Call to Order and Roll Call
The 9th meeting of the Capital Projects and Bond Oversight Committee was held on Tuesday, September 18, 2012, at 1:00 PM, in Room 169 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; Senators Tom Buford, Jared Carpenter, and Julian M. Carroll; Representatives Robert R. Damron, Steven Rudy, and Jim Wayne.
Guests: Representative John Will Stacy; Bob Wiseman, Vice President for Facilities Management, University of Kentucky; Larry Owsley, Vice President of Business Affairs, University of Louisville; Laurie Dudgeon, Director, Administrative Office of the Courts; Tim Conley, Morgan County Judge/Executive; Jeff VanHook, Construction Manager, Codell Construction; Tim Sturgill, General Counsel, Kentucky Association of Counties; Scott Aubrey, Director, Division of Real Properties; John Hicks, Deputy Director, Governor’s Office for Policy and Management; Katie Smith, Executive Director, Office of Compliance, Financial, and Administrative Services for the Cabinet for Economic Development; Robin Brewer, Financial Analyst, Office of Financial Management; Rick McQuady, Chief Executive Officer, Kentucky Housing Corporation; Lisa Beran, General Counsel, Kentucky Housing Corporation; Mark Offerman, Chief Operating Officer, Kentucky Housing Corporation; Chris Thieneman, Highview community representative; Jon Bingham; Highview community representative; Michael Gross, Project Manager, LDG Multifamily LLC; Scott Bryan, Chief Operating Officer, LDG Development; Sonja Minch, City of Hollow Creek; David Steff, President, Apple Valley Homeowners Association.
LRC Staff: Kristi Culpepper, Josh Nacey, and Christine Robertson.
Approval of Minutes
Representative Rudy moved to approve the minutes of the August 21, 2012 meeting. The motion was seconded by Representative Wayne and approved by voice vote.
Correspondence Items
Kristi Culpepper, Committee Staff Administrator, said there were two letters for committee members to review. The first was a letter from the committee to the Secretary of the Finance and Administration Cabinet explaining that the committee did not take action on the Kentucky Health Benefit Exchange Information Technology System project for the Cabinet for Health and Family Services. The second letter was from the Finance Secretary advising the committee that the Cabinet intends to proceed with the project.
Information Items
Ms. Culpepper said there were two information items for committee members to review. The first was the annual report of bonds outstanding from the Office of Financial Management. As of June 30, 2012, the Commonwealth had $9.31 billion of appropriation-supported debt outstanding. The Commonwealth retired $382 million of appropriation-supported debt during the last fiscal year and paid $352.4 million in interest.
The second item was a report from the Administrative Office of the Courts (AOC) on the status of the Court Facility Use Allowance Contingency Fund. The fund has a balance of $236,600. Ms. Culpepper said AOC would be requesting an allocation from the fund later in the meeting.
Reports submitted by the University of Kentucky (UK)
Bob Wiseman, Vice President for Facilities Management at UK, presented four items to the committee. The first was a report of consolidation of projects with no overall scope increase. UK is merging $1,400,000 of the Repair, Upgrade, or Improve Mechanical Systems appropriation with the appropriation for Renovate Dentistry Class Lab, for a combined scope of $4,700,000. The combined authority will allow UK to upgrade the ventilation systems and modernize technology used in teaching dental students. No action was required.
The second item was a request for a scope increase on an unbudgeted capital project. The $2,200,000 scope increase to the Renovate/Upgrade Softball Complex project is due to bids exceeding the original scope of the project. The new scope for the project is $7,500,000. The increase will be funded with private donations.
The third item was a request for a new, unbudgeted capital project. The project, Renovate/Expand Soccer Facilities, involves improvements to the locker, shower, and lounge spaces for both the men’s and women’s teams, renovations to the training and umpire rooms, new seating, a new press box, and upgrades to the plumbing, electrical, and HVAC systems. The project is not expected to exceed $7 million and will be funded with private funds. In response to a question from Representative Wayne, Mr. Wiseman said the private funds are in hand.
The third item was a request for a new, unbudgeted capital project. The $3.6 million Construct Farmhouse Fraternity project will be funded with private funds and will include a new fraternity house that will provide housing for 52 fraternity members on Rose Lane on university-owned property.
In response to a question from Representative Wayne, Mr. Wiseman said the three projects would be built under the provisions of prevailing wage.
Senator Buford made a motion to approve the scope increase and two unbudgeted capital projects. The motion was seconded by Representative Rudy and passed unanimously by roll call vote.
Reports submitted by the University of Louisville (UL)
Larry Owsley, Vice President for Business Affairs at UL, presented two items to the committee. The first item was a report of an emergency project to repair and replace the roofs on three on the university’s buildings due to damage from a hail storm on April 28, 2012. The cost estimates total $2,704,000 for the three buildings, but the projects have not been bid yet. No action was required.
The second item was a new unbudgeted capital project. The $1.1 million Health Sciences Center Utilities Hazard Mitigation project involves the replacement of approximately two blocks of high voltage overhead utility feeders with underground lines. The project will be funded with $825,000 in federal funds and $275,000 in university plant funds. Senator Carroll made a motion to approve the project. The motion was seconded by Senator Carpenter and passed unanimously by roll call vote.
Report submitted by the Administrative Office of the Courts (AOC)
Laurie Dudgeon presented a request for an allocation in the amount of $118,700 from the Court Facility Use Allowance Contingency Fund. This would be an allocation of General Fund money each year to support a new bond issue for the Morgan County Judicial Center, which was still under construction when it sustained significant structural damage when a tornado hit West Liberty in March 2012. Ms. Dudgeon said Morgan County’s settlement with the insurer, Kentucky Association of Counties (KACo), was $1.5 million dollars less than the construction estimate to rebuild the damaged facility.
In response to a question from Representative Wayne, Ms Dudgeon said Morgan County had been paying insurance premiums while the courthouse was under construction.
In response to another question from Representative Wayne, Jeff VanHook, Codell Construction, said the reason extended services fees had increased from $40,000 to $912,308 was due to change orders and the increased length of time needed to complete the construction. He said the fees are being calculated in accordance with Chapter 15 of AOC’s procedures.
In response to another question from Representative Wayne, Mr. VanHook said Codell has continued to perform work on the project since the tornado, including assessing damage, demolition, and working with subcontractors, architects and engineers. He said some components of the building could be salvaged and used.
In response to another question from Representative Wayne, Mr. VanHook said Codell had presented KACo with a good faith estimate of how much it would cost to rebuild the project to the same specification as ordered in the architect’s original plans for the building.
Tim Sturgill, General Counsel for KACo, also responded to Representative Wayne’s question. He said KACo’s original offer of $7.6 million was based upon work of adjusters to meet KACo’s obligation, which is to bring the building back to its level of completion at the time of the tornado. At that time, the building was between 60 and 70 percent complete. KACo had some questions about numbers from some of the contractors and eventually settled with Morgan County at $8.2 million.
Tim Conley, Morgan County Judge/Executive, also provided information on the subject of how the settlement was reached with KACo. He said both Codell and the architecture/engineering firm of Murphy and Graves have continued to work on the project since the tornado. The structure was insured for $9.5 million, but KACo paid out less than that because some materials on site were salvageable. Construction materials for the project have gone up in price since the original bid in 2009. There are also demolition costs associated with the project and risk to Codell because of the unknowns associated with the damage sustained. AOC is renting space at an annual cost of $100,000.
In response to another question from Representative Wayne, Judge/Executive Conley explained that Morgan County settled with KACo on the amount of $8.2 million because negotiations had gone on for six months and the county wanted to proceed without further delay.
In response to a comment by Senator Carroll, Mr. Sturgill explained that on any property insurance claim, KACo is responsible for the first $250,000, and anything above that amount is paid by the reinsurance company, Munich Re.
Representative Damron stated that he believed the contingency fund was established for situations like the one Morgan County experienced and supported the allocation.
Senator Buford echoed Representative Damron’s sentiments and said he supported the allocation.
Representative Wayne commented that he believed that every step of a construction project needed to be fully and properly insured so that taxpayers are not left filling the gap between insurance payments and rebuild costs.
Senator Carpenter said his understanding of the cost difference had to do with having to make sure the parts of the structure that are still in place are safe to use.
Representative Stacy said the damaged structure is an eyesore and hazard to the community, and the contingency account was put in place for this type of incident. He appreciated the committee’s consideration of the request for the allocation request.
In response to a question from Senator Leeper, Judge/Executive Conley said the warranty from Codell will be in writing. Mr. VanHook said the warranty on the workmanship would be for one year. There are additional warranties on materials provided by the material manufacturers. In response to another question from Senator Leeper, Mr. VanHook said Codell bid the project to 100 percent completion, taking into account what materials were still useable at the site.
In response to another question from Senator Leeper, Judge/Executive Conley said the difference between the cost to rebuild and the insurance settlement was based in part on demolition that was done and in part on because insurance was not purchased to cover the cost associated with initial demolition at the site. Mr. VanHook added that the job is complex because work will be completed out of sequence.
In response to a question form Senator Leeper, Ms. Dudgeon said that the contingency fund is an amount of bonding for court facilities. Judge/Executive Conley said that Ross Sinclaire was the original financial advisor, and the county was working with bond counsel to be sure they use the appropriate financial advisor on the new bond issue.
In response to another question from Senator Leeper, Ms. Dudgeon said that this project would take about half of the existing contingency fund.
Senator Carroll made a motion to approve the allocation. The motion was seconded by Representative Damron and passed unanimously by roll call vote.
Lease reports submitted by the Finance and Administration Cabinet
Scott Aubrey, Director, Division of Real Properties, presented two new leases to the committee for approval. The first was for 15,466 square feet of office space at $11.00 per square foot for the Cabinet for Health and Family Services in Madison County. The lease will consolidate space currently leased in two locations and will relieve overcrowding at both currently occupied spaces. The proposed annual cost is $170,126. Senator Carpenter made a motion to approve the lease. The motion was seconded by Senator Carroll and passed unanimously by roll call vote.
The second lease was for 1,638 square feet of office space at $10.00 per square foot and 97,853 square feet of warehouse space at $5.41 per square foot for the Department for Libraries and Archives (KDLA) in Franklin County. The lease will allow for consolidation of two existing leases, and will allow KDLA to accept storage requests that it currently denies due to lack of space. The proposed annual cost is $545,765. Representative Rudy made a motion to approve the lease. The motion was seconded by Representative Wayne 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 request for a scope increase for the Department of Military Affairs (DMA). The $750,000 (100 percent federal funds) Construct CERF-P Facility at the Boone National Guard Center project received approval from the committee in August 2011. However, the lowest bid for the project came in $78,300 above original budget, requiring a scope increase. The additional funding has been provided through a Department of Defense Military Construction Agreement and through the Air National Guard FY 2012 Master Cooperative Agreement.
In response to a question from Representative Wayne, Mr. Hicks said that this unit deals with the response to chemical and biological issues and this facility will house staff and the storage needed to support the unit.
Senator Carroll made a motion to approve the scope increase. The motion was seconded by Senator Buford and passed unanimously by roll call vote.
Kentucky Infrastructure Authority Grant
Ms. Culpepper said that KIA reported a $200,000 grant authorized in the 2008-2010 budget for Greenhill Water System in Harlan County.
Economic Development Bond (EDB) Pool Grant
Katie Smith, Executive Director, Office of Compliance, Financial, and Administrative Services for the Cabinet for Economic Development, presented an Economic Development Bond grant in the amount of $250,000 to the City of Bowling Green for the benefit of Graham Packaging, L.P. The company, which designs, manufactures, and sells custom blow-molded rigid plastic containers, will be required to create 48 new, full-time jobs for Kentucky residents paying not less than $22 per hour, excluding benefits. The bond funds will be used to offset the costs associated with the project, which include building improvements, new equipment, and a rail spur. Representative Wayne made a motion to approve the project. The motion was seconded by Senator Carroll and passed unanimously by roll call vote.
New bond issue-Kentucky Housing Corporation-Frontgate Apartments
Robin Brewer, Financial Analyst, Office of Financial Management, presented a new bond issue: Kentucky Housing Corporation (KHC) Conduit Multifamily Housing Revenue bonds (Frontgate Apartment) Series 2012. The gross proceeds are anticipated to be $15,810,000 and will not exceed $17,480,000. Proceeds from the sale of the conduit bond issue will be used to construct a new apartment complex at 7144 Outer Loop in Louisville. The 180-unit complex will be reserved for families earning 60 percent or less of the area median income.
In response to a question from Senator Leeper, Rick McQuady, Chief Executive Officer of KHC, said that there is a standard review done for all projects seeking KHC assistance. The application and past performance of the requesting entities are evaluated and KHC found this project to be in order.
Jon Bingham, a community representative, and Chris Thieneman, another community representative, asked to address the committee regarding this project. Mr. Thieneman, a property owner near the proposed development and real estate developer, said the community was not against low-income housing being built in the proposed location, but did object to the developer in charge of the project.
Mr. Bingham asked that members of the committee vote “no” on the Frontgate Apartment project. He said in 2009 an apartment complex at the same location was originally proposed as a market-rate project and was met with strong opposition from the community. Another developer was sought and a similar project was proposed, with similar opposition from the community. The community opposes the height and number of units proposed for the location and believes additional retail or mixed-use development would be a better fit. He also said the community was concerned with developer (LDG) with the other properties it owns and manages. Mr. Bingham said he does not believe the community can absorb a project of this size. He said the cost for a 3-bedroom apartment at Frontgate is as expensive or more expensive than other existing units in the area. He said there is bipartisan opposition to the project as proposed from Representative Larry Clark, Representative Kevin Bratcher, and Senator Dan Seum.
In response to a question from Senator Buford, Mr. Bingham said the community leaders have met with developers three times, once in a community forum setting, and twice in smaller workgroup meetings. LDG proposed to remove the originally planned retail space and spread out the apartment units but still keep many three-story buildings. He said he would rather see another developer interested in a more mixed-use plan.
In response to another question from Senator Buford, Mr. Bingham said the developer could go forward without KHC financing. However, the community has an appeal on file on a separate issue claiming the developer is not in full compliance with the land development code. A hearing on the matter is scheduled for October 1st in Louisville.
In response to a question from Representative Damron, Mr. Bingham said the property is owned by a separate entity but he understands there is an agreement in place under which, upon approval of funding and approval of the land development code, ownership would transfer to LDG. In response to another question from Representative Damron, Mr. Thieneman said that in another instance in Louisville, the community was successful in getting the original developer to leave a project. Another developer came in on the project and worked with the community.
In response to another question from Representative Damron, Mr. Bingham said the property is under category three review.
Michael Gross and Scott Bryan with LDG asked to address the committee. Mr. Gross provided the committee with background information on LDG. Mr. Bryan said LDG seeks to resolve every issue with their properties. He also told the committee that LDG would continue to work with the community to find a solution.
Senator Carpenter said he wanted to allow LDG to address the issues raised by the community representatives and he does not want to change the local decision-making process.
Mr. Bingham replied to Senator Carpenter’s comments by saying that at the local level, only Mayor Greg Fisher has supported the project, and their councilman is opposed to it. This committee was the next step in the process. Mr. Bingham also expressed concerns with KHC’s scoring process.
Senator Leeper asked Mr. Bingham to provide to LDG the same material that was provided to the committee. Mr. Bingham agreed to provide the material to LDG.
Sonja Minch, with the City of Hollow Creek, addressed the committee and said she was not opposed to low-income housing. She also said the community is seeking a minimum of 25 percent green space, no three-story buildings, and a reduced building height on the Michael Drive side of the property to one level. She said LDG will not reduce the number of apartments from 212 to 180 units.
Mr. Gross said he was willing to come back before the committee and not seek approval for the bond issue through the Finance and Administration Cabinet.
Representative Damron made a motion that the issue be passed over until the November committee meeting, or until all parties could come to an agreement prior the deadline for the October committee. The motion was seconded by Senator Carpenter and passed unanimously by roll call vote.
New bond issue-Kentucky Housing Corporation-Hillebrand House
Ms. Brewer presented a second bond issue: Kentucky Housing Corporation (KHC) Conduit Multifamily Housing Revenue Bonds (Hillebrand House) Series 2012. The gross proceeds will be $12,630,732 and will be used to acquire and renovate property at 1235 and 1249 South Third Street in Louisville. The project is anticipated to include 75 one-bedroom units and 135 studio units. The property currently serves and will continue to serve as a multifamily residence for seniors. Representative Wayne made a motion to approve the bond issue. The motion was seconded by Senator Carpenter and passed unanimously by roll call vote.
New bond issue-Kentucky Economic Development Finance Authority-Masonic Home of Kentucky
Ms. Brewer presented a third new bond issue: Kentucky Economic Development Finance Authority Healthcare Facilities Revenue and Revenue Refunding bonds, Series 2012 (Masonic Homes of Kentucky, Inc.). The bond proceeds, not to exceed $50,000,000, will finance and refinance the acquisition and construction of healthcare facilities in Louisville and Shelby County. Representative Wayne made a motion to approve the bond issue. The motion was seconded by Senator Carpenter and passed unanimously by roll call vote, with two members abstaining.
New school bond issue with School Facilities Construction Commission debt service participation
Ms. Brewer said there was one new school bond issue with School Facilities Construction Commission participation this month (Franklin County). No tax increase was required to fund the project. Senator Carroll made a motion to approve the bond issue. The motion was seconded by Representative Wayne and passed unanimously by voice vote.
New school bond issues with 100 percent locally-funded debt service participation
Ms. Culpepper said there were three local school district bond issues with 100 percent locally-funded debt service were reported to the committee this month: Jessamine County, Paducah Independent, and Webster County. Two of the bond issues will be used to fund energy improvements and one will fund the completion of a new middle school. No action was required.
With there be no further business, the meeting adjourned at 3:09 p.m.