The 1st meeting of the Capital Planning Advisory Board (Board) was held on Thursday, June 4, 2009, at 1:00 PM, in Room 169 of the Capitol Annex. Representative Melvin B. Henley, Co-Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Jack Westwood, Co-Chair; Representative Melvin B. Henley, Co-Chair; Senator David E. Boswell; Representative Ron Crimm; David Buchta, Carole Henderson, Bill Hintze, William May, Katie Quitter, Edmund Sauer, and Laurel True.
Guests: Tony Wilder, Commissioner, Mike Hale, Flood Control Administrator, and Harry Carver, Renaissance on Main Project Manager, Department for Local Government; John Covington, Executive Director, Kentucky Infrastructure Authority; Warren Nash, Deputy Commissioner, Department of Commercialization & Innovation, Donna Duncan, Commissioner, Department of Financial Incentives, and Holly Spade, Executive Director, Office of Legal Services, Economic Development Cabinet; Robert Tarvin, Executive Director, School Facilities Construction Commission; Steve Reeder, Executive Director, Don Morse, Staff Assistant, and David Hamilton, Engineer, Kentucky River Authority; Craig Maffet, Deputy Commissioner, Department of Agriculture; Tammy Branham, Executive Director and Jeff Morris, Director, Division of Facilities, Transportation Cabinet.
LRC Staff: Don Mullis, Shawn Bowen, and Jennifer Luttrell.
Co-Chair Henley asked Co-Chair Westwood to make introductory remarks. He thanked everyone for attending and welcomed the new members to the Board.
Co-Chair Westwood’s motion to approve the minutes of the September 23, 2008, meeting was seconded by Representative Henley and approved by voice vote.
Co-Chair Westwood then noted that the major responsibility of the Board every two years is the development of a statewide capital improvement plan. Before beginning the review of the six-year capital plans of the various agencies, he asked Mr. Mullis to go over the informational items and to provide an overview of the planning process.
Mr. Mullis explained that the Status of Implementation of Senate Bill 189 would have to be postponed until the next meeting because Mr. John Hicks was not able to attend. He then explained that either there was a staff analysis of various agencies that do not have a capital request or the nature of their capital request has not changed over the last several plan cycles. These agencies would not appear before the Board. He noted that this would help reduce the number of meetings that would be necessary between this date and October.
Mr. Mullis reviewed the statutory basis for the Board’s development of a six-year statewide capital improvement plan. He then described the content and review format of the agency six-year plan submissions. Noting that the agency plans contain a large amount of information, Mr. Mullis also reviewed the summary materials that would be provided to the members in the “CPAB Staff Analysis and Comments” for each plan. He then introduced staff who would be working with the Board during the 2010-2016 planning process. He requested that the Board schedule the next two meeting dates.
Co-Chair Henley requested that the Board set the next two meeting dates. The dates set were July 7 and August 21st.
Co-Chair Henley said the first agency plan to be reviewed would be the Department for Local Government. Representing the Department were Mr. Tony Wilder Commissioner, Mr. Mike Hale, Flood Control Administrator, Mr. John Covington, Executive Director of the Kentucky Infrastructure Authority (KIA), and Mr. Harry Carver, Renaissance on Main Director.
Mr. Mullis gave a brief overview of the Department’s purpose and priorities for the general fund during this planning process.
Commissioner Wilder asked Mr. Mike Hale to give a brief overview of the Flood Control program and to present the needs of this program.
Mr. Hale said the Flood Control Matching Program was funded to help communities meet federal match requirements for flood damage abatement. The Department is seeking funding in the upcoming biennium to respond to changes at the federal level. Mr. Hale said that because of the Katrina disaster in New Orleans, FEMA wants to make sure that all levies and floodwalls can sustain the floodwaters. The next component of this request has to do with Natural Resource Conservation Service Dam Repairs. The Federal Government has provided stimulus monies to communities to allow for repair or rehabilitation of dams that the Division of Water has determined to have deteriorated from a moderate hazard to a high hazard. Downstream development since construction of these dams has placed a tremendous need to match those federal programs and requirements as was evidenced by the recent flooding disasters.
In response to Co-Chair Henley’s question about whether the Department coordinates with the Kentucky River Authority (KRA) on the locks and dams, Mr. Hale replied that they had some initial conversations, but because the locks and dams have to do with navigation and not flood control, they have not been coordinating with KRA.
Co-Chair Henley asked how the stimulus monies would affect this program. Mr. Hale replied that Natural Resources Conservation Service has received some money recently, but the Department will need from $1 to $4 million to match the federal-funded dams program.
Co-Chair Henley asked if the Department will apply for competitive grants. Mr. Hale replied that the communities would apply for the grants and then request the Department to assist with that local match which would apply to the Natural Resources Conservation funding.
Commissioner Wilder then asked Mr. John Covington, Executive Director of the KIA, to give a brief overview of the Authority and the funds being requested.
Mr. Covington gave a brief history of KIA. He then stated KIA is requesting $50 million from the Infrastructure Revolving Fund (Fund B) to be used to fund water and sewer projects that are not eligible to be funded by the Federally Assisted Wastewater Revolving Fund Program (Fund A) or the Federally Assisted Drinking Water Revolving Loan Program (Fund F). He said there is a significant demand for Infrastructure projects across the state and a recent call for projects for the $68 million in American Recovery and Reinvestment Act stimulus funds generated over a billion dollars in requests.
Mr. Covington said KIA is requesting $172 million for the Fund A program. This consists of $60 million in federal funds, $12 million in general funds for the required state match and $100 million from agency bonds. The increase in federal funds from the current request is based upon the proposed federal budget. The funding levels in both programs are consistent with the proposed increase in the federal budget. The Authority is requesting $100 million in agency bonds, which is a decrease from what was requested in the last biennium. This decrease is a result of the increase of the federal budget for this program. This program has a history of increased loan repayment so there will be more funds available for this program. The debt service on the agency bonds is paid from program revenues and does not require general fund dollars. Mr. Covington stated that KIA is requesting $63.4 million for Fund F, which consists of $32 million in federal funds, $6.4 million from the general fund for the required state match and $25 million in agency bonds.
Mr. Laurel True asked when the agency bonds would be issued. Mr. Covington replied that they are working with the Office of Financial Management to select an underwriter and bond counsel. Requests for Proposals are due on June 12, and they anticipate the bonds being sold within the upcoming fiscal year.
Mr. True asked where the agency revenues come from to which Mr. Covington replied that they come from the repayment of loans. He also noted that these bonds have been favorably received in the market.
At the request of Commissioner Wilder, Mr. Harry Carver, Renaissance on Main Project Manager, briefly discussed the history of the program. He noted that there was no funding received for this program in the last biennium.
Representative Henley added that this program has increased the downtown property values.
Commissioner Wilder addressed the request for $3 million for the Community Enhancement Funds indicating that there is not an existing program for communities that might have needs that are not provided for in any of the other funds.
The next plan to be reviewed was for the Economic Development Cabinet. Representing the Cabinet were Ms. Donna Duncan, Commissioner of the Department of Financial Incentives; Mr. Warren Nash, Deputy Commissioner, Department of Commercialization and Innovation; and Ms. Holly Spade, Executive Director, Office of Legal Services.
Mr. Mullis first gave a brief overview of the Cabinet’s programs and priority requests. Ms. Duncan then gave a brief overview of the Kentucky Economic Development Finance Authority (KEDFA). She stated that the biennial budget approved for the fiscal year ending June 30, 2009, requires KEDFA to transfer $23 million to the general fund. This transfer is to be made this month and when it is effective will leave $5 million to meet loan demands and cover operational expenses. HB 406 (budget bill) also reauthorized a prior period bond authorization to allow KEDFA to share proceeds of a $20 million bond issue with projects initiated by the Department of Commercialization and Innovation through the high tech investment pool. This pool currently has $7 million in uncommitted funds available. Loan demand is increasing due to economic conditions. The Cabinet is requesting $15 million for each of the next three biennia to meet the needs of the Commonwealth in order to be competitive with other states. The KEDFA program is requesting $100 million in the 2010-2012 biennium that includes advanced disbursement options. A statutory change would be needed. These advanced disbursements would be treated as loans, would require collateral, and have set repayment schedules. She also addressed the Economic Development Bond program. She gave a brief history and overview of the program. She noted that there have been no major changes in this program since the last capital plan submission. Currently ten projects have been approved which total $50 million as approved by HB 406. The request for the next three biennia is for $20 million, each which should be sufficient for the projects they anticipate.
Ms. Duncan replied yes to Co-Chair Henley’s question as to whether they were serious about the paybacks.
Representative Crimm asked how many loans were being requested. Ms. Duncan replied five to ten per year.
In response to Co-Chair Henley’s comment, that if the state had loan money available it might be in a good position to attract companies that could not borrow money elsewhere, Ms. Duncan stated that she thought that was a fair statement. She also noted that it would be a benefit to the state.
Mr. Nash then addressed the high tech construction pools. He gave a brief overview of these pools established under KRS 154B as forgivable loans. There are currently 31 high tech companies that are in monitoring status. It is projected that over the next three to five years, 750 high-tech management and technical jobs paying salaries in excess of $50,000 will be created. There are 25 active projects at various stages that will be coming to the high tech pools for funding. Another program that is feeding this pipeline is the Federal Small Business and Innovative Research (SBIR) Program. This program encourages small businesses to explore their technology potential and is the first of this sort of program in the nation. Since 2006, the state has provided matching funds. He pointed out that the state has had companies locate to the state because of this program. At the International Bio Conference in Atlanta, Governor Beshear promoted this program. In Phase I, up to $100,000 is matched to support the exploration of technical merit and in Phase II, up to $500,000 is matched to develop the prototypes of those technologies. This program has been recognized as the number one state assistance program in the nation. As these companies continue to grow, they will be requesting assistance so Economic Development Cabinet is requesting $40 million per biennium over the next three biennia to support this program. The bond authorization from HB 406 balance is $7 million, which is shared between the high tech pools and the capital loan programs for the rest of this year and the next biennium. The balance in the high tech pools is below $3 million to last the rest of this year and the next biennium as well. He noted that this program is quite successful.
The next plan to be reviewed was for the School Facilities Construction Commission (SFCC). Representing the Commission was Dr. Robert Tarvin, Executive Director.
Mr. Mullis gave a brief overview of the Commission’s purpose and priorities for funding. He also noted that the Condition Facilities Category “Fair to Poor” rating has changed to 142 as opposed to the latest report of 173 in 2007. The “Poor” rating changed from 10 in 2007 to 16.
Dr. Tarvin distributed a handout that contained charts addressing the conditions of all the school building in the state from 1998 – 2008 based on research conducted by the Kentucky Department of Education. The first request is for $150 million in bonds for the General Offers Program. The state provides $100 per student to every local school district for facilities. That amount has remained the same since 1976. Every district is required to have 5 cents of local taxes to support the facilities. SFCC makes up the difference between funds available and what each school needs from the bonds. In 2003, the legislature instituted a program known as Category 5, or Urgent Needs, or Targeted Funding to address schools with the worst conditions. Every project has been executed except for five projects through this three-year cycle. There is $27 million in bond money available to complete those five projects.
Co-Chair Henley asked if there was enough money to take care of the sixteen schools that need attention. Dr. Tarvin replied no, but that they were not planning to take care of all sixteen schools at once. He noted that there was a priority list of projects and that they conduct this plan every four years as approved by the Department of Education.
The next plan to be reviewed was the Kentucky River Authority (KRA). Representing the Authority was Mr. Steve Reeder, Executive Director; Mr. Don Morse, Staff Assistant; and Mr. David Hamilton, Engineer.
Mr. Mullis first gave a brief overview of the Authority’s programs and priority requests. Mr. Reeder then gave a brief history and purpose of KRA. He stated that the only funds that KRA receives are water user fees. He stated that there are $32 million of structural problems that need to be addressed with general funds. They currently have a $17.5 million bond. KRA would like to receive general fund money to renovate Locks 3 and 4 in this next biennium and then to do stop gap work on Locks 1 and 2 with the $2.5 million that should be left over from Locks 3 and 4. KRA would then like to work on Dams 7 in the biennium after that because it has a crack in the dam at the hydro plant. KRA is requesting funds to work on Lock 8 in Nicholasville in the 2010-2012 biennium because the work that was completed in 2005 was not successful and that dam is a high priority since it serves Fayette County.
The next plan to be reviewed was the Department of Agriculture. Representing the Department was Mr. Craig Maffet, Deputy Commissioner.
Mr. Mullis first gave a brief overview of the Department’s programs and priorities for funding. Mr. Maffet then stated that the Department’s two general fund priorities are Animal Shelters and the Purchase of Agriculture Easements (PACE) program. In 2007, with some preferential tax treatments, the Department brought in $17 million worth of easements into the program with $250,000 in funding which comes from the federal government. As far as the Animal Shelter program, he pointed out that funds are needed to control disease and public health issues that occur if there is not a place to house homeless animals. He also noted that as the economy declines, there is a larger need to take care of these neglected animals.
The next plan to be reviewed was for the Transportation Cabinet. Representing the Cabinet was Ms. Tammy Branham, Executive Director; and Mr. Jeff Morris, Director, Division of Facilities.
Mr. Mullis gave a brief overview of the Cabinet’s programs and priorities for funding.
Ms. Branham stated that the Cabinet’s focus is maintaining the state’s transportation systems. This consists of maintaining all the state’s transportation buildings, salt storage structures, environmental compliance, technology and transport upgrade projects, and aircraft maintenance. These projects will cost the Road Fund $13.9 million over the biennium and require $800,000 from the General Fund. The 2010-16 plan varies from the last submission in that the request in the first biennium is $98 million compared to $58 million to replace structures and facilities because the needs have multiplied.
Mr. Morris stated that there are 18 facilities that need to be replaced.
Co-Chair Henley asked if there would be enough money to bring the Cabinet’s aircraft up to speed. Ms. Branham responded that the request that the Cabinet is submitting would adequately maintain the equipment that they have.
There being no further business, the meeting was adjourned at 3:22 p.m.