Call to Order and Roll Call
The 9th meeting of the Capital Projects and Bond Oversight Committee was held on Tuesday, October 18, 2011, at 1:00 PM, in Room 169 of the Capitol Annex. Representative Jim Glenn, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Bob Leeper, Co-Chair; Representative Jim Glenn, Co-Chair; Senators Tom Buford, Jared Carpenter, and Julian M. Carroll; Representatives Robert R. Damron, and Jim Wayne.
Guests: John Hicks, Deputy Director, Governor’s Office for Policy and Management; Brian Simons, Department of Military Affairs; Benjy Kinman and Mark Mangeot, Department of Fish and Wildlife; Charles Bush, Director, Division of Real Properties, Finance and Administration Cabinet; Sandy Williams, Financial Analyst, Kentucky Infrastructure Authority; Tom Howard, Executive Director, and Brett Antle, Deputy Executive Director, Office of Financial Management.
LRC Staff: Kristi Culpepper and Jennifer Luttrell.
Approval of Minutes
Senator Carroll made a motion to approve the minutes of the September 27, 2011, meeting. The motion was seconded by Representative Wayne and approved by voice vote.
Information Items
Representative Glenn asked Kristi Culpepper, Committee Staff Administrator, to present information items. Ms. Culpepper said there were four information items for members to review. The first information item was the quarterly status reports on capital projects from the Finance and Administration Cabinet, Murray State University, Northern Kentucky University, University of Kentucky, University of Louisville, and Western Kentucky University. The second information item was the quarterly status report on court facility construction projects from the Administrative Office of the Courts. The third information item was the quarterly status report on Information Technology Systems from the Commonwealth Office of Technology. The last information item was a notice of advertisement for leased space for the Commonwealth Office of Technology in Franklin County.
Purchase of Unbudgeted Scientific Research Equipment
Representative Glenn asked Ms. Culpepper to report the first item of new business. Ms. Culpepper said the University of Louisville had purchased two items of unbudgeted scientific research equipment. First, the James Brown Cancer Center purchased an NMR instrument with $272,000 of gift funds to be used by the Medical Chemistry Program to develop new chemotherapy agents. Second, the Division of Nephrology purchased an LTQ Orbitrap Elite with $364,681 of general funds. The equipment will be used in studying diseases. No committee action was required.
Project Reports from the Finance and Administration Cabinet
Representative Glenn asked John Hicks, Deputy Director, Governor’s Office for Policy and Management, to present three items. The first item was a $214,800 scope increase for the Department of Military Affairs (DMA) – Renovate Latrines and Cold Storage Building to Field Maintenance Shop #5 Building project. The committee approved this project, which is 100 percent federally funded, in September, with a scope of $673,000.
In response to a question from Representative Glenn, Mr. Hicks explained that the scope increase was necessary due to unstable soil conditions, which require making adjustments to the foundation. Much of the cost of the project is due to the site rather than the type of project being constructed.
In response to a question from Senator Leeper, Mr. Hicks explained that he verified the conditions for the scope increase with the cabinet and the consultants who discovered the problem.
In response to a question from Representative Wayne, Mr. Hicks said that soil testing occurred coincident with the design of the facility due to the timing of when project funds were available. Mr. Hicks said he would arrange a tour of the facility for members as members requested.
At members’ request, Brian Simons from DMA’s budget office discussed the project’s timeline and construction. Mr. Simons said the scope increase includes a 10 percent contingency, which would be available to address any further problems that arise.
Senator Carroll made a motion to approve the scope increase. The motion was seconded by Senator Leeper and passed by roll call vote. Six members voted affirmatively and one member voted “No.” The revised project scope is $887,800.
The second item Mr. Hicks presented was a $216,000 scope increase for the $750,000 Department of Military Affairs – Lexington National Guard Armory Modular Expansion project. This project was approved by the committee in August and, including the scope increase, will be paid 91 percent from federal funds and 9 percent from restricted funds. Mr. Hicks said the scope increase was necessary due to changing the project design from a second story addition to a first story addition.
In response to a question from Representative Wayne, Mr. Hicks said the project would make room for some of the fire brigade’s equipment and provide administrative space.
Senator Carroll made a motion to approve the scope increase. The motion was seconded by Representative Damron and passed unanimously by roll call vote. The revised project scope is $966,600.
The third item Mr. Hicks presented was a report of a pool project in excess of $600,000. The project involved the purchase of 2,497 acres of land for $6.6 million for the Department of Fish and Wildlife. Funding for the project came from $3 million of Fish and Wildlife Land Acquisition Pool funds and $3.6 million from Fees-in-Lieu of Stream Mitigation funds.
In response to questions from Representative Glenn, Mr. Hicks said he did not know how much money the land acquisition would be removing from the tax rolls. Benjy Kinman, Commissioner’s Office, Department of Fish and Wildlife, and Mark Mangeot, Legislative Liaison, Department of Fish and Wildlife, said they would supply the tax assessment value of the property to the committee.
In response to another question from Representative Glenn, Mr. Mangeot said the department had not discussed the impact that removing the land from the tax rolls would have on local school districts with the Department of Education.
In response to a question from Representative Damron, Mr. Kinman said the department owns in deed around 133,000 to 145,000 acres of land in the state. Representative Damron said he was also concerned with the impact the department’s land acquisitions have on school funding. No committee action was required.
Lease Reports Submitted by the Finance and Administration Cabinet
Representative Glenn asked Charles Bush, Director, Division of Real Properties, Finance and Administration Cabinet, to present two lease modifications under $50,000. The first lease modification was for the Commonwealth Office of Technology in Franklin County (PR-3451) to make improvements at its property at 101 Commerce Drive in Frankfort. The improvements involved installing a double door between the office and warehouse spaces in the building. Two estimates were obtained and the lower bid was accepted. Building modification costs of $1,495 will be amortized through the lease expiration date of June 30, 2013.
The second lease modification was for the Cabinet for Health and Family Services (CHFS) in Larue County (PR-3912) to make improvements at its property at 105 Howard Street in Hodgenville. The improvements involved installing an exterior security door, access control devices, and other electrical items. Two estimates were obtained and the lower bid was accepted. Building modification costs of $1,566 will be amortized through the lease expiration date of June 30, 2013.
Representative Wayne requested that the cabinet provide the committee with a status report on the security improvements that have been made so far to CHFS facilities and improvements that still need to be made. Mr. Bush said the cabinet would provide the report. No committee action was required.
Report from the Office of Financial Management
Representative Glenn asked Sandy Williams, Financial Analyst, Kentucky Infrastructure Authority, to present three items. The first item was an $823,900 Fund C loan to the Warren County Water District for the Buchanon Park Sewer Line Extension project. The 20-year loan will have an interest rate of 3 percent and estimated annual payments of $56,729.
Senator Leeper made a motion to approve the loan. The motion was seconded by Senator Carroll and passed unanimously by roll call vote.
The second item was an $8 million increase to an existing $16 million Fund F loan to the Northern Kentucky Water District in Kenton County for its advanced treatment project at the Fort Thomas Water Treatment Plant. The 20-year loan will have an interest rate of 2 percent and estimated annual payments of $1,521,869.
Representative Wayne made a motion to approve the loan increase. The motion was seconded by Representative Damron and passed unanimously by roll call vote.
The third item was a line-item grant for the City of Flatwoods in Greenup County. No committee action was required.
Representative Glenn asked Brett Antle and Tom Howard to present five items. The first item was the State Property and Buildings Commission Revenue Refunding Bonds, Project No. 101, new bond issue. This bond issue will refund $91.6 million of outstanding bonds to provide an estimated $7.61 million in net present value savings for the General Fund. The bonds were expected to be sold on November 2. Morgan Stanley was the underwriter for the transaction.
In response to a question from Representative Wayne, Mr. Antle said this transaction was a typical economic refunding, not a debt restructuring. He explained that in an economic refunding, new bonds are sold that mature in the same fiscal year as the bonds that are being refunded. The transaction produces a savings because the new bonds have a lower interest rate than the bonds being refunded. Mr. Antle said that, in a restructuring, bonds are sold that mature in a future fiscal year and the proceeds are used to pay interest and principal on a bond that matures in the current fiscal year, which produces a budgetary savings.
Representative Wayne made a motion to approve the bond issue. The motion was seconded by Senator Leeper and passed unanimously by roll call vote.
The second item was the State Property and Buildings Commission Taxable Road Fund Revenue Refunding Bonds, Project No. 73 (Fourth Series), new bond issue. This bond issue will advance refund $41.27 million of outstanding bonds to provide approximately $3.4 million in net present value savings for the Road Fund. The bonds were expected to be sold on November 2. Morgan Stanley was the underwriter for the transaction.
Senator Carroll made a motion to approve the bond issue. The motion was seconded by Representative Wayne and passed unanimously by roll call vote.
The third item was the Eastern Kentucky University General Receipts Bonds, 2011 Series A, new bond issue. This bond issue will provide an estimated $21.5 million to finance the construction of new student housing. The bonds were expected to be sold on November 17 on a competitive basis. Hilliard Lyons was the financial adviser on the transaction and Peck, Shaffer, and Williams served as bond counsel.
Representative Wayne made a motion to approve the bond issue. The motion was seconded by Senator Carpenter and passed unanimously by roll call vote.
The fourth item was the Western Kentucky University General Receipts Refunding Bonds, 2011 Series A or General Receipts Bonds, 2011 Series A, new bond issue. Mr. Antle explained that the bond issue would take one of two structures depending on market conditions. The bonds would either provide $8 million of new money for the Downing University Center renovations authorized in the current budget, or they would refund approximately $7.1 million of outstanding debt. The bonds were expected to be sold on October 25 on a competitive basis. Hilliard Lyons was the financial adviser on the transaction and Peck, Shaffer, and Williams served as bond counsel.
Senator Carroll made a motion to approve the new bond issue. The motion was seconded by Representative Wayne and passed unanimously by roll call vote.
The fifth item was new school bond issues with School Facilities Construction Commission (SFCC) debt service participation. Mr. Antle presented 13 new school bond issues with an estimated par amount of $76.8 million. The estimated SFCC share of debt service totaled $2.99 million and the estimated local share of debt service totaled just over $4 million.
Senator Leeper made a motion to approve the new bond issues. The motion was seconded by Representative Wayne and passed unanimously by roll call vote.
New Local School Bond Issues Without SFCC Debt Service Participation
Representative Glenn asked Ms. Culpepper to report new local school bond issues. Ms. Culpepper said four local school bond issues were reported to the committee during the past month. One bond issue will provide new money to construct an elementary school and the other three are refunding issues. There were no tax increases associated with any of the bond issues and the debt service was 100 percent locally funded.
With there being no further business, the committee adjourned at 2:05 PM.