The 2nd meeting of the Capital Planning Advisory Board was held on Tuesday, September 23, 2008, at 10:00 AM, in the Auditorium at the Capital Plaza Tower in Frankfort, Kentucky. Senator Jack Westwood, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Jack Westwood, Co-Chair; Representative Larry Belcher, Co-Chair; Representative Ron Crimm, David Buchta, Ben Fletcher, John Hicks, Bill Hintze, Mary Lassiter, and Doug Teague.
Guests: James Abbott, Commissioner, Department for Facilities and Support Services; Steve Sherman, AIA and Randy Richardson, Sherman-Carter-Barnhart; Clayton Farmer, Architect, Greystone Architects, Incorporated; Glenn Mitchell, Deputy Cabinet Secretary, Finance and Administration; John Hicks, Deputy State Budget Director, Office of State Budget Director; Dr. John Hayek, Vice President for Finance, Council on Postsecondary Education; and Sherron Jackson, Assistant Vice President, Equal Employment Opportunity and Finance, Council on Postsecondary Education.
LRC Staff: Don Mullis, Nancy Osborne, Shawn Bowen, Kristi Culpepper, and Jennifer Luttrell.
Chairman Westwood thanked everyone for attending and expressed his appreciation for being able to meet in the Capital Plaza Tower so that the committee members could see firsthand some of the aspects of the Capital Plaza Complex. He stated that there would be a presentation that focuses on a recent report by the Finance and Administration Cabinet that makes recommendations concerning the Capital Plaza Complex. There will also be an update on the status of the long-range plans for housing state facilities with the movement of offices to newly renovated state office buildings and its impact on other agencies. He asked Don Mullis to review this information.
Don Mullis thanked Chairman Westwood. He gave a brief summary of the long-range plan to house state agencies. He reminded the members that last year the committee discussed some of the things planned after the completion of the state office building concerning the movement of state agencies. Since that time, there has been a study on the condition of the Capital Plaza Tower and surrounding complex. He stated that he thought it appropriate to come back to talk about what has happened with the state offices in that period of time; and to provide the members with an update of the assessment of this facility and some of the recommendations that have been made. Those recommendations will ultimately come back before the Board for review. Item IV covers the long-range plans and an update on projects which have been completed or are underway. There is also a chart that updates the utilization of the state-owned vs. leased facilities. This information is important as the Board looks at the conditions of facilities and what renovations might be needed to house state agencies in the future. 2008 House Bill 2 makes changes in how buildings financed at least 50% by state funds will be built or renovated; the energy needs of state-owned buildings; and changes in the standards for buildings. 2008 Senate Bill 189, sponsored by Chairman Westwood and enacted in the last legislative session, relates to developing funding strategies to address capital maintenance needs. The Finance Cabinet, Governor’s Office for Policy and Management, and the Council on Postsecondary Education are to report on possible funding strategies by December 1. The last item on the agenda is the instructions for the 2010-2016 Capital Plans. While the instructions are similar to the last version, Mr. Mullis reviewed some changes. Very specific language has been added to make sure agencies understand that some of the information in the capital plan will be transferred into the capital budget; how that works; what is transferred; and what is not. The information required for recently completed/ongoing projects will be taken from the quarterly capital projects status reports. Space needs/space reduction forms have been converted to a text only format requesting only general information. Appendix B is modified to reflect state agency reorganizations with the addition of the Energy and Environment, Health and Family Services, and Labor cabinets. These cabinets will report as a single entity. The Public Protection cabinet will report as a multiple reporting entity. Appendix C is included for use in estimating future costs. The Board is attempting to get the best estimate for the planning process.
John Hicks commented that integrating the quarterly status report into the capital planning system is just another example of how the Board continues to improve the system. That information is reported by the three branches and the Capital Projects and Bond Oversight Committee gathers it on a quarterly basis. This shows the interlocking relationship between reporting and what the Board does in the planning process. The staff is doing a good job of taking information that is relevant to the process and integrating it in a way that makes it accurate. Chairman Westwood agreed that this approach benefits all parties involved and gives a better picture of what are the state’s needs.
Moving to the topic of long-range plans for housing state agencies Senator Westwood said the Board might recall that the renovation of the State Office Building has been discussed over several planning cycles. When the Transportation Building was completed, it allowed that project to be completed as well. Several state agencies have been relocated to the State Office Building and this created opportunities to move other state agencies. The Finance Cabinet and its consultants are here today to update the Board on those changes and the possible impact of changes to the Capital Plaza Complex on the number and use of state facilities.
Glenn Mitchell, Deputy Secretary of the Finance and Administration Cabinet, stated that in the mid-90’s, state government did a study known as the Fantus Study that analyzed state government’s use of buildings in the Frankfort area. The basic conclusion was that state government was leasing too much space and it would be more economical for it to own more buildings. This caused the Finance and Administration Cabinet to start looking at building a major office building. The Transportation Building was the first major office building that was constructed, starting in the late 90’s. With the completion of that sizeable building, it allowed the State Office Building to be vacated and renovated. Other state government agencies are now consolidated in the facility. The next domino to fall in the long-range planning is the Capital Plaza Tower. After this building, the Finance and Administration Cabinet plans to move to the CHR building on East Main, which is the last major office building in Frankfort that needs to be addressed.
Steve Sherman, Sherman-Carter-Barnhart introduced Randy Richardson and Clayton Farmer, Architect, Greystone Architects, Incorporated. He stated the original goal of the project was to develop recommendations that would allow the state to extend the life cycle of the Capital Plaza Complex some 25 years. Additionally, they were asked to develop standards that would meet all current building codes, Leadership in Energy and Environmental Design (LEED), and Energy Star qualifications for the structures that were to be renovated. The components to be evaluated were the tower, the plaza, the garage complex, the Frankfort Convention Center, and all the related shops around the complex. Physical and functional assessments were conducted for all facilities, and recommendations were developed for each. The buildings were analyzed on a room by room basis and ratings were assigned to those structures and components. The majority of the buildings fit within the 35 to 55 range which required over 50% of the replacement cost to be expended to renovate these buildings. Several fell within the 35 category which means they were on the verge of demolition. The second phase was to determine the needs, costs, and priority rankings. At that point, the process and report took a different perspective. When the cost was determined, they started analyzing whether it was better to renovate facilities or take another approach. Based on that, Sherman-Carter-Barnhart determined recommendations in terms of scope, the budget, and the schedule for implementation. A copy of the presentation was provided in the members’ folders.
Mr. Sherman went through the assessment of each area pointing out specific needs to be addressed. Each area was rated based on the same scale. Recommendations for each component of the complex were discussed. To summarize, the price would be $134.7 million to renovate all facilities. $156 million, approximately 15% more in cost, a new parking garage could be built with a longer life that would be tied into the Transportation Cabinet’s garage and the tower could be demolished and a new office building constructed. The plaza and fountain shops could be demolished and a new public green plaza and building site created. To renovate the convention center it would cost $23.3 million.
Phase 1 would be to construct the new garage and then demolish the old garage and plaza. The overpasses/plaza could be demolished at any time. The YMCA garage addition could be done at any time. Once the new garage is built and the garage and plaza is demolished, a shell of the office building could be constructed. Phase II includes the office building fit-up, demolishing the tower and the fountain shops, and creating the new plaza. The footprint would be only 20 or so feet shorter than the length of the new four-story building. With the street level plazas, one could look right across to Mero Street while driving down Clinton. Phase III would be the renovation of the convention center.
James Abbott added that the new building would be built to LEED certification therefore the utility costs of the new space would be much less than the cost of the existing space. Artificial light must be maintained 24/7 in the overpasses in order to provide safety for pedestrian and vehicular traffic. That is expensive to maintain. Without the overpasses, it is less expensive and provides a nice entryway to the downtown area.
Bill Hintze added that the previous commissioners before James Abbott had always criticized the lack of efficiency and functionality of the Capital Plaza Complex. Looking into the long-range plan of greater reliance on state-owned vs. leased space, he asked if the state would be accommodating employees who are currently housed in the Tower, or could new space be created for staff housed in other leased space or substandard state facilities.
James Abbott stated that option could go either way. The Finance Cabinet’s six-year capital plan has consistently included building another significant state office building such as on Sower Boulevard next to the Central Lab. To consider this new Capital Plaza Complex approach would give the state the option to build such a building in the downtown community and provide one-stop shopping starting at the State Office Building, Transportation Cabinet Office Building, and the new building that could be in this complex. A fourth building could be built on the future development site created under this option. The structure that Mr. Sherman and his team have proposed would replace the tenant spaces in the Tower and the Fountain Place Shops with some additional area, but one could create a taller building than the four-story proposed building depending on the future development needs of the Commonwealth.
John Hicks asked if the Board had heard any more about the master planning and the use of the land on Sower Boulevard and additional sites for any new state office building construction. He stated that the rating system presented was very helpful in trying to decide if the buildings should be rehabilitated or built new instead.
James Abbott replied that before the State Office Building was remodeled, about 800 staff were housed in that facility. Due to the renovation of the floor space and by utilizing modular furniture, 1,200 staff are currently housed in that building. Because of the way the core of the Tower is designed, the ability to increase the occupancy level of this building does not exist.
In response to Chairman Westwood’s question about the convention center and whether vendors have turned away from using this building because of its condition, Mr. Abbott replied that it is a challenging parking situation when there is a large convention at that site during the same operational hours of the Commonwealth. The proposed addition to the YMCA parking would add capacity to the current garage and would make it a more rentable facility. The improvements mentioned are needed to attract customers. He stated that Clayton Farmer has looked at putting a front on the convention center because it looks the same on all four sides. The green area between the convention center and the hotel could be planned for further development for convention-type space. Meeting rooms that are not present now could be added. The green space could also be used for other public events, such as fairs or other gatherings either at the hotel or the convention center.
Mr. Abbott then discussed the chart depicting the state’s Frankfort based needs. The Fantus Study indicated that the state needed to have an ideal balance of 15% leased vs. owned space. The Commonwealth has reduced this balance from a high of 31% to 22% since 1980 when there was 750,000 SF of leased space. The Commonwealth is up to almost a million square feet of leased space, but when one looks at the amount of state-owned space that has been brought online, it is on the right track. With the current budget shortfalls of the Commonwealth and the retirements that are occurring, there are a number of state agencies that have contacted his department in regards to wanting to reduce the amount of state-owned and leased property. This is increasing the Commonwealth’s utilization of state-owned property to the point of reducing our leased footprint. The state is also looking at two significant moves at 209 St. Clair and 319 St. Clair. These buildings are approaching 20,000 SF in total. The state is looking to move that footprint to the Cabinet for Human Resources complex. The old surplus property building on Barrett Avenue has been renovated to provide a usable warehouse of about 35,000 SF for some of the state agencies occupying the renovated State Office Building.
Mr. Abbott said the last piece of this puzzle has always been to construct one major office building which will get the state closer to the goal of the 15% balance. He mentioned that in Jefferson County, the state-owned L and N building was recently remodeled and staff from leased property have been moved to this three-story 90,000 SF building. An energy saving performance contract was utilized to bring this building back online. It is all a matter of funding and time, but the state is making headway.
In response to Chairman Westwood’s question about other buildings that might be vacant right now because they need remodeling, Mr. Abbbot stated that at Northpoint Training Center, the Department of Corrections has been using federal money to remodel the old hospital building on the grounds. That work has not moved forward at a very rapid pace, but the state is trying to remodel and bring the building up to code, which could be used to address overcrowding in the prison population. John Hicks added that their most pressing need is for women’s prison space.
Chairman Westwood stated that he appreciated the report. He then stated that HB 2 was enacted by the 2008 General Assembly to add new provisions dealing with energy efficient buildings. The Finance Cabinet was given the responsibility to develop and implement a number of provisions relative to state owned and leased facilities. One of those is the creation of the High Performance Buildings Advisory Committee which held its first meeting on September 17, 2008. He asked Mr. Jim Abbott to provide an update on the status of implementation of those requirements.
James Abbott provided the members information that included brief resumes for the ten public members of the High Performance Building Advisory Committee. He stated that the construction standards need to be improved upon. The current building code made a significant jump relative to the construction across the industry not only in commercial, but in residential construction as well to build in a green manner. Mr. Abbott discussed the handout information concerning Energy Savings Performance Contracts, E-SELF Green Pilot Program, Natural Gas Procurement, and a number of other ongoing initiatives. The Department of Facilities and Support Services is responsible for 5.2 million SF which generate $8 million in annual utility costs. The cumulative impact of these initiatives is expected to reduce that cost by 18 % or more. There are similar opportunities for the postsecondary educational institutions.
John Hicks added that one of the key components of the capital planning process and the budget process is the operating costs of a new building. These costs should be seen in future requests.
James Abbott commented that the implementation of HB 2 will set the Commonwealth on a much straighter path relative to greening Kentucky. The benefits will be tremendous.
James Abbott stated that the Kentucky Community and Technical College System has a building that is being designed to meet LEED requirements. Also, the existing central utility plant that is located behind the State Office Building has the capability to supply chilled and steam water for the proposed new buildings downtown. Kentucky has really made a concentrated effort to look at the future of its buildings.
Chairman Westwood thanked Mr. Abbott for his presentation. He also stated that this Board in SB 189 directed that the Finance and Administration Cabinet work with GOPM to recommend a process to fund the capital maintenance and renovation needs of state facilities. The Council on Postsecondary Education (CPE), along with GOPM, is required to deal with education facilities to develop the same information. He then introduced Glenn Mitchell, Deputy Secretary of the Finance and Administration; John Hicks from GOPM, Dr. John Hayek, Vice President for Finance for CPE; and Sherron Jackson, Assistant Vice President for EEO and Finance, CPE.
Glenn Mitchell stated that this is essentially a budget issue. He noted that Chairman Westwood had the foresight to include the Office State Budget Director (OSBD) with both the Finance Cabinet for expertise relative to state buildings and CPE which has the responsibility for universities’ buildings. He stated that he sees their role as providing raw data upon which to base these recommendations. He believes the issue of coming up with the budget mechanism for creating a way to fund these needs falls directly on the OSBD.
John Hicks gave a brief background of the Board’s emphasis of concentrating on the deferred maintenance of the capital facilities in the Commonwealth. He stated that 2008 SB 189 brings light to this issue. The Executive Branch brings the institutional responsibility of developing good information for decision makers to address the issue of funding deferred maintenance. He stated that the Board should look at how other state governments approach the problem and who is most successful at this process. He stated that they would look at Kentucky’s history and use information from the Finance and Administration Cabinet on the condition of building systems. CPE has shown that renovation and rehabilitation of buildings has as much to do with how the building is utilized as to how old the roof is, both of which are important points. He stated that OSBD is interested in correctional facilities, juvenile justice facilities, mental health and mental retardation facilities and hospitals. For each physical plant, the conditions need to be updated because it is the foundation of information from which the deferred maintenance needs are determined. This issue has to have a good body of information to be able to compete with other demands on state resources. Ryan Green of GOPM has been assisting Mr. Hicks and they are working with Mr. Mitchell and Mr. Abbott’s department to assess facilities. Separately, they will be working with Dr. Hayek and Mr. Jackson as it relates to postsecondary facilities.
Chairman Westwood expressed his appreciation for this information. He added that it may cost a little bit more, but in the long run it has huge savings.
Sherron Jackson added that an outline of activities has been developed to put the report together. He noted that in May 2007, CPE reported to the Board that postsecondary education had contracted with VFA, Incorporated of Boston, Massachusetts and assessed approximately one-half of the 29 million SF of education space that is in critical condition and needs upgrading, renovation, and remodeling. The index code was found to be at 22%, which is much greater than the national average in postsecondary education. If left unchecked the percentage would increase to about 36% in five years. He said CPE developed a budget recommendation that infused funds into the process on a regular basis. For the 2008-10 budget process $90 million was requested, but only $13.9 million was appropriated to address the deferred maintenance issue to be matched by the institutions. There is more work that needs to be done to bring postsecondary education up to a minimum standard that supports the goals and objectives established in HB 1 in 1997. Over the last 12 years, the state has provided about $65 million of state General Fund moneys through bonds, etc. that has been matched by the institutions to address those issues.
The study groups held their first meeting on SB 189 on July 31, 2008, to begin to think about what can be done to create a process that can be put in place in collaboration with the state to address the deferred maintenance or capital asset preservation aspect of postsecondary education. The groups also met in August with OSBD to outline what might be a reasonable approach with input from others to address this issue. Further meetings are planned later this month and in October, with a draft of a document to be ready in November. The final document would be available to the Legislative Research Commission (LRC) by December 1.
John Hicks stated that one of the things that Chairman Westwood mentioned was the opportunity cost of not improving the investment in these areas. This is part of the challenge. The issue is large and there is a need to maintain the use of the facilities rather than bear the greater cost of investing in replacements. He stated that Mr. Jackson summarized it well and he looks forward to working with the institutions and with the Council.
Chairman Westwood stated that he liked the phrase “capital assets preservation.” It summarizes all of the Board’s goals to preserve our capital assets. He thanked the presenters. Turning to the Instructions and Forms, 2010-2016 Agency Capital Plans, Senator Westwood noted that under KRS 7A, the Board is to prescribe the format for agencies to use to submit their capital plans every two years. A draft of the complete set of instructions and forms is before the Board for action today.
Doug Teague asked about the significant dates of the Agency Capital Plans. Don Mullis responded that April 1, 2009, is the submission date. The Board is required to make its recommendation for the 2010-2016 Statewide Capital Improvements Plan on November 1, 2009. The Board’s goals are to open the Capital Planning system up for practice by Thanksgiving, but this may be pushed to December 1.
Representative Crimm made a motion to approve the minutes from the last two meetings. The motion was seconded by John Hicks and passed by unanimous vote.
Representative Crimm made a motion to approve the 2010-2016 Agency Capital Planning Instructions and Forms. The motion was seconded by John Hicks and passed by unanimous roll call vote.
Chairman Westwood stated that the next meeting would be at Western Kentucky University in November, but that the specific date was not set and that Mr. Mullis would work this out with the Board and university. With there being no further business, the meeting adjourned at 11:58 AM.