types of facilities. She also noted there had been concerns about directing that a specific organizational unit be established in the Department, so the language now simply identifies the need for additional resources for the Department to address its expanded duties. Mr. True’s motion to approve the revised recommendation was seconded by Ms. Clary. It was approved by voice vote.
Ms. Ingram said that other than separating it from the recommendations on DFM responsibilities and resources, the next recommendation on “Facilitating Effective and Efficient Housing of State Agencies” had not been changed since the last meeting. It stated the following:
The Board recommends that KRS 45.770 be amended to allow the Capital Construction and Equipment Purchase Contingency Fund to be used for moving/relocation expenses to facilitate achieving the goal of housing of agencies in state-owned space (rather than leased facilities), and the goal of consolidation of agencies housed in multiple leased sites.
The Board recommends that the Finance and Administration Cabinet identify and propose other legislative changes for action by the 2002 General Assembly that would enhance the Department for Facilities Management’s ability to carry out its responsibilities relative to the housing of state agencies.
Mr. Mitchell’s motion to approve the recommendation was seconded by Mr. Hintze. It was approved by voice vote.
Chairman Clark said the next three items addressing information technology could be handled with a single motion. Ms. Ingram said the recommendations on a revised system definition, enterprise shared infrastructure and services, and security had been proposed by the state’s Chief Information Officer and most of the background material was taken from the CIO’s report to the Board in August. She read the three recommendations, which stated the following:
The Board recommends that KRS 7A.010 and KRS 45.750 be amended to define the term “information technology (IT) system” to include all costs involved in the deployment of a project as proposed by the state’s Office of the Chief Information Officer (CIO).
The Board endorses the Chief Information Officer’s recommendation that information technology (IT) planning should emphasize an approach that fosters support for the enterprise vision of a shared environment.
The Board endorses the Chief Information Officer’s recommendation that information technology (IT) planning should place a high priority on including security components in capital systems.
Ms. Ingram noted that the system definition recommended by the CIO was included in the Background section of that recommendation.
Mr. True asked for clarification of the meaning of “enterprise shared infrastructure and services.” Chairman Clark called on Doug Robinson of the Governor’s Office for Technology to address the question. Mr. Robinson said the intent is to consolidate services, such as electronic mail and security, where appropriate, rather than having them provided by each agency. Mr. True said this may be needed in some areas, but urged caution relative to centralizing services and taking flexibility from the user agencies.
Mr. Hintze’s motion to approve the three information technology recommendations was seconded by Ms. Northern. It was approved by voice vote.
Ms. Ingram said the next recommendation was presented verbally and approved at the last meeting. It has now been formalized in writing with background information, and states the following:
The Board recommends that the 2002-04 budget provide for the construction of a new building in Franklin County to house state offices.
Mr. Mitchell’s motion to approve the recommendation was seconded by Mr. True. It was approved by voice vote.
Ms. Ingram said the next recommendation on “Replenishing the Budget Reserve Trust Fund” was not presented at the last meeting, but given the Board’s discussions about the importance of that Fund, this draft was prepared. It states:
The Board recommends that the Governor and General Assembly place a high priority on replenishing the Budget Reserve Trust Fund as quickly as possible to a level that represents 3 to 5 percent of General Fund revenues.
Mr. Hintze’s motion to approve this recommendation was seconded by Ms. Northern. It was approved by voice vote.
Ms. Ingram said she would read the policy recommendation on “Energy Efficiency in State Buildings” and Mr. Mitchell would review the background material. The recommendation stated the following:
The Board recommends that favorable consideration be given to administrative and legislative changes that would allow for greater utilization of the provisions of KRS 56.770 – 56.784 (the Energy Efficiency Program for State Government Buildings) while retaining appropriate oversight of the program.
Mr. Mitchell said the members had been provided a copy of the Energy Efficiency Solutions Team recommendations and its proposed legislation. The recommendations address the need to capture energy usage data; proposed legislative changes regarding project authorization, financing and ownership; use of the state’s Master Lease Program and other credit instruments for financing; adoption of a general process and development of a detailed procedure manual for Energy Savings Performance Contract (ESPC) projects; creation of a revolving fund to provide financing for energy conservation projects; establishment of an initiative to encourage low cost/no cost energy efficiency programs; and increased staffing in the Finance and Administration Cabinet to address needs of the Energy Efficiency Program.
In response to Mr. True’s question, Mr. Mitchell explained that all of the savings to be applied to pay for an ESPC project would be derived from the project itself, not from behavioral changes of building occupants. Mr. True’s motion to approve the proposed recommendation was seconded by Ms. Clary. It was approved by voice vote.
Relative to the project recommendations, Chairman Clark noted that the draft recommendation on state-funded projects had been revised since being mailed to members earlier in the week. He asked Ms. Ingram to review the proposed project recommendations.
Ms. Ingram said the state-funded project recommendation continues essentially the same project groupings as in the recent plans, but it begins by providing an overall context for all of the recommendations which states the following:
The Board recommends that a very conservative state-funded capital construction program be approved for the 2002-04 biennium due to the fiscal uncertainty facing the state, the limited capacity expected to be available for the issuance of bonds, and the need to place a priority on replenishing the Budget Reserve Trust Fund.
Ms. Ingram continued to read the recommendation as follows:
Maintenance of existing state-owned facilities should be the highest priority for funding in the 2002-04 capital budget, with a focus on funding for the agency maintenance pools, the postsecondary education capital renewal and maintenance pool, and those other minor (less than $1 million each) projects to address maintenance and life/safety needs that have been identified as high priorities by the agencies.
To the extent amounts are available for major construction, equipment and information technology projects, the following should be considered as high priorities for funding in 2002-04.
Funding for programs that provide assistance to non-state entities through grants or loans should focus on those programs that will enable the state to access federal funds for needed projects.
Ms. Ingram noted that the proposed list of 15 specific projects to be authorized if funds are available (the second item in the recommendation) was included on the draft provided to members. She also noted that the background narrative contains a brief review of the three factors listed in the first statement of the recommendation (fiscal uncertainty, debt capacity, and the BRTF). The background also references the separate policy recommendation on funding for the agency maintenance pools, and endorses the CPE staff proposal that state funds for a postsecondary education capital renewal and maintenance pool be matched by the institutions at varying rates based on the institutions' efforts to maintain existing facilities.
Relative to the projects to be financed from other than state funds Ms. Ingram noted that the wording is virtually identical to what has been included in recent plans. With certain exceptions, it supports all of the projects proposed to be financed from federal funds, restricted funds, the state Road Fund, or other funds. Those exceptions included projects that would require the expenditure of significant additional state funds for operations and maintenance and projects that would commit the state to fund significant costs to complete the project after the available non-state funds have been expended. Ms. Ingram said the recommendations state that these funds should not be authorized for projects to such an extent that agency programs or operations also funded by that source would be jeopardized. They also state that the top priority for the use of restricted funds by the postsecondary institutions and for the use of amounts from the Road Fund by the Transportation Cabinet should be to address life/safety and maintenance needs.
Judge White noted that the list of existing projects for which additional funding will be sought in 2002-04, as included in the members’ folders, is very lengthy and asked how these would be handled given the state’s revenue situation. Chairman Clark called on Mr. Hintze to address that issue and asked whether the approach of linking debt service to six percent of revenues would be continued in the upcoming biennium. Mr. Hintze said how to deal with the six percent calculation was a policy decision that was currently under discussion. He also referenced the difficulty that would be caused by the additional revenue shortfall announced earlier in the week, and said he could discuss these items with the Board further at the next meeting. With regard to the projects reported as needing additional funds, Mr. Hintze said he would not automatically infer that a Phase II or other additional funding for a project was a higher priority than other proposed projects.
Chairman Clark reminded members that final action on the statewide plan including the project recommendations would be taken at the next meeting which is scheduled for October 26.
There being no further business to discuss, Mr. Karibo's motion to adjourn the meeting was approved by voice vote. The meeting was adjourned at 11:42 a.m.