Call to Order and Roll Call
The 3rd meeting of the Capital Planning Advisory Board was held on Tuesday, August 15, 2017, at 9:30 AM, in Room 129 of the Capitol Annex. Representative Daniel Elliott, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Stan Humphries, Co-Chair; Representative Daniel Elliott, Co-Chair; Senator Whitney Westerfield, Representative DJ Johnson; Scott Brinkman, Charles Byers, Laurie Dudgeon, Stephen Knipper, Mark Overstreet, Kaelin Reed, and Katie Shepherd.
Guests: Dr. Aaron Thompson, Executive Vice President, Shaun McKiernan, Senior Associate, Budget and Finance, Council on Postsecondary Education; Brad Holajter, Executive Director, Office of Management and Administrative Services, and Lieutenant Colonel Chad White, Kentucky State Police, Justice and Public Safety Cabinet; Brad Montell, Deputy Secretary, Greg Rush, Executive Director, Office of Budget and Administration, Education and Workforce Development Cabinet; Anthony Dunbar, Director of Facilities Management, Cabinet for Health and Family Services; Charles Snavely, Cabinet Secretary and Bruce Scott, Deputy Secretary, Energy and Environment Cabinet; Robin Fields Kinney, Associate Commissioner, Office of Finance and Operations, Walter Hulett, Facilities Manager, Department of Education; Commissioner Ryan Quarles, Keith Rogers, Chief of Staff, Lee McIntosh, Staff Assistant, Kathy Harp Willis, Director of Information Technology, Department of Agriculture; and Katie Smith, Executive Director, Office of Financial Services, Economic Development Cabinet.
LRC Staff: Shawn Bowen, Julia Wang, and Jennifer Luttrell.
Approval of Minutes
A motion to approve the minutes of the July 18, 2017 meeting was made by Representative Johnson, seconded by Mr. Knipper, and approved by voice vote.
Information Items
Ms. Bowen stated that two items originally scheduled for presentation at the August meeting, the state debt report and the Beaver Dam Service Area report, will be held over until the September meeting. She then reported that two agencies have amended their agency capital plans. The Finance and Administration Cabinet has amended its capital plan to include one new general fund capital information technology project for the Commonwealth Office of Technology. The project is the Statewide Microwave Network Kentucky Emergency Warning System Shelter Upgrade (KEWS), Cabinet Priority #7, Agency Priority #2, $4,954,000 GF. The University of Louisville amended the project description for its top general fund request – STEM Instruction Building project. During testimony at the board’s July meeting, the university testified that this renovation project would include several additional buildings, however, the buildings were not identified in the project description the university submitted in its capital plan. The project description has been amended to include the additional buildings in the project.
Presentation – Council on Postsecondary Education Capital Project Review
As part of the capital planning process, the Council on Postsecondary Education (CPE) is responsible for the review and evaluation of capital construction and information technology (IT) projects submitted by the postsecondary institutions. Dr. Aaron Thompson, Executive Vice President, and Shaun McKiernan, Senior Associate, Budget and Finance, discussed the review process and the corresponding results.
In its report to the board, CPE provided background information on the VFA Study conducted in 2007. The VFA Study identified $6.8 billion in cumulative capital investment needs by 2011; $5.1 billion for asset preservation to protect the state’s investment in existing infrastructure and facilities, and $1.7 billion for new and expanded space to support increases in enrollment and research activity. The study recommended a sustained investment (multi-biennia) to address asset preservation and new construction needs simultaneously (blended approach), and to address asset preservation needs projected to grow from $5.1 billion in 2011 to $6.3 billion by 2016. Over the past ten biennia there has been $1.6 billion in new or expanded state-funded education and general facilities, $495 million in state-funded asset preservation, and a ratio of new construction to asset preservation that equals 3.3 to 1.
For the 2018-20 budget period, CPE will make a request that, when combined with institutional matching funds, addresses 20 percent of asset preservation needs ($1.4 billion) as identified in the VFA study. CPE will continue to advocate for a pooled approach, and will request a pool of funding for each campus to be matched and used to address asset preservation. Each institution’s pool will be supported by a list of projects in priority order.
CPE will not make a request for general fund-supported bonds for new and expanded space in 2018-20, however, CPE will include a request for general fund-supported bonds for an information technology and equipment pool.
CPE’s focus represents a much more aggressive approach to funding asset preservation than in previous biennia. CPE’s rationale for this proposal is a growing inventory of facilities, infrastructure, and systems in need of asset preservation, increasing construction costs (up 17 percent between 2007 and 2013, based on VFA estimates), minimal state investment in asset preservation since 2007 ($262 million in appropriations versus $7.3 billion need), and renovating aging facilities and systems to reduce operating costs through greater efficiencies.
CPE’s report on campus priorities included a listing of each university’s top five asset preservation projects and a listing of KCTCS’ top ten asset preservation projects. Four of nine institutions listed an asset preservation project as their #1 priority, two as their #2 priority, and three institutions did not request general fund support for new construction.
CPE staff was asked to evaluate general fund-supported information technology projects submitted by the institutions. Seventeen projects were submitted with a total cost of $67.5 million; seven projects were identified as high value, with a total cost of $27 million. These projects address network infrastructure upgrades and instructional and administrative system needs and support increased network speeds and systems for e-learning.
For the 2018-20 budget period, CPE plans to request a pool of funds totaling $600-$700 million general funds, with $40-$60 million allocated for information technology and equipment projects. This request is part of the three-biennia (six-year) $1.8 billion capital budget plan that would use a pooled approach for allocating capital funding among institutions.
In response to a question from Senator Humphries, Mr. McKiernan stated that the VFA Study determined a total of about $7.3 billion is needed for asset preservation for postsecondary institution facilities. CPE plans to address 20 percent of the identified need, which is $1.4 billion ($700 million from the campuses and $700 million from the state.) During the past five biennia, the state has funded about 3.6 percent of the estimated total $7.3 billion asset preservation need.
Responding to questions from Mr. Knipper, Dr. Thompson and Mr. McKiernan replied that all campuses have significant asset preservation needs with the smaller campuses needing more. As for the IT projects, several campuses did not request funds because their IT projects have not been funded in the past.
In response to a question from Representative Elliott, Dr. Thompson stated that CPE would appreciate the board’s endorsement of CPE’s approach to funding postsecondary institution capital needs.
Consideration of Agency Plans
The Capital Planning Advisory Board received testimony regarding nine state agency capital plans: Council on Postsecondary Education, Kentucky Court of Justice, Justice and Public Safety Cabinet, Education and Workforce Development Cabinet, Cabinet for Health and Family Services, Energy and Environment Cabinet, Department of Education, Department of Agriculture, and Economic Development Cabinet. The testimony included discussion of capital construction, information technology, equipment needs, and grant/loan program needs for the period 2018-2024.
Council on Postsecondary Education
Dr. Aaron Thompson, Executive Vice President, and Shaun McKiernan, Senior Associate, Budget and Finance, CPE, gave a brief overview of the CPE capital plan. For 2018-20, CPE’s capital request will include only information technology capital projects: Military Student Initiative project, Commonwealth College (HB265) Technology System project, and Enhance Kentucky Regional Optical Network Infrastructure Enhancement project with a total request of $7 million.
In response to a question from Mr. Knipper, Mr. McKiernan and Dr. Thompson stated that CPE will contact the Department of Veterans’ Affairs in regard to assistance with the Military Student Initiative project. This project will help service members, veterans, and their families earn a degree at a Kentucky institution by translating previous military instruction and training into college credit. The project scope is $2,000,000 general funds. The project requires a centralized catalog of programs and modules to facilitate course and degree program comparisons, integration with systems at institutions to allow evaluation and seamless transfer of credits, and a user-friendly homepage and help desk support.
In response to a question from Representative Johnson, Dr. Thompson stated that CPE has started on the Military Student Initiative project by hiring a retired major from the military to identify how to make the connections. CPE hopes the project will be well underway within the next year and a half. The Commonwealth College (HB265) Technology System project ($4,000,000 general funds) is underway also at the University of Louisville and Western Kentucky University.
Kentucky Court of Justice
Laurie Dudgeon, Administrative Office of the Courts Director, gave a brief overview of the Kentucky Court of Justice capital plan. For the 2018-20 biennium, the capital request will include $3 million general funds to support local bonds totaling $37,325,000, and for the 2020-2022 biennium, $791,100 general funds to support $9,650,000 local bonds. The Court of Justice capital plan includes two new court facilities for Bath and Butler counties, and renovation of five court facilities in the counties of Clinton, Crittenden, Jefferson, Jessamine, and Owsley. [For the court facility projects, amounts are appropriated from the general fund for use allowance payments that support the debt service for local bonds issued to construct the project.]
In response to a question from Senator Humphries as to what county offices will be located in the Bath County Judicial Center, Ms. Dudgeon responded that the Court of Justice is located in the Bath County Courthouse Annex, and the County Judge Executive may have plans to renovate the old space and lease it to executive branch offices to ease the burden on the county. She stated that several county bonded projects are projected are scheduled for completion, which should help address space needs across the state.
In response to a question from Mr. Knipper, Ms. Dudgeon said the decision to renovate a court facility or build a new one is based on a feasibility study by the county’s project development board. The board consists of the County Judge Executive, Chief Circuit Judge, Chief District Court Judge and Circuit Clerk, Kentucky Bar Association member, and a Citizen-At-Large member. Factors taken into account when deciding whether to renovate or build a new court facility include the county’s population, caseload, seats needed, and minimum space required for judges and staff.
In response to questions from Mr. Reed and Representative Elliott, Ms. Dudgeon said to address safety concerns in the court facilities, there will be a single point of entry to each facility.
Justice and Public Safety Cabinet
Brad Holajter, Executive Director, Office of Management and Administrative Services, gave a brief overview of the cabinet’s capital plan. For the six-year period, the capital plan included 51 proposed projects totaling $671,544,000.
Representative Elliott asked Mr. Holajter to further discuss the potential use of a public-private partnership for the Construct 300-man Dorm at Blackburn Correctional Complex project ($28,000,000 general funds). Mr. Holajter said the potential plans for a private-public partnership model at the Blackburn Correctional Facility was a more efficient use of public dollars. By funding the upfront budget costs and leasing the building back to the state, the cost of the project will be extended out over more years.
In response to a question from Senator Humphries regarding the Kentucky State Police Emergency Radio System Replacement project ($141,500,000 general funds), Lieutenant Colonel White replied that the entire amount of funding requested for this project will be needed during the biennium in which it is requested. The funding request cannot be broken down and spread out over several years. He explained that all digital equipment, including parts for the towers, posts, and vehicles, has to be replaced simultaneously in order for the equipment to work. He added that Tennessee just completed a similar project for about the same amount of money.
In response to a question from Representative Johnson, Lieutenant Colonel White stated that the Daviess County 911 upgrade is a separate system, but that it will tie into the new requested digital system once completed.
In response to a question from Mr. Knipper, Lieutenant Colonel White replied that he was not aware of a study done on aircraft maintenance costs.
Education and Workforce Development Cabinet
Brad Montell, Deputy Secretary, and Greg Rush, Executive Director, Office of Budget and Administration, gave a brief overview of the cabinet’s capital plan. For the six-year period, the capital plan included 13 proposed projects totaling $63,308,000.
Cabinet for Health and Family Services
Anthony Dunbar, Director of Facilities Management, gave a brief overview of the cabinet’s capital plan. For the six-year period, the capital plan included 28 proposed projects totaling $254,331,800.
Energy and Environment Cabinet
Secretary Charles Snavely and Deputy Secretary Bruce Scott, gave a brief overview of the cabinet’s capital plan. For the six-year period, the capital plan included 17 proposed projects totaling $64,731,000.
In response to questions from Senator Humphries about the Wildland Fire Equipment Replacement Schedule project ($5,320,000 general funds), Mr. Snavely stated that D5 or D6 dozers will be purchased, the project would be competitively bid, and old dozers would be disposed of. He added that the dozers must be small enough to transport on a rollback trailer. [This project will establish a 15-year replacement schedule of ten dozer and transport units in the first year of the biennium and nine in the second year.]
Department of Education
Robin Fields Kinney, Associate Commissioner, Office of Finance and Operations, and Walter Hulett, Facilities Manager, gave a brief overview of the department’s capital plan. For the six-year period, the capital plan included 12 proposed projects totaling $21,880,000.
In response to a question from Representative Elliott, Mr. Hulett stated a water main leak in Brady Hall was causing the mold issue.
Department of Agriculture
Commissioner Ryan Quarles, Keith Rogers, Chief of Staff, Lee McIntosh, Staff Assistant, and Kathy Harp Willis, Director of Information Technology, gave a brief overview of the department’s capital plan. For the six-year period, the capital plan included one proposed information technology project totaling $3,349,400.
Economic Development Cabinet
Katie Smith, Executive Director, Office of Financial Services, gave a brief overview of the cabinet’s capital plan. For the six-year period, the capital plan included three proposed projects totaling $90,000,000. Funds are being requested to finance three grant/loan programs administered by the cabinet: the High-Tech Construction/Investment Pool, the Economic Development Bond Program, and the Kentucky Economic Development Finance Authority.
In response to a question from Representative Elliott, Ms. Smith replied that the state has invested $7 billion towards economic development in Kentucky this year. She added that this was a record amount of investment, the previous record was $5.1 billion.
Adjournment
The next meeting is scheduled for Tuesday, September 19, 2017, in Room 129 Annex starting at 10:00 AM. There being no further business, the meeting was adjourned at 11:55 AM.