Call to Order and Roll Call
The 1st meeting of the Capital Projects and Bond Oversight Committee was held on Thursday, January 19, 2012, at 8:00 AM, in Room 149 of the Capitol Annex. Senator Bob Leeper, 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 Jared Carpenter and Julian M. Carroll; and Representative Steven Rudy.
Guests testifying before the committee: Scott Aubrey, Division of Real Properties, Finance and Administration Cabinet; Kevin Bradley, Kentucky Housing Corporation; Robin Brewer, Office of Financial Management; John Hicks, Governor’s Office for Policy and Management; and Sandy Williams, Kentucky Infrastructure Authority.
LRC Staff: Kristi Culpepper, Josh Nacey, and Christine Robertson.
Approval of Minutes
Representative Glenn made a motion to approve the minutes of the December 20, 2011, meeting. The motion was seconded by Senator Carroll and approved by voice vote.
Information items
Kristi Culpepper, Committee Staff Administrator, said six information items were included in members’ folders. The information items included a list of proposed legislation related to the Capital Projects and Bond Oversight Committee; information from the Finance and Administration Cabinet on leases discussed at the December 20, 2011, meeting; correspondence from Kentucky State University indicating its intent to establish a new capital project; and quarterly reports from the Administrative Office of the Courts, the Commonwealth Office of Technology, the Finance and Administration Cabinet, and universities that manage their own construction programs.
Project Reports - University of Kentucky and the University of Louisville
Two universities, UK and UL, reported the purchase several items of medical and scientific equipment in excess of $200,000. These purchases were reported in accordance with KRS 45.760(5), which requires that purchases of major items of equipment to be used for medical, scientific, or research purposes, be reported to the Capital Projects and Bond Oversight Committee within 30 days.
Lease reports submitted by the Finance and Administration Cabinet
Scott Aubrey, Director of the Division of Real Properties, presented eight lease renewal reports for contracts exceeding $100,000. Lease renewal reports were presented for the Cabinet for Health and Family Services in Montgomery County, $130,356; Department of Corrections in Fayette County, $116,908; Energy and Environment Cabinet in Franklin County, $480,240; Council on Postsecondary Education in Franklin County, $322,245; Department of Insurance in Franklin County, $136,416; Cabinet for Health and Family Services in Fayette County, $444,461; Department of Juvenile Justice in Franklin County, $180,079; Department of Housing, Buildings, and Construction in Franklin County, $300,898.
Senator Carroll made a motion to approve the eight lease renewals. The motion was seconded by Representative Glenn and passed unanimously by roll call vote.
In response to a question from Senator Carroll, Mr. Aubrey said the Division of Real Properties will advise the committee by letter about its study of future utility costs and the impact on state budget leases.
A lease renewal / modification report was presented for the Cabinet for Health and Family Services in Scott County at a total annual cost of $154,811. The property owner requested a rate increase, and this lease is being temporarily renewed while the advertising process is completed. No action was required on this item.
A lease modification report for the Board of Dentistry in Jefferson County was discussed. The Board desires to construct a private office for legal staff. Estimates for the work were received from Jefferson Development Group ($8,230) and from Kaelin Home Improvement Inc. ($9,150). The low bid from Jefferson Development Group was accepted.
Senator Carpenter made a motion to approve the lease modification report. The motion was seconded by Representative Glenn and passed unanimously by roll call vote.
The final item presented was a report of seven lease modifications of less than $50,000. These reports did not require committee action.
Project reports from the Finance and Administration Cabinet
John Hicks, Deputy Director, Governor’s Office for Policy and Management, discussed two project reports submitted by the Finance and Administration Cabinet. The Department of Parks initiated a new unbudgeted capital project known as the Cabin Creek Covered Bridge project. The scope of work includes repair of a historic covered bridge in Lewis County damaged by flooding in 2008. The project scope is $1,244,000 ($994,740 federal funds and $249,260 restricted funds.)
In response to a question from Senator Carroll, Mr. Hicks said the restricted funds are derived from insurance money from the state fire and tornado insurance program.
Senator Carpenter made a motion to approve the project. The motion was seconded by Representative Glenn and passed unanimously by roll call vote.
A $5.8 million scope increase was reported for the Department of Military Affairs Expand State Emergency Operations Center-Frankfort project. The scope increase will be funded with $5,200,000 in federal funds and $600,000 in restricted funds. This project was initially authorized in the 2010 Extraordinary Session HB 1 (2010-12 Budget) for $4 million in federal funds.
The original scope of work was pared back based on a conservative assessment of available federal funds. The additional funds will restore the scope of work to its prior level - a 26,000 square foot addition to the existing Emergency Operations Center at Boone National Guard Center in Frankfort. The revised project scope is $9.8 million.
Senator Carroll made a motion to approve the scope increase. The motion was seconded by Representative Glenn and passed unanimously by roll call vote.
Kentucky Infrastructure Authority (KIA) Fund A Loans
Sandy Williams presented three Fund A loans for approval. The projects included an Oldham County Environmental Authority Fund A loan increase for the Orchard Grass Willow Creek Wastewater Treatment Plant Elimination project, $2,123,000; City of West Liberty in Morgan County, $3,937,950; and Grant County Sanitary Sewer District, $1,226,700.
In response to questions from Senator Leeper, Ms. Williams explained that some loan recipients had experienced technical defaults, but not payment defaults. KIA has a policy that all defaults must be satisfied prior to the release of any agency funds. KIA will make a conditional loan approval if prior mistakes can be addressed. In response to another question from Senator Leeper, Ms. Williams said she would share an upcoming report on borrowers’ debt service ratios with the committee once it was completed.
In response to a question from Representative Glenn, Ms. Williams said an example of a technical default would be if the borrower did not submit audited financial statements within a specific time frame as agreed in the loan.
In response to a question from Senator Carroll, Ms. Williams said KIA uses the US Rural Development fee scale and questions any overages to that fee scale. In response to another question from Senator Carroll, Ms. Williams said the engineering fees on the Oldham County loan request were high because the project had to be redesigned. The plan originally included the Oldham County flows going through the Louisville Metropolitan Sewer District (MSD), but because an agreement could not be reached with MSD, the project had to be redesigned.
In response to a question from Senator Carpenter, Ms. Williams said KIA has experienced no borrower defaults with the 1:1 debt service coverage ratio in 20 years and, because of this, the agency had no plans to increase the ratio requirement.
Senator Carroll made a motion to approve the Fund A loans. The motion was seconded by Representative Glenn and passed unanimously by roll call vote.
Ms. Williams presented a $3,050,300 Fund F loan request for the City of West Liberty in Morgan County to complete four water improvement projects. Senator Carroll made a motion to approve the Fund F loan. The motion was seconded by Senator Carpenter and passed unanimously by roll call vote.
The last item presented was a $350,000 line-item grant for the City of Eminence in Henry County. The grant will be used to expand the city’s wastewater treatment plant. No committee action was required.
Follow up reports for previously approved bond issues
Robin Brewer, Financial Analyst, Office of Financial Management, presented three follow-up reports for previously approved bonds. The projects included: Eastern Kentucky University General Receipts Bonds, 2011 Series A, $21,480,000; Kentucky Economic Development Finance Authority Hospital Revenue Bonds, Series 2011 (Baptist Healthcare System Obligated Group), $140,000,000; and Kentucky Housing Corporation Housing Revenue Bonds, 2011 Series B (Non-AMT) and 2009 Series C, Subseries C-4 (Non-AMT), $50,000,000. These bond issues were approved at a previous committee meeting, and no further action was required.
New School Facilities Construction Commission (SFCC) Bond Issues
Ms. Brewer reported 43 new SFCC bond issues (40 refundings and three new money items.) The total estimated par amount of the bonds is $153,567,000, state estimated annual debt service is $4,279,214 and the local estimated annual debt service is $10,372,824. No local tax increases were anticipated to finance these projects. Representative Rudy made a motion to approve the school bond issues. The motion was seconded by Senator Carpenter and passed unanimously by roll call vote.
New local school bond issues with 100 percent locally funded debt service
Ms. Culpepper reported 16 new local school bond issues with 100 percent locally funded debt service (15 refundings and one for energy improvements.) No committee action was required.
With there being no further business, a motion was made to adjourn the meeting. The motion was seconded by Representative Glenn, and the meeting adjourned at 8:50 AM.