Call to Order and Roll Call
The Capital Projects and Bond Oversight Committee met on Tuesday, May 21, 2013, at 1 p.m., in Room 169 of the Capitol Annex. Senator Chris Girdler, Chair, called the meeting to order and the secretary called the roll.
Present were:
Members: Senators Chris Girdler, Bob Leeper, and Christian McDaniel; Representatives Steven Rudy, Kevin Sinnette, and Jim Wayne.
Guests Testifying Before the Committee: Bob Wiseman, Vice President for Facilities Management, University of Kentucky; Mitchell Payne, Associate Vice President for Business Affairs, University of Louisville; Scott Aubrey, Director, Division of Real Properties; John Hicks, Deputy State Budget Director; Debby Milton, Financial Analyst, Kentucky Infrastructure Authority; Horace Harrod, Chairman, Oldham County Environmental Authority; Ryan Barrow, Executive Director, Office of Financial Management; David Ritchay, Director of Housing Production, The Housing Partnership; and Shawn Dyer, Tax Credit Administrator, Kentucky Housing Corporation.
LRC Staff: Kristi Culpepper, Josh Nacey, Jennifer Luttrell, and Angela Offerman.
Approval of Minutes
Representative Rudy made a motion to approve the minutes of the April 16, 2013, meeting. The motion was seconded by Senator Leeper and approved by voice vote.
Correspondence Items
Kristi Culpepper, Committee Staff Administrator, said that there were three correspondence items for members to review. The first item was a letter from the Transportation Cabinet responding to a question from the committee at the April 16, 2013, meeting regarding prevailing wage on the Louisville-Southern Indiana Ohio River Bridges project. The Transportation Cabinet verified that Indiana included an agreement to pay prevailing wage rates in its public/private partnership for the project.
The next two correspondence items were letters from Northern Kentucky University and the University of Kentucky (UK) notifying the committee of their intention to use the construction management-at-risk project delivery method on two projects – the Renovate/Expand Albright Health Center project and the Academic Science Building project, respectively. Both projects were authorized by the 2013 General Assembly in House Bill 7.
Project Reports from the University of Kentucky
Mr. Bob Wiseman, Vice President for Facilities Management, UK, presented two items. First, UK requested an increase in the authorized scope of the Construct/Replace/Upgrade Student Housing Phase I project from $175,000,000 to $277,000,000, of which $68,000,000 will come from private funds and up to $34,000,000 will come from university restricted funds.
In response to a question asked by Senator McDaniel, Mr. Wiseman explained that prevailing wage will be used for the project.
Representative Wayne made a motion to approve the scope increase. The motion was seconded by Representative Rudy and approved by roll call vote.
Second, UK reported four leases to provide student housing while the previously reported project was underway. Two of the leases, Royal Lexington Apartments and Courtyard University of Kentucky, exceed $200,000 annually and were authorized in House Bill 265. The third and fourth leases, Red Mile Apartments and Courtyard University of Kentucky, exceed $100,000 annually.
Representative Rudy made a motion to approve the new leases. The motion was seconded by Senator Leeper and approved by roll call vote.
Project Report from the University of Louisville (UofL)
Mr. Mitchell Payne, Associate Vice President for Business Affairs, UofL, requested an unbudgeted capital project to replace the Papa John’s Cardinal Stadium sound system. The project has a $3,000,000 scope, which will be paid for from Athletic Association (private) funds.
In response to a question from Representative Wayne, Mr. Payne explained that internal staff and an outside consultant reviewed the cost of replacing the sound system.
Representative Rudy made a motion to approve the unbudgeted capital project. The motion was seconded by Senator McDaniel and approved by roll call vote.
Lease Reports from the Finance and Administration Cabinet
Mr. Scott Aubrey, Director, Division of Real Properties, presented three items. The first item was a lease modification for the Department for Workforce Investment in Warren County. An additional 200 square feet (sq ft) of space was acquired and five new staff offices were created. Two estimates were obtained and the agency recommended accepting the lowest bid of $24,764 from Century Construction Company. The cost will be amortized through the term of the lease, which will expire June 30, 2020. No action was required.
The second item was a lease renewal for the Transportation Cabinet in Jefferson County for the storage of salt. The lease was renewed under the same terms and conditions for an annual rental cost of $198,028 through June 30, 2014.
Representative Wayne made a motion to approve the lease renewal. The motion was seconded by Representative Rudy and approved by roll call vote.
The third item was for a new lease for the Cabinet for Health and Family Services in Madison County. New space was requested by the agency to consolidate two offices and alleviate overcrowded conditions. The lease was for 15,035 sq ft at a cost of $12.89 per sq ft for an annual cost of $193,801 and included 132 reserved parking spaces. The lease will expire June 30, 2019.
Representative Wayne made a motion to approve the lease renewal. The motion was seconded by Senator McDaniel and approved by roll call vote.
Project Report from the Finance and Administration Cabinet
Mr. John Hicks, Deputy State Budget Director, presented an Emergency Repair, Maintenance, or Replacement Project for the Kentucky State Fair Board (KSFB) to repair horse barn roofs damaged by hailstorms on April 28, 2013, at the Kentucky Fair and Exposition Center. The KSFB has been working with the Finance and Administration Cabinet, Facilities and Support Services, and State Risk and Insurance Services on this project. The cost of the project was $875,600 and will be funded with proceeds from the Fire and Tornado Insurance Fund. Subsequent projects resulting from the same storm will be reported to the committee at a later date.
In response to a question asked by Representative Wayne, Mr. Hicks explained that due to the extent of the damage, the repairs have not been completed but are presently underway. No action was required.
Kentucky Infrastructure Authority (KIA) Fund A Loans
Ms. Debby Milton, Financial Analyst, KIA, presented two Fund A loan requests. The first request was for a $6,500,000 Fund A loan for the Oldham County Environmental Authority (OCEA) Orchard Grass Regional Wastewater Treatment Plant project. Chairman Girdler said that the committee had concerns about the OCEA Fund A loan and, to allow sufficient time to address the concerns, the committee would postpone taking action on the item until the June meeting. Chairman Girdler asked Ms. Milton to continue with the presentation so that some questions may be addressed.
Ms. Milton said the project would involve the construction of a 1.25 million gallon per day regional wastewater treatment plant and related transmission lines to decommission the existing Orchard Grass and Willow Creek wastewater treatment plants in order to comply with a pending Division of Water (DOW) agreed order. Additionally, the project will provide additional treatment capacity to further decommission the Ash Avenue wastewater treatment plant owned by OCEA and an existing 140,000-gallon per day plant owned by the Kentucky Correctional Institute for Women, which will come to the committee under a new project phase at a later meeting.
The project’s total cost is $13,366,800. The remaining $6,866,800 will come from Kentucky Rural Water Finance Corporation bond financing. Ms. Milton said that as a standard practice, KIA requires all entities to review rates annually for operations, maintenance, and debt coverage. OCEA has adopted a rate increase annually for the past four years. An additional increase will go into effect July 2013. (A special condition was placed on the loan due to non-compliance with debt conditions. Documentation of compliance of a special condition placed on the loan was received by KIA resulting in loan approval.) Ms. Milton said KIA has already received the documentation that was the subject of the special condition described in the credit analysis.
Senator McDaniel asked Ms. Milton to discuss the regional facility plan and if OCEA had defaulted on a loan in 2009. Ms. Milton stated that the facility plan was presented to DOW and it presented two alternatives: 1) build a new plant; or 2) send the flow to the Louisville Metropolitan Sewer District (MSD). The initial plan indicated that it would be most economical to build a new plant. Ms. Milton said that DOW certified to KIA approval of the facility plan. Senator McDaniel said that information received by the committee indicates unresolved issues.
Ms. Culpepper said committee staff spoke with DOW regarding this project and they confirmed that the facility plan had outstanding deficiencies and had not been approved. The facility plan was not in compliance with state regulations on how facilities plans should be crafted, which resulted in concerns about how calculations were made regarding which alternative would be most cost effective. Ms. Milton said that KIA would speak with DOW and present the project to the committee at the June 18, 2013, meeting.
In response to a question from Senator McDaniel, Mr. Horace Harrod, Chairman, OCEA, said he was not aware of a loan default in 2009. The loan with the Kentucky League of Cities was refinanced by the Oldham County Fiscal Court. Senator McDaniel asked Mr. Harrod to provide clarification on the issue to the committee.
Representative Wayne asked why OCEA did not hold a public hearing for the project. Mr. Harrod responded that the OCEA Board has approved the project, but there will be a public hearing. Representative Wayne said that as a matter of public policy, the public hearing should be held prior to the OCEA Board approval of the project.
Senator Leeper requested that committee staff send KIA a letter with the committee’s questions about the project.
The second request was a $1,538,750 Fund A loan for the Regional Water Resource Agency in Daviess County for the construction of a lift station, a force main near the Owensboro Community College, gravity sewer mains, collector sewers, and sewer mains. The project will add 25 immediate customers with the potential of serving a total of 80 new customers in a new development. The project will also eliminate three package treatment plants which will improve service to existing customers. The Regional Water Resource Agency initiated a five-year annual rate increase. The loan will have a twenty-year term and an interest rate of 1.75 percent, with an estimated annual debt service payment of $94,596.
Representative Wayne made a motion to approve the Fund A loan. The motion was seconded by Senator Leeper and approved by roll call vote.
Kentucky Infrastructure Authority (KIA) Fund B Loans
Ms. Milton presented three Fund B loan requests. The first request was for a $89,225 Fund B loan with 95 percent principle forgiveness for the Bullitt County Sanitation District’s Big Valley MHP Lagoon Rehabilitation project. The project will repair and upgrade the existing facilities at the Big Valley collection system and lagoon treatment facility. The Bullitt County Sanitation District will adjust rates as needed. KIA placed four special conditions on the loan regarding receivership.
Senator McDaniel said that he is concerned that loans are approved with unmet conditions. Senator Leeper said that when the committee has had concerns about this in the past, a motion would be made contingent upon the conditions being met. Ms. Milton said that all standard and special conditions must be met before KIA enters into an assistance agreement.
The second request was a $500,000 Fund B loan for the City of Burkesville in Cumberland County to supplement a previously approved Fund A loan for the Sanitary Sewer Overflow Remediation project. Several items were identified as necessary for addition or replacement after the original request was prepared. Those items include a portable generator for back-up power; aeration equipment; and a flow meter and fencing for the City Hall pump station. The City of Burkesville increased the water and sewer rates. The loan will have a twenty-year term and an interest rate of 0.75 percent, with an estimated annual debt service payment of $27,969.
Representative Wayne said that the City of Burkesville Sanitary Sewer Overflow Remediation project had geotechnical conditions that were not identified at the time of the original estimate. Ms. Milton said that the conditions have been resolved.
The third request was a $1,416,540 Fund B loan for the City of Scottsville in Allen County for the Wastewater Treatment Plan Improvements project. This project involves the construction of a waste-activated sludge pump station; force main; new flow splitter box; and associated piping.
This loan will complete the funding package, which includes two legislative line-item grants. No rate adjustments are anticipated. However, KIA requires that rates are reviewed annually to ensure that operations, maintenance, and debt service will be covered.
Senator McDaniel made a motion to approve the Fund B loans contingent upon the special conditions being met. The motion was seconded by Representative Leeper and approved by roll call vote.
Kentucky Infrastructure Authority (KIA) Fund F Loans
Ms. Milton presented three Fund F loan requests. The first request was for a $1,538,817 Fund F loan for the City of Carrollton, for the benefit of Carrollton Utilities, for the Carroll County Interconnect project. The project will provide two interconnections between Carrollton Utilities (CU) and the Carroll County Water District (CCWD); an interconnection between the CCWD and Gallatin County Water District; and will close a gap between a portion of the West Carroll Water District (WCWD) that is currently served by the City of Milton and the rest of the WCWD system.
The individual projects have components that are specific to each utility. The components include a 150,000 gallon elevated water tank and the replacement of 2,300 linear feet of asbestos cement water line for CCWD; a booster pump station and 1,700 linear feet of water line to tie discrete sections of the system together for WCWD; and a new groundwater well and associated piping, emergency generator, and interconnections for CU. The loan has a thirty-year term and an interest rate of 0.75 percent, with an estimated annual debt service payment of $45,918. The City of Carrollton implemented a two percent rate increase for water and sewer in 2012. Senator Leeper made a motion to approve the Fund F loan. The motion was seconded by Representative Rudy and approved by roll call vote.
The second request was a $4,000,000 Fund F loan for the Northern Kentucky Water District (NKWD) for the Kenton and Campbell County Water Main project. The project includes the installation of new raw and finished water transmission mains along with equipment upgrades at the Taylor Mill treatment plant. The project will provide a more reliable water supply to wholesale customers and give the NKWD flexibility in conveying raw water between reservoirs. The total cost of the project is $5,930,000 and NKWD will fund the remaining $1,930,000. The NKWD has implemented an annual rate increase over the past several years.
Senator McDaniel made a motion to approve the Fund F loan. The motion was seconded by Representative Rudy and approved by roll call vote.
The third request was a $4,000,000 Fund F loan for the City of Hopkinsville for the benefit of the Hopkinsville Water Environment Authority, for the Westside Two Million Gallon Tank and Water Main Extension project. The project is for the construction of a two million gallon elevated storage tank and for approximately 19,000 linear feet of iron pressure pipe to service the tank and underserved areas along the Eagle Way Bypass. This project will also permit business and residential expansion on the west side of Hopkinsville. The total cost of the project is $6,000,000 and the balance will be funded by revenue bonds. The rates are adjusted annually.
Representative Rudy made a motion to approve the Fund F loan. The motion was seconded by Representative Wayne and approved by roll call vote.
New Bond Issues Submitted from the Office of Financial Management (OFM)
Mr. Ryan Barrow, Executive Director, OFM, presented five new bond issues. The first bond issue was State Property and Buildings Commission (SPBC) Revenue Bonds, Project No. 106 Series A and Revenue Refunding Bonds, Project No. 106 Series B. The purpose of the bonds is to provide permanent financing for approximately $115,000,000 of projects authorized by the General Assembly in House Bill 267 (2004-2006 Budget); House Bills 380 and 557 (2006-2008 Budget); House Bills 406, 410, 514, and 608 (2008-2010 Budget); House Bill 1 (2010-2012 Budget); and House Bill 265 (2012-2014 Budget). The issue will also provide for repayment of the 2012 Asset/Liability Commission Interim Bank Loan with Citibank (which will permanently finance an additional $45,000,000 of projects), refund certain SPBC bonds for a net present value savings, and pay the costs of issuance.
The pricing is scheduled for June 4, 2013, with a closing date of June 17, 2013. Expected ratings on the bonds are Moody’s Aa3; Standard & Poor’s A+; and Fitch A+. The par amount of the bonds is estimated to be $158,525,000. The interest cost is estimated at 3.22 percent with a twenty-year term. Citi will serve as underwriter; Peck, Shaffer & Williams LLP, bond counsel; Frost Brown Todd, underwriters counsel; US Bank, trustee; and OFM, financial advisor.
Senator Leeper made a motion to approve the bond issue. The motion was seconded by Representative Sinnette and approved by roll call vote.
The second bond issue was Murray State University General Receipts Bonds, 2013 Series A, with a par amount of $15,795,000. This bond issue will finance the Renovate Hester Hall, Capital Renewal of Housing and Dining Facilities, and Upgrading Sprinkler System at College Courts projects, which were authorized in 2013 House Bill 7. The pricing is scheduled for May 10, 2013, with a closing date of May 29, 2013. The issue carries ratings of Moody’s A2, underlying, and Aa3 as enhanced by the state university intercept program. The interest cost is estimated at 3.154 percent with a twenty-year term. The financing team included Peck, Shaffer & Williams LLP, bond counsel; Hilliard Lyons, financial advisor; and US Bank, trustee.
Senator Leeper made a motion to approve the bond issue. The motion was seconded by Representative Wayne and approved by roll call vote.
The third bond issue was for Kentucky Housing Corporation (KHC) Single-Family Housing Revenue Bonds 2013 Series C, Series D, Series E, Series F, and Series G in an amount not to exceed $150,000,000. The proposed date of sale is June 12, 2013, with an initial settlement date of July 10, 2013. The expected ratings are Moody’s Aaa and Standard & Poor’s AAA. The interest cost is estimated at 3.42 percent with an average annual debt service of $8,646,083. The financing team includes Citi, underwriter; Kutak Rock LLP, bond counsel; Peck, Shaffer & Williams LLP, underwriters counsel; The Bank of New York Trust Company, trustee; and OFM, financial advisor.
Representative Wayne made a motion to approve the bond issue. The motion was seconded by Representative Rudy and approved by roll call vote.
The fourth item presented was KHC Conduit Multifamily Housing Revenue Bonds, Most Blessed Sacrament Senior Apartments Project, Series 2013, for the acquisition and renovation of a vacant former Catholic school for senior housing. The proposed date of sale is June 13, 2013. This will be a non-rated transaction that will carry a four percent interest rate at a 40-year term. The financing team includes Frost Brown Todd LLC, bond counsel; Citizens Union Bank of Shelbyville, purchaser; The Housing Partnership, financial advisor; Reed Weitkamp Schell & Vice PLLC, financial advisor counsel and borrower counsel; and Citizens Union Bank of Shelbyville, trustee.
In response to a question from Representative Wayne, Mr. David Ritchay, Director of Housing Production, The Housing Partnership, said that The Housing Partnership will serve as the developer.
Representative Wayne made a motion to approve the bond issue. The motion was seconded by Representative Rudy and approved by roll call vote.
The fifth item presented was KHC Conduit Multifamily Housing Revenue Bonds, California Square II and Portland Plaza, Series 2013. The proceeds will be used to finance the acquisition, construction, and equipping of the California Square II Apartments and Portland Plaza Apartments, each located in Louisville. The intended date of sale was June 2013, and the anticipated rating’s from Standard & Poor’s will be AAA/A-1+. The anticipated interest rate is 0.50 percent for a term of 13 months. The financing team includes Peck, Shaffer, & Williams LLP, bond counsel; Sidley Austin LLP, underwriter counsel; and Merchant Capital, L.L.C., underwriter.
In response to a question from Representative Wayne, Mr. Shawn Dyer, Tax Credit Administrator, KHC, said that the project developer was Integra Property Group from Seattle, Washington and that KHC will provide information on the developer to the committee.
Representative Sinnette made a motion to approve the bond issue. The motion was seconded by Senator Leeper and approved by roll call vote.
Follow-up Report from the Office of Financial Management
Mr. Barrow presented a follow-up report on the previously approved $107,860,000 for KHC Single-Family Housing Revenue Bonds, 2013 Series A and Series B (Taxable) bond issue, which closed April 30, 2013. The pricing was at three percent with a maturity date of November 1, 2041. This bond issue was negotiated with Citigroup and carried Standard & Poor’s AAA and Moody’s Aaa ratings. The refunding produced a $5,301,961 net present value savings. No action was required.
New School Bond Issues with School Facilities Construction Commission (SFCC) Debt Service Participation
Mr. Barrow reported seven local school districts with SFCC debt service participation with a total par amount of $66,912,000. The state portion of the annual debt service payment was $1,032,864 and the local contribution was $4,252,171. None of the bond issues involved tax increases.
Representative Wayne made a motion to approve the bond issue. The motion was seconded by Representative Rudy and approved by roll call vote.
New School Bond Issues with 100 Percent Locally Funded Debt Service Participation
Ms. Culpepper said nine local school bond issues were reported to the committee. The bond issues have 100 percent local debt service support and involved no SFCC participation. Three would provide new money to improve existing facilities and six were refunding. Five of the refundings would redeem outstanding Build America Bonds. Under sequestration, the federal subsidy provided for Build America Bonds has been reduced. Some of the bonds carry call provisions that allow for refunding in this situation.
With there being no further business, the meeting adjourned at 2:07 p.m.