Call to Order and Roll Call
The 7th meeting of the Capital Projects and Bond Oversight Committee was held on Tuesday, July 17, 2012, at<MeetTime> 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, Steven Rudy, and Jim Wayne.
Guests: Senate President David Williams; Cindy Wohl, Assistant Director for Contract Administration, University of Louisville; Mitchell Payne, Associate Vice President for Business Affairs, University of Louisville; Bob Wiseman, Vice President for Facilities, University of Kentucky; Scott Aubrey, Director, Division of Real Properties; Rodney Murphy, Executive Director, Cabinet for Health and Family Services (CHFS) Office of Administrative and Technology Services; Carrie Banahan, Executive Director, CHFS Office of Health Policy Planning and Development; John Hicks; Tom Howard, Office of Financial Management.
LRC Staff: Kristi Culpepper, Jennifer Luttrell, and Josh Nacey.
Approval of Minutes
Representative Rudy made a motion to approve the minutes of the June 19, 2012, meeting. The motion was seconded by Senator Carroll and approved by voice vote.
Information Items
Kristi Culpepper, Committee Staff Administrator, said there were three items for members to review. The information items included 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 capital construction programs.
Reports submitted by the University of Louisville (UL)
Cindy Wohl, Assistant Director for Contract Administration and Mitchell Payne, Associate Vice President for Business Affairs at UL, presented two items. The first was the purchase of scientific research equipment, using $252,000 in federal funds for a metal etch system. No action was required. The second item was a modification to the MedCenter One lease, which added 4,138 square feet to an already existing lease, at an added cost of $77,173 per year. Because the lease modification was executed prior to the committee’s approval, no action was taken.
Reports submitted by the University of Kentucky (UK)
Bob Wiseman, Vice President for Facilities Management at UK presented six items. The first item was the cash purchase of a nurse call system for Good Samaritan Hospital at a cost of $291,332. The second item was the report of a ground lease to Phi Mu Fraternity, which will construct a 17,000 square foot chapter house on the property. The organization will be responsible for all maintenance and operational funding. The third item was a report of consolidation of two authorized projects. UK will consolidate two capital projects for accounting purposes: Acquire Campus Security System; and Repair, Upgrade and Improve Electrical Systems. No action was required on the first three items.
The fourth item was a lease for the Nursing Staff Development Department. The university will lease 5,824 square feet at Alumni Park Plaza at an annual cost of $131,040, which includes utilities and common area maintenance. The fifth item was a lease for the UK Healthcare Information Technology Services Department. The university will lease 24,328 square feet at an annual cost of $545,000, which includes utilities and common area maintenance. Both leases were approved by the university’s Board of Trustees. Representative Wayne made a motion to approve both leases. The motion was seconded by Senator Carroll and passed unanimously by roll call vote.
The sixth item was a report of a new project, Renovate/Expand Gatton Building. Mr. Wiseman said that UK was seeking approval for only the design phase at this time. The project is expected to cost $65 million and UK intends to fund it privately, although the total amount has not yet been raised. In response to a question from Representative Wayne, Mr. Wiseman said that the funds have been raised for the design portion of the project and that he would certify that with a letter to the committee staff. Senator Carroll made a motion to approve the design phase of the project. Representative Wayne seconded the motion and it passed unanimously by roll call vote.
Lease reports submitted by the Finance and Administration Cabinet
Scott Aubrey, Director, Division of Real Properties, presented seven lease reports. The first was a notice of advertisement for leased space for the Department of Workforce Investment in Daviess County. The lease, for approximately 15,150 square feet, is anticipated to exceed $200,000 annually. No action was required.
The second item was a report of state leases with square foot modifications for the period of January through March, 2012. Though the rate per square foot will not change, the additional square footage for Probation and Parole in Garrard County, the Department of Corrections in Taylor County, the Department of Travel in Franklin County and Financial Institutions in Jefferson County will cost an additional $17,618 annually. No action was required.
The third item was a lease renewal for the Department of Revenue in Boone County. The lease was renewed with the same terms and conditions at a rate of $15.55 per square foot and an annual cost of $110,110. Because the renewal had been executed prior to the committee meeting, no action was taken.
The fourth item was a lease renewal for the Commonwealth Office of Technology in Franklin County. The lease was renewed with the same terms and conditions at a rate of $8.80 per square foot and an annual cost of $384,111. Because the renewal had been executed prior to the committee meeting, no action was taken.
The fifth item was a lease renewal for the Energy and Environment Cabinet in Franklin County. The lease was renewed with the same terms and conditions at a rate of $9.08 per square foot and an annual cost of $1,314,194. Because the renewal was executed prior to the committee meeting, no action was taken.
The sixth item was a new lease for the Cabinet for Health and Family Services in Carter County. The lease is for 11,483 square feet at $11.89 per square foot and an annual cost of $136,533. This lease was procured through a competitive bid process. Representative Wayne made a motion to approve the lease. The motion was seconded by Senator Carroll and passed unanimously by roll call vote.
The seventh item was a new lease for the Cabinet for Health and Family Services (CHFS) in Franklin County for the purpose of housing the Kentucky Health Benefits Exchange to satisfy the provisions of the Affordable Care Act over 24 months. The lease, for 29,454 square feet, will cost $10.00 per square foot at an annual cost of $294,540. In response to a question from Representative Wayne, Rodney Murphy, Executive Director of the CHFS Office of Administrative and Technology Services and Carrie Banahan, Executive Director of the CHFS Office of Health Policy Planning and Development said that this lease will be paid for with approximately 95 percent federal funds.
In response to a question from Senator Leeper, Ms. Banahan said that the governor recently filed an executive order creating the Health Benefits Exchange. Ms. Banahan said she would provide committee members with a copy of the executive order. In response to questions from Senator Leeper, Ms. Banahan said that the Health Exchange will go into effect on January 1, 2014, and open enrollment will begin in October 2013. Ms. Banahan explained that the Cabinet has begun the process of selecting a benchmark plan, which will identify the benefits and services to be included in the plans, and they are required to submit that plan to the federal government by September 30 of this year. In response to another question from Senator Leeper regarding abortion and contraception coverage, Ms. Banahan said that the cabinet has not made any decisions about what will be included in the qualified health plans.
In response to a question from Representative Glenn, Ms. Banahan said that the public will be notified as to what the plan will include and that input would be solicited from the public as well.
In response to a question from Senator Leeper, Mr. Aubrey said that the lease was for temporary space and will run through 2015, when the program shuts down. Mr. Murphy explained that the cabinet has a small area leased already and employs approximately 20 employees. Once the project is fully in place, there will be 210 employees, which will include 110 employees from the vendor. The cabinet expects to have that vendor in place within the next 90 days. Mr. Aubrey said that this lease has a 30-day cancellation clause.
In response to a question from Senator Carpenter, Mr. Aubrey said that the hiring will begin and employees will be in place in September of this year, so the lease process was initiated in order to find a location to house those employees by the deadline. Mr. Aubrey said that the judicial branch currently has minimal staff in the space to be leased, but they will be moved to another office space leased by the judicial branch. In response to another question from Senator Carpenter, Mr. Murphy explained that the employees of the vendor will include engineers, architects, developers, testers, and trainers. The rest will be state-contracted specialists to do quality assurance and other project oversight. Approximately 25-30 state employees will be built into that team to help develop and refine policy and then take over the ongoing operations of the exchange once it is in place. In response to another question from Senator Carpenter, Mr. Murphy said he did not know how many employees being hired would be included in the state pension system, but that he would get back to Senator Carpenter with that information.
In response to a question from Senator Buford, Ms. Banahan said that Kentucky does not plan to join in with other states to form a partnership, and that Kentucky would establish its own exchange. Mr. Murphy said that the other option would be to use a plan designed by the federal government. Ms. Banahan said that federal funds were available through 2014 for all exchange operations. On January 1, 2015, the state is responsible for sustaining the exchange. Kentucky plans to refrain from using general fund dollars. Instead, restricted funds will be used, possibly coming from an assessment on insurers. Ms. Banahan said she would provide more information for Senator Buford on the restricted funds that CHFS plans to use. In response to another question from Senator Buford, Mr. Murphy said that Accenture was hired as a consultant to draft the request for proposal (RFP) in regard to the health care exchange, but was forbidden to bid on the RFP itself.
In response to a question from President Williams, Ms. Banahan said the annual cost of the program is not known and the budget process is ongoing at this time. Mr. Murphy and Ms. Banahan said they did not know under what authority the governor intends to create the health care exchange, or what federal funds they expect to receive after January 1, 2015. Mr. Murphy said that a $5 million appropriation in the most recent budget created a special project for the state’s portion of the 90-10 federal match. John Hicks, Deputy State Budget Director, said that the Commonwealth had received an exchange development grant of $57 million in February, and that two things will occur regarding appropriations. First, the executive branch would return to present a capital technology information project. Second, an operating budget interim appropriations increase from federal funds will be the FY 2013 operating budget for elements of exchange activities that do not involve systems development. Mr. Hicks said that no general fund or agency fund dollars would be spent.
Rep. Wayne made a motion to approve the lease. The motion was seconded by Senator Carroll. The motion failed, with three members voting yes and four members voting no.
Project reports submitted by the Finance and Administration Cabinet
John Hicks, Deputy State Budget Director, presented five items to the committee. The first item was a scope increase for a project authorized in the 2012-2014 budget. The Energy and Environment Cabinet will spend $29,000 in restricted funds in addition to the original $305,000 budget line item for a paper shredder at a recycling facility. The additional funds will pay for work associated with the installation of the equipment, an increase in shipping cost, and electrical upgrades. Representative Wayne made a motion to approve the scope increase. The motion was seconded by Senator Carpenter and passed unanimously by roll call vote.
The second item was a $412,000 scope increase for the Renovate West Mignon Residence Hall project authorized in the 2012-2014 budget. The scope increase, to be used for the project’s contingency allowance and window replacement, will be funded by bond proceeds from the university’s Housing and Dining Revenue fund. Representative Wayne made a motion to approve the scope increase. The motion was seconded by Senator Leeper and passed unanimously by roll call vote.
The third item was a new unbudgeted capital project for the Transportation Cabinet. The Lake Barkley State Resort Park Airport Runway Repair project was originally authorized in the 2012-2014 budget, but due to changes in the match rate from the Federal Aviation Administration, a new unbudgeted project was created. The $1,000,000 project will be funded with 90 percent federal funds and 10 percent restricted funds. Representative Wayne made a motion to approve the project. The motion was seconded by Senator Leeper and passed unanimously by roll call vote.
The fourth item was new unbudgeted capital project for the Transportation Cabinet. The $2,933,000 Capital City Airport Runway Safety Area Improvement and Taxiway Construction project will shorten the runway at Capital City Airport and create a buffer zone. The project will be funded with 90 percent federal funds and 10 percent restricted funds. Representative Wayne made a motion to approve the project. The motion was seconded by Representative Rudy and passed unanimously by roll call vote.
The fifth item was a report of a pool project for the Department of Corrections (DOC). The $869,000 Eastern Kentucky Correctional complex -- Security Control System for Dorms project will be funded by the DOC’s 2010-2012 bond-funded maintenance pool and will replace the existing system, which is nearing the end of its useful life. No action was required.
Kentucky Infrastructure Authority (KIA) grants
Ms. Culpepper said that KIA reported five grants to the committee that were reauthorized and reallocated by the 2012 General Assembly. No action was required.
Bond Activity Reports from Office of Financial Management
Tom Howard, Executive Director, Office of Financial Management, presented seven follow-up reports for previously issued bonds. The issues included: Asset/Liability Commission Direct Loan [Project Notes] ($65,000,000); Western Kentucky University General Receipts Bonds, 2012 Series A ($35,860,000); Western Kentucky University General Receipts Refunding Bonds, 2012 Series B ($6,450,000); University of Louisville General Receipts Refunding bonds, 2012 Series A ($14,560,000); University of Kentucky General Receipts Refunding Bonds, 2012 Series A ($25,370,000); Morehead State University General Receipts Bonds, 2012 Series A ($5,060,000); and Kentucky Housing Corporation Revenue Receipts Bonds, 2012 Series A ($187,755,000). These bond issues were approved at a previous committee meeting, and no further action was required.
New School Bond Issues with School Facilities Construction Commission Debt Service Participation
Mr. Howard said there were seven new school bond issues with SFCC participation. The total estimated par amount of these bonds is $31.8 million. One project, for Hazard Independent, is supported by a recallable nickel. The remaining six projects do not involve a tax increase. Senator Leeper made a motion to approve the school bond issues. The motion was seconded by Senator Buford and 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, for Boyle County, 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 2:15 p.m.