Call to Order and Roll Call
The 11th meeting of the Capital Projects and Bond Oversight Committee was held on Tuesday, December 20, 2011, at 11:00 AM, 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, Steven Rudy, and Jim Wayne.
Guests: Scott Aubrey, Director, Division of Real Properties; John Brawner, Cabinet for Health and Family Services Leasing Branch; John Hicks, Deputy Director, Governor’s Office for Policy and Management; Tom Howard, Executive Director, Office of Financial Management; Richard McQuady, Chief Executive Officer, Kentucky Housing Corporation; Sandy Williams, Kentucky Infrastructure Authority.
LRC Staff: Kristi Culpepper and Christine Robertson.
Approval of Minutes
Representative Rudy made a motion to approve the minutes of the November 15, 2011, meeting. The motion was seconded by Senator Leeper and approved by voice vote.
Correspondence
Kristi Culpepper, Committee Staff Administrator, said there was one correspondence item available for members to review. In October 2009, the committee approved the Kentucky Housing Corporation (KHC) taking the necessary steps to participate in a new federal program, called the New Issue Bond Program (NIBP). One of the conditions of the committee’s approval was that KHC provide periodic updates as the corporation goes to market with new debt issues under this program. Richard McQuady, Chief Executive Officer, KHC, said the corporation was using the final $30 million of NIBP funds and $20 million of regular program bonds to offer 30-year fixed-rate mortgages at or below 3.5 percent.
Information Items
Ms. Culpepper presented six information items for members to review. The first item was a draft of the committee’s report to the 2012 General Assembly, which summarizes the committee’s activities over the past year.
The second was a notice of advertisement for leased space for the Cabinet for Health and Family Services in Fayette County. In response to a question from Senator Buford, Scott Aubrey, Assistant Director, Division of Real Properties, said that the two properties being consolidated were in the Gainesway area and on Creative Drive. In response to another question from Senator Buford, John Brawner, Cabinet for Health and Family Services Leasing Branch, said that 13 bids had been received and they were in the process of being evaluated. In response to a question from Representative Damron, Mr. Brawner said that proximity to the client base would be a priority.
The third item was an energy savings performance contract (ESPC) for the Department of Fish and Wildlife Resources. Ms. Culpepper said that unlike the other ESPCs that have been reported to the committee, which use lease or bond financing, this project will be paid 75 percent from federal funds for Wildlife and Sport Restoration and 25 percent in State Game and Fish Funds. The total cost of the project is $204,903 and is expected to generate $231,531 in savings over 13 years. In response to a question from Senator Leeper, Ms. Culpepper said that even though the project is self-funded, the contractor still has the same requirements and penalties should it not meet the guaranteed energy savings.
The fourth item was a report of tax-exempt property in the Commonwealth by county, which committee members requested at the November 2011 committee meeting during a discussion of the state’s recent property acquisition for the Department of Fish and Wildlife.
Ms. Culpepper also said that members’ folders included a copy of an article for the Lexington Herald Leader which stated that a recent land purchase in Scott County for Fish and Wildlife brought the seller a profit of $254,694. This land acquisition was on the committee’s October 2011 agenda. In response to a question from Representative Glenn, Scott Aubrey, Director of the Division of Real Properties said that the land had been paid for by federal funds, and by Fees-in-Lieu-of (FILO) wetlands stream mitigation funds. In response to another question from Representative Glenn, Mr. Aubrey said that the state received two independent appraisals and a review appraisal. The appraisals came back valuing the land at $2,600 per acre, and the state paid $2,500 per acre. In response to a question from Senator Carroll, John Hicks, Deputy Director, Governor’s Office for Policy Management, said that the funds had been appropriated. In response to a question from Representative Wayne, Scott Aubrey said that there were wetlands on the property, but that he did not know their exact size and nature. In response to a question from Representative Damron, Mr. Hicks said that he did not think FILO funds could be used to develop sewer systems. Representative Damron asked Mr. Hicks to look into it.
The fifth item was a report from the Auditor of Public Accounts stating that the selection of underwriters and bond counsels for state debt-issuing authorities observed the applicable provisions in statute.
The sixth item was the final report issued by Parsons Commercial Technology and MGT of America, which conducted a statewide assessment of school facilities pursuant to 2010 Senate Bill 132. The report ranks school facilities according to facility condition, educational suitability, and technology readiness.
Lease reports submitted by the Finance and Administration Cabinet
Representative Glenn asked Scott Aubrey, Assistant Director of the Division of Real Properties, to present four lease renewals. The first was for the United Prosecutorial System in Jefferson County at a total annual cost of $313,838. The second lease was for the Cabinet for Health and Family Services in Kenton County at a total annual rent cost of $319,339. The third lease was for the Cabinet for Health and Family Services in Letcher County at an annual cost of $178,579. The fourth lease was for the Department of Workers Claims in Fayette County at an annual rental cost of $141,465.
In response to a question from Representative Wayne, Mr. Aubrey replied that the cost per square foot for the Jefferson County lease was probably higher than the average cost per square foot in Jefferson County due to the location of the property, which would have to be close to the courthouse and in an urban location. In response to another question from Representative Wayne, Mr. Aubrey replied that he would look into what other downtown properties the state was leasing.
Representative Rudy made a motion to approve the lease renewals. The motion was seconded by Senator Carroll, and it passed by roll call vote with seven members voting “yes” and one member voting “no.”
Project report from the Finance and Administration Cabinet
Representative Glenn asked John Hicks, Deputy Director, Governor’s Office for Policy and Management, to present one new unbudgeted capital project. Mr. Hicks said that project is a system integrity enhancement to the unemployment insurance system for the Education and Workforce Development Cabinet, Office of Employment and Training, and is 100 percent federally funded. The purpose of the $1,550,000 grant is to improve integrity enhancement functions. Senator Carroll made a motion to approve the project. The motion was seconded by Representative Rudy, and it passed unanimously by roll call vote.
Kentucky Infrastructure Authority (KIA) Fund A Loans
Representative Glenn asked Sandy Williams to present several items, beginning with Fund A loans. The first request was for a $1,000,000 loan to the City of Burkesville in Cumberland County to make improvements to the sewer system. The loan term is 20 years with an interest rate of one percent.
The second request was for a $418,000 loan to the City of Harrodsburg in Mercer County to clean the interceptor sewer and to inspect, replace, and repair collector lines and manholes. The loan term is 20 years with an interest rate of one percent. In response to a question from Representative Glenn, Ms. Williams said that over time, ingredients built up and restricted the flow in the pipes which needed to be cleaned out.
Representative Wayne made a motion to approve the Fund A loans. The motion was seconded by Senator Carpenter, and it passed unanimously by roll call vote.
KIA Fund B Loan Increase
Representative Glenn asked Ms. Williams to present the third item, a Fund B Loan increase. This request was for the City of Carrollton in Carroll County and was an increase of $150,000 to a loan originally approved by the committee on August 19, 2008. The new loan amount is $900,000 and retains the original loan term of 20 years and rate of 1.07 percent. The increase was due to a failing culvert and the repairs needed to maintain the integrity of the sewer. Representative Wayne made a motion to approve the Fund B loan increase. The motion was seconded by Senator Leeper, and it passed unanimously by roll call vote.
KIA Fund F Loan Increase and Fund F Loans
Ms.Williams presented the fourth request, a Fund F loan increase to the City of Hopkinsville in Christian County, for the benefit of the Hopkinsville Water Environment Authority, in the amount of $800,000 for a total loan amount of $8,800,000. The original loan was approved by the committee in March 2008, and the loan retains its original terms of 20 years at an interest rate of one percent. The loan increase is being requested to upgrade and expand the water treatment plant.
Ms. Williams said the fifth request was a Fund F loan in the amount of $1,545,000 to the East Casey Water District in Casey County to install waterline, upgrade a pump station, construct a pump station, and construct a water storage tank. The loan term is 20 years at a rate of 1 percent.
Ms. Williams said the sixth request was a Fund F loan for the Jessamine South-Elkhorn Water District in Jessamine County. The loan amount was $3,025,300 at a rate of 3 percent over twenty years. The funds will be used for the Northwest Water Main replacement and Hydraulics and for the Dixon Town Replacement project.
Ms. Williams said the seventh request was for the City of Nicholasville in Jessamine County. The loan amount was $4,000,000 with an interest rate of 2 percent over 20 years. The funds will be used to install ductile iron pipe and a storage tank and booster station.
Ms. Williams said the eighth request was for the City of Carrollton in Carroll County. The loan amount was $1,850,270 with an interest rate of 1 percent over 30 years. The funds will be used to address source water, water treatment, and distribution needs.
Ms. Williams said the ninth request was for the City of Bowling Green for the benefit of Bowling Green Municipal Utilities in Warren County. The loan amount was $1,316,378 with an interest rate of 2 percent over 20 years. The funds will be used to replace failing water lines.
Ms. Williams said the tenth request was for the City of Harrodsburg in Mercer County. The loan amount was $438,000 with an interest rate of 1 percent over 20 years. The funds will be used to upgrade water lines.
In response to a question from Senator Carroll, Ms. Williams said that the engineers for the projects were selected by competitive bidding. In response to another question from Senator Carroll, Ms. Williams said that KIA borrowers were encouraged to use a fee scale promulgated by the US Department of Agriculture’s Rural Development when negotiating engineering costs for projects. She also explained that certain services are being included as engineering fees that are not related to design or inspection. In response to another question from Senator Carroll, Ms. Williams said that some engineering contracts are evaluated by engineers at the Division of Water and some are evaluated at KIA, but costs are expected to be in line with Rural Development’s fee scale.
In response to a question from Representative Damron regarding the seventh request [Fund F, City of Nicholasville], Ms. Williams said that a rate increase was not required as a condition of the loan. In response to another question from Representative Damron, Ms. Williams said that part of the loan application included a resolution from the city council of Nicholasville authorizing the submittal of the loan application and that the project was listed on an intended use plan that was put out for a thirty day public comment period by KIA.
Senator Carroll made a motion to motion to accept all fund F loans and loan increases except the loan to the City of Nicholasville. Senator Buford seconded the motion, and it passed unanimously by roll call vote.
Senator Carroll made a motion to table the City of Nicholasville Fund F loan until the January 2012 committee meeting and requested that the city provide information on the fee structure. Representative Wayne seconded the motion, and it passed unanimously by roll call vote.
Follow-up Reports for Previously Approved Bond Issues
Representative Glenn asked Brett Antle, Deputy Executive Director, Office of Financial Management, to present four items. Mr. Antle said the first item was a follow-up report for $73,905,000 of State Property and Buildings Commission Revenue Refunding bonds, Project Number 101. Proceeds from this bond issue will be used will refund $76.4 million of outstanding debt to provide $7.2 million in net present value savings for the General Fund. The transaction priced on November 2 and closed on November 15, 2011. The all-in true interest cost was 2.273 percent. The bonds were sold on a negotiated basis and Morgan Stanley served as the underwriter. Peck, Shaffer, and Williams served as bond counsel and Bank of New York Mellon is the trustee.
The second item was a follow-up report for $43,700,000 of State Property and Buildings Commission Road Fund Revenue Refunding Bonds, Project Number 73. This bond issue will advance refund $43.7 million of outstanding bonds to provide $2.8 million in net present value savings for the Road Fund. The transaction priced on November 2 and closed on November 15, 2011. The all-in true interest cost was 3.420 percent. The bonds were sold on a negotiated basis and Morgan Stanley served as senior underwriter. Peck, Shaffer, and Williams served as bond counsel and US Bank is the trustee.
The third item was a follow-up report for $6,905,000 of Western Kentucky University General Receipts Refunding Bonds, 2011 Series A. This bond issue will refund the university’s outstanding Consolidated Education Buildings Revenue Bonds, Series P. This transaction priced on October 26 and closed on November 15, 2011. The all-in true interest cost was 2.525 percent. The bonds were sold on a competitive basis and were purchased by Hutchinson, Shockey, Erley, and Company. Peck, Shaffer, and Williams served as bond counsel and US Bank is the trustee.
The fourth item was a follow-up report for $158,155,000 of Kentucky Economic Development Finance Authority Revenue Bonds (Catholic Health Initiatives), Series 2011 B. Proceeds will be used to finance and refinance certain costs of acquisition, construction, installation, and renovation of equipment facilities and retire a portion of outstanding commercial paper notes. This transaction priced on November 8 and closed on November 10, 2011. The term is 35 years with a variable interest rate. JP Morgan served as senior underwriter and Wells Fargo is the trustee. No committee action was required on these items.
New School Bond Issues with School Facilities Construction Commission Debt Service Participation
Mr. Antle said there were four new school bond issues for members to consider. Senator Carroll made a motion to approve the school bond issues. The motion was seconded by Representative Rudy, and it passed unanimously by roll call vote.
New Local School Bond Issues with 100 Percent Locally Funded Debt Service
Ms. Culpepper said there was one local school bond issue reported to the committee this month. The bond issue is 100 percent locally funded and did not involve a tax increase. No committee action was required.
With there being no further business, the meeting adjourned at 12:10 p.m.