The Capital Projects and Bond Oversight Committee met on Tuesday,<MeetMDY2> July 24, 2007, at 1:00 PM, in Room 169 of the Capitol Annex. Representative Mike Denham, Chair, called the meeting to order.
Present were:
Members: Senator Elizabeth Tori, Co-Chair; Representative Mike Denham, Co-Chair; and Representatives Robert Damron, Steven Rudy, and Jim Wayne.
Guests testifying before the Committee: John Hicks, Governor's Office for Policy and Management; Mike Burnside, Jim Abbott and Nancy Brownlee, Finance and Administration Cabinet; Larry Owsley, University of Louisville; Bob Wiseman and Lance Broeking, University of Kentucky; Joe Wilkins, Department of Military Affairs; Dave Sallengs, Department of Public Health; Don Morse, Kentucky River Authority; Sandy Williams, Kentucky Infrastructure Authority; Katie Smith, Economic Development Cabinet; and Tom Howard and Terri Fugate, Office of Financial Management.
LRC Staff: Nancy Osborne, Shawn Bowen, Kristi Culpepper, Pat Ingram, Bart Hardin, and Lesa Prewitt.
Representative Denham introduced Mike Burnside, the newly appointed Secretary of the Finance and Administration Cabinet, and said he looked forward to working with him. Secretary Burnside said he appreciated the invitation to attend today's Committee meeting and thanked the Governor for giving him the opportunity to serve as Cabinet Secretary.
Representative Denham asked Nancy Osborne, Committee Staff Administrator, to review the correspondence and information items included in members' folders. Ms. Osborne said there were four items of correspondence: quarterly construction reports from the Finance & Administration Cabinet, Murray State University, Northern Kentucky University (the first report since the University began managing its own capital construction program), University of Kentucky, University of Louisville, Western Kentucky University; the quarterly construction report from the Administrative Office of the Courts; follow-up correspondence from the Finance Cabinet regarding the Kentucky Horse Park (KHP) Indoor Arena project; and follow-up correspondence from the Kentucky Housing Corporation relating to multifamily housing projects. Relative to the KHP, it was noted that any funds remaining after completion of the Indoor Arena project would be returned to the statutory Contingency Account, the fund source for the $5,760,000 scope increase approved by the Committee last month. Also, security costs associated with the 2010 Games would be paid for by World Equestrian Games, Inc. to the extent that they exceeded KHP's routine budgeted costs.
Ms. Osborne then briefly reviewed various items in the monthly Staff Update. She noted that dedication ceremonies for the Central Kentucky Veterans Cemetery were held on June 11 and that three additional cemeteries had been authorized by the General Assembly. She said the five state cemeteries will supplement three national cemeteries located in Kentucky. She said the Task Force on Energy Efficient Housing and Construction recently issued a report which included various recommendations to state government to improve energy efficiency in state buildings. Also mentioned was an article relating to the recent enactment of a Missouri law directing the Missouri Higher Education Loan Authority to sell a portion of its student loans to finance $350 million in new public college buildings.
Ms. Osborne also noted two contracts relating to the Kentucky Horse Park Indoor Arena project. A contract in the amount of $15,300 was awarded to The Bonham Group of Greenwood Village, CO., to establish naming rights value for the arena, and D.W. Wilburn, of Lexington, Kentucky, was awarded a $38,096,000 contract for construction of the arena.
Representative Wayne asked if state facilities are normally named in this manner and if there is a precedent for this in the state. John Hicks, Deputy Budget Director, Governor's Office for Policy and Management (GOPM), said naming rights have been sold for university facilities, but he would have to do some research to answer the question. Jim Abbott, Commissioner, Department for Facilities and Support Services, said the state has sold naming rights to certain facilities, but he was not familiar with the contract relative to the KHP Indoor Arena. He said the state does have other buildings that have sold their naming rights such as the Northern Kentucky University's Bank of Kentucky Center. Representative Wayne said he realized universities have done this, but now it sounds as if other state facilities will start selling naming rights. He said he did not know if there are any state guidelines for doing this, and it raises the question as to how much corporate advertising should be permitted on public property.
Representative Wayne asked if the Contingency Fund will be used to supplement the project if the sale of naming rights does not provide sufficient income. Mr. Hicks said they are not counting on the income associated with the sale of the naming rights and they have no plans to finance a project with income earned from the sale.
Representative Denham asked Mr. Hicks to provide a follow-up report to the Committee.
Larry Owsley, Vice President for Business Affairs, University of Louisville, reported that the University plans to use the Design-Build construction delivery method for the Trager Field Hockey Stadium project. This project was authorized in the 2006-08 budget at a scope of $3,200,000 (Other Funds). Mr. Owsley said the University has issued a Request for Proposal (RFP) with responses due August 1.
In response to a question from Representative Denham, Mr. Owsley said the University is hosting the NCAA Field Hockey Final Four in fall 2008. He said they would like to have the field finished before then. He said it should not be a problem to have the facility functioning by that time. No further action was required for this item.
Representative Denham noted that a quorum was present and asked the secretary to take the role.
Representative Wayne made a motion to approve the minutes of the June 19, 2007 meeting. The motion was seconded by Senator Tori and approved by voice vote.
Representative Denham then asked Bob Wiseman, Vice-President for Facilities Management, University of Kentucky (UK), and Lance Broeking, UK Campus Services Director, to discuss project reports submitted by the University. Mr. Wiseman first presented a project modification for the Expand Chemistry-Physics Building-Design project authorized in the 2006-08 budget ($5,000,000 Restricted Funds). Mr. Wiseman said the University plans to utilize $2,500,000 to renovate rather than design an expansion of this facility. The University plans to move the Chemistry and Physics libraries to the M.I. King library and renovate the vacated space to provide additional research and teaching labs in the Chemistry-Physics Building.
In response to questions from Representative Damron, Mr. Wiseman said the University plans eventually to construct a new Academic Science Building, which is listed in its most recent capital plan for the 2010-2012 biennium at a cost of $110,300,000 (General Funds). He said the renovations to the existing Chemistry-Physics Building should be sufficient for the next 10 years.
Representative Damron commented that it would seem more efficient to have all the libraries centrally located. He asked why the libraries were spread across campus. Mr. Wiseman said UK is consolidating more of its departmental libraries in order to recapture the underutilized central core of the campus and make it much more intensive for student functions. He added that they would also like to relocate the Data Center which occupies critical campus space in McVey Hall.
Representative Damron made a motion to approve the Chemistry-Physics Building project modification. The motion was seconded by Representative Rudy and passed unanimously by roll call vote.
Mr. Wiseman next reported combining authorizations for two projects in order to relocate the Chemistry and Physics libraries and a student computer lab from the Chemistry-Physics Building; Renovate King Library South - 1962 Section ($1,700,000 Restricted Funds); and Replace Three Elevators King South ($1,130,000 Restricted Funds). Representative Denham said no action was required for the M.I. King Library budget consolidation of $2,380,000 since it did not involve additional funding.
Mr. Broeking then reported three emergency leases. He said effective July 1, 2007, University of Kentucky HealthCare Enterprise officially completed the Good Samaritan Hospital acquisition process. He said during the course of the negotiations, UK became aware of pre-existing leases and contracts associated with the Samaritan Hospital operations. After reviewing each of the leases, UK identified three leases they deemed to be critical to the continuity of the healthcare services provided by Samaritan Hospital. As a result, the University entered into three leases pursuant to the emergency leasing statute, KRS 56.805(3)(d).
Representative Denham said he wanted to make it clear to the Committee and the public that the Denham-Blythe Company, one of the lessors, is not connected with him in any way.
The leases were as follows: 1) PR-8307 for medical office space at 100 Trade Street in Lexington, the lessor is Denham-Blythe Company and the term of the lease is six months with an annual cost of $88,530; 2) PR-8308 for 59 parking spaces located at 169-175 East Maxwell Street in Lexington, the lessor is HDC Holdings, and the term of the lease is one year with an annual cost of $32,880; and 3) lease contract PR-8309 for medical diagnostic and storage space at 135 East Maxwell Street in Lexington, the lessor is HDC Holdings LLC, and the term of the lease is one year, with an annual rate of $359,204.
Representative Denham asked if patient revenues will be sufficient to cover the cost of these leases. Mr. Broeking replied affirmatively. He said it is important to note that financially, the two hospitals will be managed separately, so no revenues from the Chandler Medical Center will go to these leases.
Representative Denham asked what will happen to these leases after they expire. Mr. Broeking said UK HealthCare Enterprise plans to evaluate the need for these leases on an on-going basis. No Committee action was required for the emergency leases.
Representative Denham asked Mr. Hicks and Mr. Abbott to return to the table to present the Finance Cabinet’s monthly project report. Mr. Hicks reported a $707,000 scope increase for the Department of Military Affairs (Department) Wendell H. Ford Regional Training Center Phase VI project. This unbudgeted project was approved during the interim in November 2004 at a scope of $11,674,000 (Federal Funds).
Mr. Hicks said at the time this project was planned, the Department knew it would need to expand the dining facility; however, federal funds were not available. The Department included the dining facility improvements and bid the improvements within the initial project design and bid it as an additive alternate with the hope that federal funds would eventually become available. He said those funds are now available to complete the dining facility.
Mr. Hicks said the original bid award to the contractor would have been the same had the funds been initially available, and the fact that the funds became available later would not have changed the original low bid. The project is well under way on the site in Muhlenberg County, and if approved, the construction contract will be expanded to incorporate the dining hall.
Representative Wayne asked how large the dining hall will be. Joe Wilkins, Director of Facilities, Department of Military Affairs, said they are expanding the dining facility by 4,100 sq. ft. He said the Phase VI project also includes three new 100-man barracks and additional individual rooms. Mr. Wilkins said the mess hall was designed to accommodate 400 people and the facility will be able to house 800 people with the expansion.
Representative Damron made a motion to approve the scope increase. The motion was seconded by Senator Tori and passed by unanimous roll call vote. The revised project scope is $12,381,000.
Mr. Hicks next reported a $250,000 scope increase for the Cabinet for Health and Family Services (Cabinet) eKASPER project. This project was authorized in the 2004-06 budget at a scope of $5,000,000 in bond funds to upgrade the KASPER (Kentucky All Schedule Prescription Electronic Reporting) system.
Mr. Hicks said the Cabinet has received a $250,000 federal bioterrorism grant that will be used to renovate office space for eKASPER staff in the Health Services Building to provide greater confidentiality of program records.
Representative Damron said he understood that in October or November 2006, a RFP was issued to make eKASPER a real-time reporting system. He explained that the software and hardware associated with this RFP would assist the state in controlling “doctor-shopping” by individuals that abuse prescription narcotics. The system as planned would entail the real-time electronic transfer of information to eKASPER and other physicians after a physician prescribes a narcotic to a patient. He said after a long delay and many questions he raised, the RFP went out. Representative Damron asked what was the status of this RFP.
Dave Sallengs, Branch Manager, Drug Enforcement and Professional Practices Branch, Department for Public Health, said the Finance Cabinet awarded a contract to Relay Health to implement the data collection process. The process will essentially involve a 24-hour turnaround on information coming into the system utilizing electronic switching information that pharmacies currently utilize. The anticipated start date for the system is January 1, 2008.
Representative Damron said the eKASPER study as presented to the Health and Welfare Committee included the capability to transmit real-time data. He added that he was aware of proposals that would have done this. He said he would have a problem voting for this project as it would be a major disservice to the Commonwealth when real-time data collection technology is available.
Mr. Sallengs said when the evaluation of RFPs was completed, there were no proposals submitted for a real-time data collection system. Representative Damron said he thought one firm submitted an application that would have real-time capabilities. He commented that the application may have been lost.
Representative Denham asked would it jeopardize the project if the Committee deferred action on this project until August. Mr. Hicks said deferring the project may impact the projected timeline of bringing the staff and the system together by January 2008. Mr. Abbott said to delay the funding would push back the construction associated with this project. Representative Denham said he would like to see this project continue, but Representative Damron's questions should be addressed.
Mr. Hicks said he would work with the Cabinet to provide the Committee with information about the solicitations received and to answer Representative Damron's questions.
Representative Wayne asked if a web-based real-time format was available now and in use elsewhere. Mr. Sallengs said it was not available now, and eKASPER was considered a "gold standard" in the United States for prescription monitoring programs. He added that other states are monitoring how Kentucky's data collection program works, and that most data collection systems, including Kentucky’s, run a week or two behind. Mr. Sallengs said no other state has any faster turnaround for incoming data.
Representative Wayne asked why the project was presented to the Health and Welfare Committee with real-time capability as an available option. Mr. Sallengs said the Finance and Administration Cabinet evaluated four RFPs for this project, and no RFP offered real-time data collection. He said in order to have real-time data collection ability, there has to be an e-Health infrastructure within the state and a certain set of standards must be followed. He said there is an e-Health board initiative currently working on those standards.
Representative Damron said background information regarding this project was available from the Health and Welfare Committee. He said the University of Louisville completed a pilot project study over a year ago as to the feasibility of real-time data collection for KASPER. The results of the study showed that it was feasible, but would require interaction between pharmacies.
Representative Damron said he was very interested in the study and pushed hard to get it released. He said it was eventually released to the Health and Welfare Committee and a RFP was issued. Representative Damron said a company that has been in contact with him did respond with a real-time provision in its RFP.
Representative Wayne asked Representative Damron if he agreed with Mr. Sallengs that the e-Health infrastructure was not available to have the real-time system in place. Representative Damron said he had a discussion with Cabinet for Health and Family Services Secretary Mark Birdwhistle and was told the Cabinet was moving in the direction of real-time data collection. Representative Damron said he applauded the Cabinet's effort to implement the eKASPER system; however, he said the Cabinet has not been forthcoming with information, nor responsive to the Health and Welfare Committee's questions regarding missing RFPs. He said until the Cabinet is more forthcoming, he could not vote for the project.
Representative Rudy made a motion to approve the scope increase. The motion was seconded by Senator Tori. Four members voted affirmatively and Representative Damron voted "No". The motion failed.
Representative Wayne explained his “Yes” vote. He said he worked with people suffering from addictions, including prescription drug addictions. He said he supported the program but agreed that Representative Damron's questions need to be addressed.
Mr. Hicks next discussed a $2,183,000 federally funded scope increase for the KAMES (Kentucky Automated Management and Eligibility System) project. This project was authorized in the 2004-06 budget at a scope of $18,667,000 ($7,000,000 General Funds, $11,667,000 Federal Funds). The scope increase will allow for additional technological and program features to the new system and maximize federal funds.
Representative Wayne made a motion to approve the scope increase for the KAMES project. The motion was seconded by Representative Rudy and passed by unanimous roll call vote. The revised project scope is $20,850,000.
The last item Mr. Hicks discussed was an allocation of $435,000 (Agency Bonds) from the Kentucky River Locks and Dams Maintenance and Renovations Pool to the Kentucky River Authority (KRA) Lock and Dam 3 and Lock 4 Renovation project. These funds were transferred in January 2007 in order to award the design contract for Dam 3 of $1,935,000.
Representative Damron noted that there has been discussion about the Bluegrass Water Supply Commission and the Kentucky American Water Company's proposed water treatment plant project that would be located at Dam 3. He added that there have also been public meetings and Public Service Commission inquiries. He then asked what was the status of Dam 3. Don Morse, Chief Financial Officer, KRA, said the Public Service Commission hearings on the project proposed by Kentucky American Water are to be held in October 2007. Mr. Morse said the design for the reconstruction of Dam 3 will be finished at approximately the same time. KRA will delay the construction bidding process until the Public Service Commission makes a ruling on the proposed plant.
Representative Damron asked if construction of Dam 9 will be finished before construction of Dam 3 is started. Mr. Morse said it would depend on weather conditions. He said work is moving quickly and completion of the Dam 9 project is expected in November 2008, but it could be completed sooner.
Representative Damron asked if the crestgates were going to be installed on Dam 9. Mr. Morse said KRA does not plan to install crestgates at this time; additional funding will be needed to do this.
Representative Denham asked if agency bonds had been sold for this project. Mr. Hicks said final work on the proposed issuance has not been completed, but it is anticipated that bonds will be issued no later than September 2007. The source of funds for the $435,000 scope increase is actually from cash (Restricted Funds) from the KRA Tier Two withdrawal fees. No Committee action was required for this project.
Representative Denham next introduced Nancy Brownlee, Director, Division of Real Properties, to discuss three lease reports. Ms. Brownlee reported two state lease modifications costing less than $50,000. She said two agencies - the Cabinet for Health and Family Services (CHFS), Department for Social Insurance in Pike County (PR-3626), and CHFS, Department for Community Based Services in Fayette County (PR-4465), plan to convert old smoking rooms into additional office space. The cost of the modifications, $2,495 and $3,247 respectively, will be amortized over the remaining terms of each lease (PR-3626 - June 20, 2008; and PR-4465 - June 30, 2009). No Committee action was required for these projects.
Senator Tori asked Ms. Brownlee how many offices will be created after the smoking rooms are renovated. Mr. Brownlee said the existing smoking room in Pike County is being converted to a 241 sq. ft. office, and the smoking room in Fayette County is being converted to a 231 sq. ft. office.
Ms. Brownlee next reported a lease modification for CHFS, Department for Community Based Services (PR-3465), in Pike County. The agency requested 2,662 sq. ft. in additional space for 13 new staff for its centralized intake and family observation teams. The existing lessor has sufficient space and has agreed to complete the necessary renovations. The cost per square foot ($9.38) will not change; however, the annual rate will increase from $87,061 to $112,063. The modification will increase the amount of space to 11,947 sq. ft. The lessor agreed to add six automatic extensions to the lease effectively extending the expiration date from June 30, 2008 to June 30, 2014 and locking in the $9.38 sq. ft. rental rate for those six years.
Representative Rudy made a motion to approve the lease modification. The motion was seconded by Senator Tori and passed by unanimous roll call vote.
Ms. Brownlee next discussed a sublease agreement for private development on state property at Dale Hollow Lake State Park. She said at the request of the Department of Parks (Parks), the Division of Real Properties issued a RFP in June 2006 soliciting private interest to develop a new marina at Dale Hollow Lake. Webb Companies, doing business as Dale Hollow State Park Marina LLC, was the sole respondent to the RFP. Webb Companies proposed to invest over $3.5 million for a new marina facility consisting of 165 new slips, a new head dock, a new fuel dispensing pier, and all new walkways and platforms, and take total ownership and responsibility for the two existing fuel tanks. The anticipated completion date for the proposed new facility is September or October of 2008, and the marina will initially hire 15 full-time employees.
Ms. Brownlee said should the developer’s market study find a need for rental boats, the developer may add a houseboat rental fleet upon approval by the federal Corps of Engineers and the Department of Parks. This addition would increase the scope of the project to greater than $4.5 million and potentially add three more full-time employees. Parks will reassign the one state employee working within the existing marina facility to the campground at Dale Hollow Lake.
Ms. Brownlee said according to the terms of the ground sublease, Dale Hollow State Park Marina LLC will install, operate, and maintain a marina at Dale Hollow Lake State Resort Park in Cumberland County. The Corps of Engineers, the owner of the property, reviewed and approved the state's sublease. The sublease has a base term of 30 years with options to renew for four, five-year terms for a total possible lease of 50 years. The developer shall pay rent to the state based on a percentage of gross income (1%-Year 1; 2%-Year 2; 3%-Year 3; 4%-Year 4; 5%-Year 5, and 6%-Year 6 and thereafter.)
Representative Wayne asked Ms. Brownlee who would own the marina after the sublease expired. Ms. Brownlee said Dale Hollow State Park Marina (Webb Brothers) will own the marina at the end of the lease. She explained that the marina is not permanently attached to the ground, it is attached by cabling. At the end of the lease, it can be detached and moved.
Representative Wayne asked what would happen if the managing company should go out of business. Ms. Brownlee said there is a provision in the lease that the financial institution would take over and with the state's written permission and prior approval, assign an operator for the facility.
In response to another question from Representative Wayne, Ms. Brownlee said prevailing wage did not apply to the installation of the marina because it is a privately funded project, and there were no state funds involved. Representative Wayne asked Ms. Brownlee to obtain written clarification as to whether there were any tax incentives or state subsidiaries involved in the project. He said it could be argued that the state park sublease itself is an incentive for this company to make a profit in this setting.
Mr. Abbott said this type of work is a "turn-key" kind of product. This contract was inclusive of the way the work was performed by the employees of the marina installer, including the fabrication, transport, and anchoring of the marina at the site. Representative Wayne said the actual installation of the marina will occur at the site which is state property. He said there may be some things regarding the lease that need clarification.
Representative Rudy asked if the Corps of Engineers had approved the developer's plans. Ms. Brownlee responded affirmatively.
Senator Tori asked the if the state marina at Dale Hollow had rented houseboats in the past. Ms. Brownlee said the existing marina, operated by Parks, had not rented houseboats, but there are several marinas on the lake that offer houseboat rentals. The developer had asked if a market study showed the need for additional houseboat rentals, could he offer a plan that, if approved by the state and the Corps of Engineers, would allow the developer to rent houseboats.
Senator Tori asked if the developer had a business plan as to the timeframe on recouping their initial investment on the houseboats. Ms. Brownlee said she did not know, but she would obtain this information.
In response to a question from Representative Damron, Ms. Brownlee said the Corps of Engineers owns the lake and the land, and the Department of Parks leases the land from the Corps.
Representative Damron asked why there was only one response to the RFP and was consideration given to expanding the solicitation to increase competition. Ms. Brownlee said she did not know why there was only one bid, but she felt comfortable that the RFP was marketed well. She said it was advertised in local newspapers, as well as on the Internet for three months. A flyer was also prepared and sent to all Kentucky Marina Association members.
Representative Damron said the purpose of privatization is to increase competition and to provide a service more efficiently than government can. He said in this case, it seems that not much activity was generated on this one bid.
Representative Damron asked if the contract with Webb Companies would give them exclusive rights to houseboat rentals. Ms. Brownlee said at this time that was not the case, the company does not have exclusive houseboat rental rights. She added that a market study needs to be completed to substantiate the need and not to overpopulate the area with houseboat rentals. The Corps of Engineers has the ultimate authority to approve or disapprove any plan by the developer.
Mr. Abbott said there were situations in the past where the state had difficulty with some of the current marina operations and other marina operators have stepped forward. He said every lake is unique and the ability to make a profit at different lakes and the scale of those marinas are quite different.
Representative Damron said he was not saying anything negative about the Webb Companies, but he reiterated the reason for privatization is to increase competition and improve efficiency, and in this case, there was no competition at all. Mr. Abbott said the scale of the project may have come into play as to why there was no competition. He added that the new marina will be a greatly enhanced operation that will benefit the public. Representative Denham said since the facilities are to be owned, operated, and maintained by a non-state entity, no further action was required by the Committee.
The next item was a follow-up discussion of the Kentucky Department of Agriculture's proposed Fuels Testing Lab. This item was reviewed and approved by the Committee at its June meeting as a new lease of laboratory and office space in a facility to be constructed by the lessor. Mr. Abbott thanked the Committee for its vote of confidence in allowing the project to move forward. He addressed questions raised in June regarding the contracted design consultant, Taylor-Whitney Architects, explaining that the Division of Real Properties staff was not prepared to do space planning for this type of operation. Therefore, the Division of Contracts and Engineering solicited architectural services to develop specifications for the space.
Mr. Abbott said the anticipated cost of this project to the developers is $2 million. If considered a typical state capital construction project, the fee is generally about 9% of the construction cost. He said a Phase A schematic design usually represents about 15% of the total fee. On behalf of the using agency, in contracting for the architectural service with Taylor-Whitney, the state spent approximately $25,000. The developer was not provided construction design documents, but a schematic that would allow an understanding of what the Commonwealth desired to be built.
Mr. Abbott said a question was raised last month as to whether the developer will provide any equipment at the facility. He said the agency is providing lab equipment and the owner will be responsible for the installation. If the lease is cancelled, the equipment can be removed from the facility and installed elsewhere.
Mr. Abbott addressed whether it would have been better for the state to build a lab as opposed to leasing a lab. Mr. Abbott said leased property allows for changes more readily as programs change. This program is one that has been needed for some time and it is one that will be active for some time because of the nature of biofuels. He said this leased facility will allow the state to become more familiar with the demands of operating a fuel lab. He said as they learn the needs for testing from other states, this facility will improve upon all those things. He said legislators and the agency may want to look at the development of a state-owned lab facility in the future as more is learned about the needs.
Mr. Abbott said there is no additional space in the state-operated central lab, and this lease arrangement has a 30-day cancellation clause. In the future, if the Commonwealth desires to construct a state-owned facility, the opportunity is there to cancel this agreement.
Representative Damron said the Department of Agriculture never approached the Appropriations and Review Committee for funding for a lab. He said if this was done the money would have been approved because they recognized the lab was needed. He said state government leases too much property and does not own enough; and, as a result, state leasing costs continue to escalate.
Representative Damron said the state is paying development cost for the facility when it would be better off to own the facility. He questioned the wisdom of this decision.
Relative to the issue of leased space in Frankfort, Mr. Abbott noted the Department of Revenue and the Personnel Cabinet will soon relocate from leased space into the renovated State Office Building (old Transportation Building). He said this move will help reduce the Commonwealth's dependence on leased property.
Representative Denham next welcomed Sandy Williams, Financial Analyst, Kentucky Infrastructure Authority (KIA). Ms. Williams presented six KIA loans for the Committee's approval. She presented a Fund A (Federally Assisted Wastewater Revolving Loan Fund) loan for the City of Beaver Dam in Ohio County. The city is requesting a Fund A loan in the amount of $598,549 to rehabilitate 23,000 linear feet of sewer line. The loan will have a 20-year term and 1% interest rate. The Fund A loan will be combined with other funding for a total project scope of $1,311,900.
Ms. Williams next presented a Fund A loan for the City of Falmouth in Pendleton County. The city is requesting a Fund A loan in the amount of $2,812,255 to construct a new wastewater treatment plant and force main. The loan will have a 20-year term and 1% interest rate. The Fund A loan will be combined with other funding for a total project scope of $5,619,316.
The next loan reported was a Fund B1 (Infrastructure Revolving Fund) loan of $200,000 to the City of Harlan, Harlan County. The funds will be used for planning and design associated with a new sewer collection system project. The Fund B1 loan is the sole source for the planning project. The estimated total cost for the entire project is $2,598,250 with an estimated construction cost of $2,027,500.
Ms. Williams then reported a Fund B loan of $620,000 to the Western Pulaski Water District, Pulaski County. The funds will be used to construct a distribution water main along HWY 180 to improve water service to Western Pulaski County. Ms. Williams said the project will also extend water service to the new location of the Alligator Boat Dock. The Fund B loan is the sole source for the project.
The next loan Ms. Williams presented was a Fund F (Federally Assisted Drinking Water Revolving Loan Fund) loan for $1,000,000 for the Adair County Water District in Adair County. The loan will be used to install 26,000 linear feet of transmission water main and to construct a 500,000 gallon elevated storage tank. The loan will have a 20-year term and a 1% interest rate. These funds will be combined with other project financing for a total project scope of $3,302,000.
The last loan Ms. Williams presented was a Fund F loan for $1,750,000 for the Jessamine South Elkhorn Water District in Jessamine County. The loan will be used to improve the Keene water system. The loan is the sole source of funding for the project. The loan will have a 20-year term and a 3% interest rate.
Representative Denham asked Ms. Williams if the ratio of engineering costs to construction costs for the Beaver Dam project (22.6%) was excessive. Ms. Williams said she did not have the budget breakout with her but would report back to the Committee at the next meeting.
Representative Damron made a motion to approve the six KIA loans. The motion was seconded by Representative Wayne and passed by unanimous roll call vote.
Ms. Williams next presented various coal/tobacco development grants that were funded through line item appropriations from the General Assembly in 2005 and 2006. No Committee action was required.
Representative Denham next asked Ms. Katie Smith, Deputy Commissioner for the Department of Financial Incentives, Cabinet for Economic Development, to report on two proposed Economic Development Bond (EDB) grants. Ms. Smith reported a proposed grant of $100,000 to the Graves County Fiscal Court to benefit Progress Rail Services Corporation in Mayfield, Kentucky. The grant will be used to offset the cost of a capital lease in Graves County, Kentucky. In return for the grant, the company will be required to create 100 permanent full-time jobs for Kentucky residents within two years of disbursement of the EDB grant funds, and maintain those jobs for three additional years at an average hourly wage of not less than $15.82 excluding benefits. If Progress Rail Services Corporation fails to create or maintain the required number of jobs, they will be required to pay the Graves County Fiscal Court the sum of $250 for each job not created or maintained. Also, if they fail to pay the average hourly wage of $15.82, they will be required to pay a pro rata portion of EDB grant based on a formula to be included in the agreement.
Representative Wayne asked Ms. Smith if Progress Rail Services Corporation met all the job incentives and wage requirements associated with the economic development funding it received in 2000. Ms. Smith said she would check into this and report back to the Committee.
Representative Rudy made a motion to approve the EDB grant. The motion was seconded by Representative Wayne and passed by unanimous roll call vote.
The second grant Ms. Smith reported was a proposed grant of $300,000 to the City of Bardstown to benefit NPR Manufacturing Kentucky LLC. The grant will be used to offset the cost of constructing a 192,375 square foot facility in Bardstown and equipping the building for manufacturing and distributing piston rings used in the automotive industry. In return for the grant, the company will be required to create 150 permanent full-time jobs for Kentucky residents within two years of completion of construction and occupancy of the facility. The jobs are required to pay an average hourly wage of not less than $14.20 excluding benefits, and the company must maintain the jobs paying these wages at the facility for an additional three years. If NPR Manufacturing LLC fails to create or maintain the required number of jobs, they will be required to pay the City of Bardstown the sum of $500 for each job not created or maintained. Also, if they fail to pay the average hourly wage of $14.20, they will be required to pay a pro rata portion of EDB grant based on a formula to be included in the agreement.
Representative Rudy made a motion to approve the EDB grant. The motion was seconded by Representative Damron and passed by unanimous roll call vote.
The next report was provided by Terri Fugate, Deputy Executive Director, and Tom Howard, Director, Office of Financial Management (OFM). Mr. Howard said there were two new debt issues to be presented. The first item was a new bond issue for the Kentucky Housing Corporation (KHC): KHC Fixed-rate Demand Conduit Multifamily Mortgage Revenue Bonds, Series 2007, Liberty Green Rental III Project. The total cost of the project is $22,747,024, including $11,000,000 in KHC conduit financing. Mr. Howard said the proceeds from the bond issue will be used to replace a 63-year old barracks-style public housing complex in Louisville. [This is the third of a four phase project, also known as the Clarksdale Revitalization Project.]
Representative Wayne made a motion to approve the KHC bond issue. The motion was seconded by Representative Rudy and passed by unanimous roll call vote.
Ms. Fugate next reported a new bond issue for Morehead State University (MoSU): MoSU General Receipts Bonds, 2007 Series A, for $6,380,000. Ms. Fugate noted that these were the first of the General Receipts to be issued by the University. The proceeds will be used to renovate Nunn Residence Hall and expand the Student Wellness Center.
Representative Rudy made a motion to approve the new bond issue. The motion was seconded by Representative Damron and passed by unanimous roll call vote.
Ms. Fugate then presented four follow-up reports for previously approved bonds: Northern Kentucky University General Receipts Bonds, 2007 Series A, dated June 7, 2007, for $48,660,000; KHC Housing Revenue Bonds, 2007 Series G (Non-AMT), Series H (AMT), Series I (Taxable), and Series J (Taxable) (Variable Rate), for $75,000,000; Kentucky Asset / Liability Commission General Fund Tax and Revenue Anticipation Notes, 2007 Series A, dated July 3, 2007, for $352,614,500; and Kentucky Asset / Liability Commission Project Notes, 2005 General Fund Second Series (Third Tranche), for $50,000,000 Series A-1 (Remarketed by JPMorgan Securities, Inc.), and for $50,000,000 Series A-2 (Remarketed by UBS Securities LLC).
Representative Denham asked if the KHC variable rate bond issue had yielded good results. Mr. Howard said KHC is utilizing unhedged variable rate interest rate to offset some variable rate assets on their balance sheet so that those two stay in sync. He said in discussions with the rating agencies, KHC was advised, because of its overall risk profile, to interject some variable rate bonds to balance out their net interest margin.
Representative Damron said when universities move to a General Receipts indenture they pledge most of their revenues for the indenture. He asked if this is the intended effect. Mr. Howard said that is correct. He explained that the debt essentially becomes a general obligation of the university, with certain exceptions when restrictions are placed on the use of a source of revenue. As an example, he said an exception might be needed for federal purposes or for receipts previously pledged to an existing Housing and Dining indenture that could not be refunded.
In response to another question from Representative Damron, Mr. Howard explained that bonds may continue to be outstanding under prior indentures until the prior indentures are collapsed into the General Receipts indenture. No Committee action was required for these follow-up reports.
Ms. Fugate presented four new school bond issues with School Facilities Construction Commission (SFCC) debt service participation: Calloway County, Oldham County, Paris Independent (Bourbon County), and Spencer County.
Representative Wayne made a motion to approve the school bond issues. The motion was seconded by Representative Rudy and passed unanimously by roll call vote. Representative Damron noted that he was not compensated for any of the school bonds although his firm was involved in all four.
Ms. Osborne said there were two locally-funded school bond issues submitted to the Committee for review this month: Carlisle County and Jefferson County. She noted that the Jefferson County bond issue was submitted to the Committee after it was sold. KRS 45.812 requires all bond issues to be reported to the Committee prior to the issuance. She said this statutory reporting requirement has been discussed with the financial advisor, bond counsel, Department of Education, and School Facilities Construction Commission. She said this is the first time this has happened since enactment of the statues fifteen years ago. She said all disclosure information has been filed, and no further action on the bond issues is required.
Senator Tori asked if there was any penalty for noncompliance with the statutory reporting requirement. Ms. Osborne said this was a technical violation and was not aware of any impact on the bonds.
Representative Denham announced the next meeting is scheduled for Tuesday, August 21 at 1:00 p.m.
With there being no further business, the meeting adjourned at 2:50 p.m.