Call to Order and Roll Call
The 1st meeting of the Capital Projects and Bond Oversight Committee was held on Tuesday, January 22, 2013, at 1:00 PM, in Room 169 of the Capitol Annex. Kristi Culpepper, Committee Staff Administrator, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senators Julian M. Carroll, Chris Girdler, Bob Leeper, and Christian McDaniel; Representatives Steven Rudy and Kevin Sinnette.
Guests: Representative Jim Gooch; Representative Dennis Horlander; Representative John Will Stacy; Scott Aubrey, Director, Division of Real Properties; John Hicks, Deputy Budget Director, Governor’s Office of Policy and Management; Sandy Williams, Financial Analyst, Kentucky Infrastructure Authority; Katie Smith, Executive Director, Office of Compliance, Financial and Administrative Services, Cabinet for Economic Development; Robin Brewer, Financial Analyst, Office of Financial Management; Ryan Barrow, Executive Director, Office of Financial Management.
LRC Staff: Kristi Culpepper, Josh Nacey, and Christine Robertson.
Election of Senate Co-Chair
Ms. Culpepper said that pursuant to KRS 45.790, an election was needed for the positions of Senate and House Co-Chairs. Senator Leeper nominated Senator Girdler for the position of Senate Co-Chair. The motion was seconded by Senator Carroll. Senator McDaniel then made a motion that nominations cease and that Senator Girdler be elected as Senate Co-Chair by acclamation. The motion was seconded by Senator Leeper and approved by voice vote.
Election of House Co-Chair
Representative Rudy nominated Representative Sinnette for the position of House Co-Chair. The motion was seconded by Representative Sinnette. Representative Rudy then made a motion that nominations cease and that Representative Sinnette be elected House Co-Chair by acclamation. The motion was seconded by Representative Sinnette and approved by voice vote.
Approval of Minutes
Representative Rudy made a motion to approve the minutes of the December 18, 2012, meeting. The motion was seconded by Senator Leeper and approved by voice vote.
Information Items
Ms. Culpepper said there were four information items for members to review. The first item was a list of proposed legislation related to the committee’s jurisdiction. The last three information items were quarterly status reports from the Administrative Office of the Courts, Commonwealth Office of Technology, Finance and Administration Cabinet, and universities that manage their own capital construction programs.
Report Submitted by the University of Louisville (UL)
The University of Louisville reported the purchase of two items of scientific research equipment. UL purchased an inverted Raman microscope, which can scan small regions for high speed mapping, with $195,000 in plant funds and $5,000 in gift funds. UL purchased an inVision imaging system, which can analyze compounds, proteins and human samples to aid in drug development. The James Graham Brown Cancer Center spent $420,000 in federal grant funds to acquire the system.
Lease Reports Submitted by the Finance and Administration Cabinet
Scott Aubrey, Director, Division of Real Properties, presented three items to the committee. The first item was a report of amortization of leasehold improvements for the Cabinet for Health and Family Services in McCracken County. Building modification costs of $2,280 for the installation of hardware to support an AT&T external metro data line will be amortized through the lease expiration date of June 30, 2015. Two estimates were obtained for the improvements, and the lowest bid was accepted. No action was required.
The second item was a report of amortization of leasehold improvements for the Cabinet for Health and Family Services in Spencer County. Building modification costs of $2,365 for the demolition of an interior wall and relocation of electrical and phone wiring will be amortized through the lease expiration date of June 30, 2015. No action was required.
The third item was a report of a lease renewal exceeding $100,000 annually for the Department of Housing, Buildings, and Construction in Franklin County. The department will renew its lease at 101 Sea Hero Road in Frankfort at an annual cost of $300,898. Representative Rudy made a motion to approve the lease renewal. The motion was seconded by Senator Leeper and passed unanimously by roll call vote.
Kentucky Infrastructure Authority (KIA) Fund A Loan
Sandy Williams, Financial Analyst, KIA, presented one Fund A loan request to the committee. The request was for a reallocation of funding for a previously approved loan to the City of West Liberty. KIA requested to substitute $926,445 in unspent money that was received through the American Recovery and Reinvestment Act of 2009 (ARRA) for a portion of the city’s existing $3,937,950 KIA loan so the city can benefit from the principal forgiveness element of that program. A tornado hit West Liberty in March 2012. KIA also proposes to amend the original project by extending sanitary sewer service to the new Wrigley Elementary School.
In response to a question from Senator McDaniel, Ms. Williams said that the originally approved project would have increased the average water bill nearly 22 percent; however, this reallocation of ARRA funds will lower that percentage for customers because West Liberty will receive some principal forgiveness. The exact impact to rates was not known at the time.
Senator Carroll made a motion to approve the new project proposal and fund reallocation. The motion was seconded by Senator Leeper and passed unanimously by roll call vote.
Kentucky Infrastructure Authority Fund F Loans
Ms. Williams presented two Fund F loan requests. The first was a reallocation of funding type for the City of West Liberty. KIA proposed to substitute $684,537 of unspent ARRA funds for a portion of the city’s existing $3,050,300 loan. The project had already been approved, and included installation of an alternate power supply, replacement of a water main, construction of a new storage tank, and replacement of water meters. No action was required.
The second Fund F loan request was for the City of Sturgis in Union County. The City of Sturgis requested a Fund F loan for $3,000,000 for the Sturgis Water System/Union County Water District Consolidation project. The project involves the elimination of finished water production at the Sturgis Water Plant by constructing an inter-connect to purchase water from the Union County Water District.
In response to a question from Senator Carroll, Ms. Williams said that the Union County Fiscal Court had approved the project.
Senator Leeper made a motion to approve the loan. The motion was seconded by Representative Rudy and passed unanimously by roll call vote.
KIA Infrastructure for Economic Development Fund Grants
KIA reported two grants for the McLean County Fiscal Court for the Rumsey Sewer Project Debt Retirement Reauthorization and Reallocation. No action was required.
Economic Development Bond Grant submitted by the Cabinet for Economic Development
Katie Smith, Executive Director, Office of Compliance, Financial and Administrative Services, Cabinet for Economic Development, presented one Economic Development Bond project. The $450,000 grant was made to Lexington-Fayette Urban County Government for the benefit of Bingham McCutchen LLP. The company agreed to create 250 new full-time jobs for Kentucky residents with an average hourly wage of $37.00, including benefits, within three years of the date of KEDFA approval and to maintain those jobs for three additional years.
In response to a question from Senator Leeper, Ms. Smith said that the proposed facility would house support functions for the law firm of Bingham McCutchen, such as accounting, marketing, human resources, information technology, and sales.
Senator Carroll made a motion to approve the grant. The motion was seconded by Representative Sinnette and passed with five yes votes and one pass vote.
New Bond Issues Submitted by the Office of Financial Management
Robin Brewer, Financial Analyst, Office of Financial Management (OFM), and Ryan Barrow, Executive Director, OFM, presented three new bond issues. The first bond issue was Kentucky Asset/Liability Commission Funding Notes, 2013 General Fund First Series (Taxable). The par amount of the bonds will be $153,475,000 and will finance the state’s required contribution to the Kentucky Teachers’ Retirement System Medical Insurance Trust Fund for Fiscal Years 2013 and 2014.
In response to a question from Senator McDaniel, Ms. Brewer said that the bonds were taxable, but were not considered pension obligation bonds. She said the issuance of these bonds had already been authorized by the General Assembly.
In response to a question from Senator Carroll, Ms. Brewer said she did not have the exact figure on the Commonwealth’s total bonded indebtedness at this time, but would provide it to the committee.
Senator Carroll said that the General Assembly originally funded medical insurance benefits out of a surplus in the budget.
In response to a request for additional information from Senator Carroll, John Hicks, Deputy State Budget Director, said that 2010 House Bill 540 established a permanent pre-funding of retired teacher medical benefits. School districts are contributing for the first time, and active employees have increased their contributions. He said this is expected to be the last budget cycle in which this type of financing would be utilized.
Senator Carroll made a motion to approve the bond issue. The motion was seconded by Representative Sinnette and passed unanimously by roll call vote.
Senator McDaniel explained his vote by saying it was important to honor the commitments made to retirees, but that this was using deficit financing to balance the budget, and that systemic problems exist that need to be addressed. He said Kentucky had previously issued $750 million of taxable bonds to further the solvency of the Kentucky Teachers’ Retirement System and this increases the state’s bonded indebtedness.
Senator Girdler said he echoed many of Senator McDaniel’s comments and said he disagrees with this business practice, but that the state has an obligation to teachers and educators. He hopes that other long-term solutions can be found in the future.
The second bond issue presented was Northern Kentucky University General Receipts Refunding Bonds, 2013 Series A. This $5,230,000 bond issue will refund the university’s Consolidated Education Buildings Bonds, Series L (2004). The issue is expected to produce $735,326 in net present value savings. Senator Carroll made a motion to approve the bond issue. The motion was seconded by Representative Rudy and passed unanimously by roll call vote.
The third bond issue presented was Kentucky Higher Education Student Loan Corporation (KHESLC) Student Loan Asset-Backed Notes, Series 2013-1. This $566,500,000 (estimated) bond issue will refinance debt that was issued under the corporation’s 2008 trust indenture and the corporation’s borrowing through the federal Straight-A conduit program.
In response to a question from Senator McDaniel, Mr. Barrow said he would provide additional information regarding litigation connected to the Commonwealth’s LIBOR-indexed swaps.
In response to a question from Senator Carroll, Mr. Barrow said that the expected interested rate would be the one-month LIBOR rate plus 60 basis points.
Senator Carroll made a motion to approve the bond issue. The motion was seconded by Representative Rudy and passed unanimously by roll call vote.
New School Bond Issues with School Facilities Construction Commission Debt Service Participation
Ms. Brewer said there were 35 school district bond issues being reported with SFCC debt service participation. Of these, 34 were refundings and one was for construction of a high school. None of the bond issues involve tax increases. Senator Carroll made a motion to approve the bond issues. The motion was seconded by Representative Rudy and passed unanimously by roll call vote.
New School Bond Issues with 100-Percent Locally Funded Debt Service Participation
Ms. Culpepper said there were 9 local school bond issues reported to the committee this month. Of these bond issues, 8 were refundings and one was for the purchase of 154 school buses. None of the bond issues involved a tax increase. No action was required.
With there being no further business, the meeting adjourned at 1:55 p.m.