Call to Order and Roll Call
The 8th meeting of the Capital Projects and Bond Oversight Committee was held on Tuesday, August 21, 2012, 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 and Jared Carpenter; Representatives Robert R. Damron, Steven Rudy, and Jim Wayne.
Guests: Representative John Will Stacy; Bob Wiseman, Vice President for Facilities Management, University of Kentucky; Scott Aubrey, Director, Division of Real Properties; John Hicks, Director, Governor’s Office for Policy and Management; John Covington, Executive Director, Kentucky Infrastructure Authority; Robin Brewer, Financial Analyst, Office of Financial Management.
LRC Staff: Kristi Culpepper, Josh Nacey, and Christine Robertson.
Approval of Minutes
Representative Rudy made a motion to approve the minutes of the July 17, 2012 meeting. The motion was seconded by Senator Leeper and approved by voice vote.
Correspondence Items
Kristi Culpepper, Committee Staff Administrator, said that members’ packets included a letter from the committee notifying the Secretary of the Finance and Administration Cabinet that the committee did not approve a new lease for the Cabinet for Health and Family Services for the Health Benefit Exchange in Frankfort. Also included was a letter from the Secretary of the Finance and Administration Cabinet notifying the committee that the Cabinet intends to proceed with the lease.
Information Items
Ms. Culpepper said that members' packets included two reports from the School Facilities Construction Commission (SFCC) detailing bonds sold with SFCC debt service participation. These bond issues were reviewed by the committee prior to issuance.
Reports submitted by the University of Kentucky (UK)
Bob Wiseman, Vice President for Facilities Management at UK, reported two purchases of medical equipment. The first was a da Vinci Surgical System, which will be paid for in cash at a cost of $2,141,730. The second was a MEDI Simulator HPS-010 which will be paid for in cash at a cost of $249,900. No action was required.
Mr. Wiseman reported three lease items. The first was a lease renewal with an annual cost of $103,389 for the UK Human Development Institute. Because the renewal was executed prior to the committee meeting, no action was taken. The second lease item was a lease renewal with an annual cost of $112,124 for the UK Center for Drug and Alcohol Research. Because the renewal was executed prior to the committee meeting, no action was taken. The third item was a square footage modification to an existing lease for the UK Department of Social Work. No action was required.
Lease report submitted by the Finance and Administration Cabinet
Scott Aubrey, Director, Division of Real Properties, presented one new lease for the Cabinet for Health and Family Services -- Commission for Children with Special Healthcare Needs in Warren County. The lease was for 8,284 square feet at $12.95 per square foot and an annual cost of $107,278. In response to a question from Representative Wayne, Mr. Aubrey said that this facility would serve clients and that the safety provisions required by the Boni Bill would have been included in the specifications to bidders. Representative Wayne made a motion to approve the lease. The motion was seconded by Senator Buford and passed unanimously by roll call vote.
Project report submitted by the Finance and Administration Cabinet
John Hicks, Deputy Director, Governor’s Office for Policy and Management, presented a new unbudgeted capital project for the Education and Workforce Development Cabinet. The $2,810,000 Kentucky Statewide Longitudinal Database System Phase II project will be funded with 100 percent federal funds. Representative Wayne made a motion to approve the project. The motion was seconded by Representative Rudy and passed unanimously by roll call vote.
Kentucky Infrastructure Authority (KIA) Fund A Loans
John Covington, Executive Director, KIA, presented three Fund A loans. The first was for a loan and loan increase to the Southern Water and Sewer District in Floyd County. The loan is for the construction of a regional wastewater treatment plant, truck force, fore mains, and grinder pumping stations. The loan increase is due to higher than estimated costs on the bid openings. The total amount of the loan (with increase) is $1,094,143 and will involve a rate increase from $39.51 to $45.50 for the average bill. In response to a question from Representative Wayne, Mr. Covington said it will serve most of the residents of Floyd County, a mostly rural area. In response to another question from Representative Wayne, Mr. Covington said that because of the median household income for the area, the agency did receive the lowest interest rate available and will receive principal forgiveness on the loan. In response to a question from Representative Glenn, Mr. Covington said that engineering fees are not calculated with contingency funds included; they are based on the cost of constructing the project only.
The second loan was for the City of Worthington (Greenup) in the amount of $500,000 to construct a surge basin and bring the city into compliance with its consent decree.
The third loan was for the City of Jenkins (Letcher) in the amount of $500,000 to rehabilitate the sewer collection system in the Durham area. In response to a question from Representative Wayne, Mr. Covington said that KIA had been in contact with the engineering firm on this project to try and determine why engineering fees were higher than the recommended Rural Development scale. He said he would give the information to the committee.
Representative Wayne made a motion to approve the Fund A Loans. The motion was seconded by Representative Damron and passed unanimously by roll call vote.
KIA Fund B Loans
Mr. Covington presented six Fund B loans. The first was a loan increase for the city of Flatwoods (Greenup) in the amount of $58,500 for a total loan amount of $643,500 to fund the construction of the Indian Run Church Road Storage Tank project. The increase is required due to unanticipated excavation costs and purchasing of a project site.
The second loan was for the East Pendleton County Water District in the amount of $160,000 to paint the inside and outside of a 150,000-gallon water tower tank with epoxy paint. In response to a question from Senator Buford, Mr. Covington said he did not know how long the paint would last. In response to a question from Representative Wayne, Mr. Covington said that when KIA funds a project, they require maintenance accounts, and he did not believe that this project was originally funded by KIA.
The third loan was for the Marion County Water District in the amount of $548,180 for the Highway 84 Water Line Upgrades Project.
The fourth loan was for the Symsonia Water District (Graves) in the amount of $300,000 for a new storage tank and two groundwater wells.
The fifth loan was for the City of Scottsville (Allen) in the amount of $358,000 for the construction of 2,600 linear feet of sewer line and 13 manholes to serve 73 new customers.
The sixth loan was for the City of South Shore (Greenup) in the amount of $1,600,000 for the acquisition and assets of South Shore Water Works.
In response to a question from Representative Wayne regarding Scottsville and South Shore engineering fees, Mr. Covington said the bids on the Scottsville project came in under what was originally estimated. The engineers have committed to comply with the RD scale and will adjust their fees at the end of construction based upon any change orders. With regard to the Marion County loan, Mr. Covington said that one portion of the engineering fees was over scale and one portion was below, so the fees ended up close to scale overall. Mr. Covington anticipates that as engineering firms begin to see how KIA is breaking down engineering fees, they will adjust the fees so they are in line.
In response to a question from Representative Damron, Mr. Covington said that borrowers only draw funds they actually expend. If they do not draw the funds, the loan amount is reduced accordingly.
In response to another question from Representative Damron, Mr. Covington said the owner of the South Shore Water Works is retiring and that the utility serves people both inside and outside the city limits. The customers inside the city limits can vote for city government representatives, but those outside cannot. The system will no longer be governed by the Public Service Commission.
In response to a question from Senator Leeper, Mr. Covington said that the agencies would have to use contingency funds for something specifically related to the project. He added that KIA might have been able to exclude contingency funds from South Shore project, since it is an asset purchase, but it helps to have funds set aside just in case. Most utilities are reluctant to raise rates, so he thinks they would not want to spend contingency funds unnecessarily and then turn around and charge ratepayers.
In response to a question from Senator Buford, Mr. Covington said that KIA would typically not allow borrowers to use contingency funds to make debt service payments.
Representative Wayne made a motion to approve the Fund B loans. The motion was seconded by Representative Damron and passed with six members voting yes and one member voting no. Senator Buford explained his no vote by saying that he did not agree with the East Pendleton County Water District financing a paint job for 20 years and he has concerns with the South Shore project contingency fees.
KIA Fund C Loan
Mr. Covington presented one Fund C loan for the City of Worthington (Greenup) in the amount of $600,000. The project will upgrade the existing water plant filtration system that was constructed in 1970. Representative Damron made a motion to approve the loan. The motion was seconded by Representative Wayne and passed unanimously by roll call vote.
KIA Fund F Loan
Mr. Covington presented one fund F loan increase for the Bullock Pen Water District (Grant) in the amount of $163,300, bringing the total Fund F loan amount to $1,796,300. The increase is required due to bids being higher than the original estimate due to changes in foundation design, inclusion of a generator for a pump station, and increased labor costs from the original estimate.
In response to a question from Representative Damron, Mr. Covington said he would provide staff with an update as to how much money was left in each of the KIA funds and how many requests for funds were outstanding.
Representative Wayne made a motion to approve the loan. The motion was seconded by Representative Damron and passed unanimously by roll call vote.
KIA Grants
Mr. Covington presented eight Infrastructure for Economic Development grants for both coal and non-coal counties. No action was required.
Bond Activity Reports from the Office of Financial Management (OFM)
Robin Brewer, Financial Analyst, OFM, presented one follow-up report on a previously approved bond issue. The $27,715,000 Eastern Kentucky University 2012 Series A refunding bond issue resulted in a net present value savings of $2,535,199. This bond issue was approved at a previous committee meeting, and no further action was required.
New school bond issues with School Facilities Construction Commission (SFCC) debt service participation
Ms. Brewer said there were seven new school bond issues with SFCC debt service participation: Fairview Independent (2), Harlan County, Kenton County, Leslie County, Monroe County, and Pulaski County. None of the projects involve tax increases. Four of the items were refundings. Representative Wayne made a motion to approve the bond issues. The motion was seconded by Representative Damron and passed unanimously by roll call vote.
New school bond issues with 100 percent locally-funded debt service participation
Ms. Culpepper said that seven local school bond issues were reported to the committee this month. These bond issues have 100 percent local debt service support. There were 5-cent Building Fund Tax increases associated with a $1.97 million issue for Hazard Independent and a $6.9 million issue for Perry County. The other issues did not involve tax increases. Three of the bond issues were refundings and the other four provided new money for capital projects. No action was required.
With there being no further business, the meeting adjourned at 1:40 p.m.