Call to Order and Roll Call
The 1st meeting of the Capital Planning Advisory Board was held on Wednesday, May 22, 2013, at 9:00 AM, in Room 169 of the Capitol Annex. Representative Terry Mills, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Stan Humphries, Co-Chair; Representative Terry Mills, Co-Chair; Senator Whitney Westerfield; Representative Tom Riner; Charles Byers, Laurie Dudgeon, Carole Henderson, John Hicks, Sherron Jackson, James W. Link, Carol Palmore, and Katie Shepherd. Jane Driskell, Office of State Budget Director, attended on behalf of Mary Lassiter.
Guests testifying before the board: Katie Smith and Hollie Spade, Economic Development Cabinet; Tim Pollard and Mike Swatzyna, Tourism, Arts, and Heritage Cabinet; Tammy Branham and Winn Turney, Transportation Cabinet; Scott Shannon, Capital City Airport; Jerry Graves, David Hamilton, and Jennie Wolfe, Kentucky River Authority; Dr. Bob Tarvin, School Facilities Construction Commission; Tony Wilder, Russ Salsman, and Darren Sammons, Department for Local Government; J. Michael Brown, Justice and Public Safety Cabinet; Michael Rodgers, Department of Public Advocacy; Beth Jurek, Sherry Randle, Rodney Murphy, and Chuck Ammons, Cabinet for Health and Family Services.
LRC Staff: Shawn Bowen, Josh Nacey, and Jennifer Luttrell.
Approval of Minutes
A motion to approve the minutes of the September 21, 2012, meeting was made by Mr. Hicks, seconded by Senator Humphries, and approved by voice vote.
Welcome New Members
Representative Mills welcomed everyone to the board’s first meeting of the year. In addition to his appointment as co-chair, three new legislative members were appointed: Senator Stan Humphries, Senator Whitney Westerfield, and Representative Tom Riner.
Overview of the Capital Planning Process
Representative Mills said the major responsibility of the board is to develop a statewide capital improvements plan in each odd-numbered year. Over the next five months, the board will meet monthly to complete its work. Members will hear testimony from agencies that have submitted requests for capital needs. Members will also hear reports from outside agencies that assist with preparation of the 2014-2020 Six-Year Statewide Capital Improvements Plan. The last meeting in September will require members to vote upon the final draft of the plan.
Summary Information on Certain Executive Branch Agency Plans
Included in members’ folders was a list of state agencies, boards, and cabinets that are not scheduled to testify before the board. These agencies utilize restricted funds for capital needs or did not submit capital project requests.
Consideration of Agency Plans
The first plan to be reviewed was for the Economic Development Cabinet. Representing the cabinet were Katie Smith, Executive Director of the Office of Compliance, and Hollie Spade, Chief of Staff. Ms. Smith gave a brief overview of the cabinet’s capital plan, and discussed three general fund project requests for the Kentucky Economic Development Finance Authority (KEDFA), the High-Tech Construction and Investment Pools, and the Economic Development Bond Program.
In response to questions from Representative Mills regarding KEDFA loans, Ms. Smith said the default rate for KEDFA loans is 1.25 percent. Most of the loans are collateralized with letters of credit or cash-backed assets, and are paid back with interest. The program functions as a revolving loan pool and some of the money returned to the pool funds additional projects. The interest earned helps defray some of the expenses related to operation of KEDFA programs.
In response to another question from Representative Mills, Ms. Smith said companies that receive loans from the High Tech Pool, or grants from the Economic Development Bond (EDB) Program, must submit progress reports to the cabinet. If the companies have not met job or wage requirements, they are required to payback a portion of the loan/grant.
In response to questions from Senator Westerfield, Ms. Smith said surrounding states such as Texas, Florida, and Tennessee have invested millions of dollars in economic development programs. Kentucky cannot compete at that level of funding, but the cabinet tries to maintain cash balances and focus on the tax-incentive programs to attract business to the state.
Senator Humphries asked if the state is able to compete with border states for huge economic development projects. He cited Hemlock Semiconductor, a manufacturing company that located near the Kentucky border in Clarksville, Tennessee. Kentucky and Tennessee both offered the Michigan-based company incentive packages. The project was expected to create up to 500 new full-time jobs and more than 800 construction jobs. Hemlock eventually selected a site in Clarksville, Tennessee. Ms. Spade said Tennessee’s incentive package included the provision of static energy rates for the company. Kentucky’s statutes do not allow the cabinet to create a static level for energy costs. The state was competitive on tax credits, but Hemlock’s decision to locate in Clarksville was based on a combination of the cash available and the static energy rates.
The next plan to be reviewed was the Tourism, Arts, and Heritage Cabinet (TAHC). The cabinet was represented by Tim Pollard, Executive Director, Office of Finance, and Mike Swatzyna, Director of Facilities Management, Department of Parks. Mr. Pollard gave a brief overview of the cabinet’s capital plan, which focused on maintenance of current facilities and the state parks. The two largest non-maintenance pool items are the removal of old Cardinal Stadium located at the Kentucky State Fairgrounds and replacement with a 70,000-square-foot warehouse ($15 million), and the Kentucky International Convention Center Expansion ($180 million).
In response to a question from Representative Mills, Mr. Pollard said the Kentucky Horse Park Campground Expansion project could generate revenues up to $530,000 annually, with a net return of $375,000 annually after expenses.
In response to a question from Representative Mills, Mr. Pollard replied that the scope of work for the Kentucky International Convention Center project will include the addition of 250,000-square-feet of contiguous exhibit space on the second floor. The additional square footage will make the facility more marketable to trade show promoters and producers.
Representative Mills said the opening of the KFC Yum! Center resulted in the loss of $2,000,000 in University of Louisville basketball income. He asked how the Fair Board has been impacted by this loss of revenue, and if there are any future plans to supplement this loss. Mr. Pollard said the Fair Board lost parking and lease revenue when the Yum! Center opened. The Fair Board is working to reopen Kentucky Kingdom, which should help with the revenue loss.
Mr. Hicks asked how deferred maintenance and preventive maintenance projects are undertaken, given the limited resources available for maintenance of the state park system. Mr. Swatzyna said the department has implemented a computerized preventive maintenance system to reduce some of the emergencies that occur. The department also utilizes a rotating maintenance schedule for renovation of facilities, cottages, and lodge rooms at about 15 percent annually.
The next plan to be reviewed was the Kentucky Transportation Cabinet. Representing the cabinet was Tammy Branham, Executive Director, Office of Budget and Fiscal Management, Scott Shannon, Assistant Director, Capital City Airport, and Winn Turney, Commissioner, Department of Aviation. Ms. Branham said the cabinet’s plan included construction of 14 new maintenance facilities throughout the state. These projects support the need to provide employees with a safe and adequate work facility. The Construct Frankfort C-1 Garage project will consolidate three Cabinet-owned buildings that are deteriorating. The structural integrity of one of the buildings has become unsafe for employees, and the inadequate fire suppression system does not meet current safety standards. The rebar throughout the facility is rusting, causing the concrete to crumble, and fall from the ceiling.
In response to a question from Representative Mills, Ms. Branham replied that she would find out what cost elements were included in the Breathitt County District Ten Office project ($244-per-square-foot), and let the board know at its next meeting.
Representative Mills asked if the current aircraft maintenance pool allocation is sufficient to address the ongoing needs of an aging aircraft fleet. Mr. Shannon replied that the aircraft are safe, the mechanics are experienced, and the maintenance pool adequately funds maintenance requirements for the aircraft.
Relative to a question from Senator Westerfield regarding funding for airport development projects statewide, Mr. Turney said the Transportation Cabinet, in conjunction with the Federal Aviation Administration (FAA), has projects throughout the state. The projects are prioritized, submitted to the cabinet secretary for review and approval, and if funding is available, those projects come to fruition. The projects are funded 90 percent federal funds, 7.5 percent local funds, and 2.5 percent state funds.
Mr. Hicks explained that the Aviation Trust Fund is utilized for these types of projects. The state contributes jet fuel tax proceeds and the matching FAA grants. These funds are not budgeted in the capital budget, but rather in the operating budget for the Transportation Cabinet, because it is a grant program.
Relative to a question from Representative Mills regarding the distribution of essential air service funds from the FAA, Mr. Turney said the FAA no longer funds this program.
The next presentation was from the Kentucky River Authority (KRA). Representing KRA was Jerry Graves, Executive Director, David Hamilton, Staff Engineer, and Jennie Wolfe, Staff Assistant. Mr. Graves said plans include construction of Dam 8, renovation of Locks 1 and 2, and design work for Dam 10. Upon completion of these projects, KRA will request funding from the General Assembly, or request a rate increase from its board. The last rate increase was March 2013, from .06 to .13 cents per thousand gallons.
Relative to a question from Senator Humphries regarding the price of water, Mr. Graves responded that there are 11 major drawers of water, and the price is dictated by the board. For residents living in the Kentucky River basin, there is a Tier I fee, which is 2.2 cents per thousand gallons. Tier I fees are paid by all users for the benefit of the entire watershed. The Tier II fee is 13 cents per thousand gallons. Tier II fees are an additional charge on the water withdrawn from the “main stem” of the Kentucky River. A normal household pays, on average, 45 cents per 4,000 gallons of water.
In response to questions from Senator Humphries, Mr. Graves stated that if any of the retaining walls were to ever fail, contract labor would be used to repair the walls. KRA also has a drought response plan in effect.
In response to a question from Representative Mills, Mr. Hamilton said the Lock and Dam 3 and Lock 4 Renovation project is 47 days past the construction completion date. Liquidated damages, per the contract specifications, are set at $2,000. KRA is working with the contractor and the Finance Cabinet to settle this issue.
The next plan reviewed was the School Facilities Construction Commission (SFCC). Dr. Bob Tarvin, Executive Director, gave a brief overview of the agency’s capital plan. The two major components of their plan are targeted urgent needs funding and SFCC regular offers of assistance. The total request, over the six-year period, is $675 million general funds.
The next plan reviewed was for the Department for Local Government. Representing the department were Tony Wilder, Commissioner, Russell Salsman, Chief of Staff, and Darren Sammons, Staff Attorney. The department is requesting $42 million general funds to administer three loan/grant programs: the Flood Control Matching Program, the Renaissance on Main Program, and the Community Enhancement Fund.
The next plan to be reviewed was for the Justice and Public Safety Cabinet. Representing the cabinet was Secretary J. Michael Brown, who provided a brief overview of the cabinet’s responsibilities and its capital needs. Secretary Brown said the cabinet’s top priority remains the construction of a joint facility in Jefferson County to house the Medical Examiner's Office and the Jefferson Laboratory ($22,629,000 general funds).
In response to a question from Representative Mills, Mr. Brown replied that if the Renovate New Academy Buildings and Grounds project remains unfunded for several years, the $7.9 million general fund request will be insufficient to complete the project due to inflationary project costs.
In response to a question from Representative Mills regarding the Public Advocacy Main Office Relocation project, Michael Rodgers, Director of Law Operations, Department of Public Advocacy, responded that the building is in a state of disrepair, and ongoing maintenance problems are the cause of health and safety issues for employees. One out of three elevators in the five-story building is operational, bricks have fallen from the roof to the ground, and three massive floods on the third floor have occurred due to HVAC problems.
Relative to a question from Representative Mills regarding the Kentucky State Police (KSP) Purchase Gas Chromatography/Mass Spectrometer project, Secretary Brown responded that the project is vital because cases are delayed when evidence is not reported to the courts in a timely manner. He added that the equipment is in constant use, and only 18 percent of testing done is for KSP cases.
In response to questions from Representative Mills regarding the Department of Corrections’ plans to build a new sewer plant at the Kentucky Correctional Institution for Women (KCIW), Mr. Brown replied that it would be impractical to add on to the existing sewer plant, because it is near design capacity of 125,000 gallons per day. The plant has had several EPA "Notice of Violation" letters, and has increasing potential for fines if capacity is exceeded, or if regulated discharge levels are not met. Either a new plant must be built on-site with design capacity to meet the needs of the inmate population, or KCIW must connect to one of the regional sewer districts.
In response to a question from Mr. Hicks regarding the handling of deferred maintenance with limited resources, Secretary Brown stated that the Kentucky State Reformatory and Eddyville are two of the older institutions the cabinet maintains. Due to the age and design of these facilities, the cabinet struggles to keep up with deferred maintenance.
The next plan to be reviewed was for the Cabinet for Health and Family Services (CHFS). Representing the cabinet were Beth Jurek, Executive Director, Office of Policy and Budget, Sherry Randle, Division Director, Division of Systems Management, Rodney Murphy, Executive Director, Office of Administration and Technology Services, and Chuck Ammons, Director, Division of Mechanical Services. Ms. Jurek gave a brief overview of the cabinet’s capital plan, focusing on the top five general fund project requests and information technology project requests.
In response to a question from Representative Mills, Ms. Jurek stated that the $57.5 million funding request for the Eligibility Systems Integration Services project includes funding for training employees to use the new system. The funding sources include $46,121,700 federal funds and $11,378,300 general funds.
Representative Mills asked cabinet representatives to further discuss the Commonwealth Energy Management and Control System project. Mr. Ammons explained that the project includes the installation of automated systems throughout state-owned and leased buildings. The automated systems can be regulated as needed, and controls lighting, HVAC, and oxygen levels from one central location. The pilot project produced a savings of about 20 percent in energy costs at Central State Hospital.
Representative Riner asked if CHFS has a plan in place to continue operations if a cyber attack was to occur. Mr. Murphy replied that the cabinet has a number of preventive measures in place. In the case of cyber terrorism, the system is designed to shut-down if malicious activity is suspected. In addition, routine vulnerability assessments against all systems are conducted, and contracts with security watchdog companies are maintained to monitor new threats and alerts. The cabinet would be able to continue operations in critical mode and systems would function manually. Mobile trailers and satellite phones are available for local communities, and all agencies are required to have a disaster recovery plan for critical applications.
Adjourn
The next meeting is scheduled for Wednesday, June 26, 2013 in Room 171 Annex starting at 9:30 AM. With there being no further business, Representative Mills made a motion to adjourn the meeting. The motion was seconded by Senator Westerfield, and the meeting adjourned at 12:03 PM.