Call to Order and Roll Call
The Capital Projects and Bond Oversight Committee was held on Tuesday, November 19, 2013, at 1:00 p.m., in Room 169 of the Capitol Annex. Representative Kevin Sinnette, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senators Julian Carroll, Chris Girdler, Bob Leeper, and Christian McDaniel; Representatives Robert Damron, Steven Rudy, and Kevin Sinnette.
Guests Testifying Before the Committee: Mr. Scott Aubrey, Director, Division of Real Properties, Finance and Administration Cabinet; Mr. Andy Daigle, Finance and Administration Manager, Bluegrass Station, Department of Military Affairs; Mr. John Hicks, Deputy State Budget Director; Mr. Tony Wheatley, Land Acquisition Coordinator, Kentucky Department of Fish and Wildlife; Mr. John Covington, Executive Director, Kentucky Infrastructure Authority; Ms. Lisa Beran, General Counsel, Kentucky Housing Corporation; and Mr. Ryan Barrow, Executive Director, Office of Financial Management.
LRC Staff: Josh Nacey, Katherine Halloran, and Angela Offerman.
Resolution Honoring Ms. Kristi Culpepper
Mr. Josh Nacey, Committee Staff Administrator, read a resolution honoring Ms. Kristi Culpepper, who resigned on October 31, 2013, as Committee Staff Administrator for the committee.
Approval of Minutes
Representative Rudy made a motion to approve the minutes of the October 15, 2013, meeting. The motion was seconded by Senator Leeper and approved by voice vote.
Information Items
Mr. Nacey presented three information items for review. The first item was the annual Economic Development Bond Report from the Cabinet for Economic Development. The report detailed previously approved Economic Development Bond grant projects with respect to job creation and wage requirements.
The second item was an article from the State-Journal which reported that a private equity firm sought to invest in building new dormitories on the Kentucky State University (KSU) campus. Under the proposal, Miami-based Mantra would finance the design, development, and construction of the dorms, as well as maintenance and restoration. The university would then make lease payments to Mantra. The project will be brought before the committee at a later date.
The third item included a report and news article regarding Moody’s downgrade of the underlying rating on the Kentucky Economic Development Finance Authority’s Louisville Arena Project Revenue Bonds to Ba3 from Ba2 and the change in the outlook to stable.
Project Report from Western Kentucky University (WKU)
Mr. Nacey said WKU reported the use of $750,000 of authorized funds for the WKU Campus Parking Area Lighting Upgrade project to replace area lighting in all internal and perimeter parking areas on WKU’s main, south, and Research and Development campuses. With this project, the current High Intensity Discharge (HID) fixtures will be replaced with Light Emitting Diode (LED) fixtures. Additionally, the project would reduce the number of required fixtures to achieve additional cost savings. No action was required.
Lease Reports from the Finance and Administration Cabinet
Mr. Scott Aubrey, Director, Division of Real Properties, Finance and Administration Cabinet, presented twenty items. The first item was for a new lease with an annual cost exceeding $100,000 for the Department for Workforce Investment in Madison County. The new lease was procured through the competitive bidding process and was awarded to Frazier Realty Company LLC for 9,648 square feet (sq ft) of office space at $11.75 per sq ft, excluding utilities and janitorial services, for an annual cost of $113,364. The lease will expire June 30, 2021.
Senator Carroll made a motion to approve the new lease. The motion was seconded by Senator McDaniel and approved by roll call vote.
The second item was for a new lease for the Cabinet for Health and Family Services in Fayette County. The new lease was procured through the competitive bidding process and was awarded to B & C Investments for 10,912 sq ft of office and clinic space at $16.50 per sq ft, including utilities and janitorial services, for an annual cost of $180,048. The lease will expire June 30, 2020.
In response to a question from Senator Carroll, Mr. Aubrey said the difference in the cost per sq ft and the county average cost per sq ft was due to leases that have been in effect for a long period of time.
In response to a question from Representative Damron, Mr. Aubrey said the cabinet currently occupies the space.
In response to a question from Senator Leeper, Mr. Aubrey said the increase in the cost per sq ft for a longer lease term may be due to inflation.
Senator Carroll made a motion to approve the new lease. The motion was seconded by Senator Girdler and approved by roll call vote.
The third item was for a lease modification and amortization of leasehold improvements for the Department for Military Affairs in Fayette County. The lease was modified to allow for the installation of reinforced concrete for a storage area and to allow for the use of 60,000 sq ft of space at no cost from January 16, 2014, until full occupancy on February 12, 2014.
One estimate was received for the reinforced concrete work from Brett Construction Company for $304,600, including interest. A total cost of $451,050 will be amortized through the term of the lease, which expires 155 months from the effective date.
In response to questions from Senator McDaniel, Mr. Aubrey said Brett Construction Company and Setzer Properties BGS II, LLC was owned by the same person. The concrete reinforcement was necessary for the storage of Heavy Expanded Mobility Tactical Truck (HEMTT) military vehicles.
Mr. Aubrey said Bluegrass Station is state-owned property and the improvements were bonded and will be amortized over the lifetime of the lease. Mr. Aubrey said the project was initially developed under KRS 56.820(3), which allows a built-to-suit lease for projects. Mr. Aubrey described the built-to-suit process.
Senator McDaniel made a motion to approve the lease modification. The motion was seconded by Senator Carroll and approved by roll call vote.
The fourth item was for a lease modification for the Department for Workforce Investment in Jefferson County. The department requested an increase of 6,964 sq ft to bring the total to 14,766 sq ft at a rental rate of $9.50 for an annual cost of $74,119. The lease will expire June 30, 2021.
In response to a question from Representative Damron, Mr. Aubrey said the department is expanding to create a one-stop center, resulting in a net increase in office space.
Senator Carroll made a motion to approve the new lease. The motion was seconded by Representative Rudy and approved by roll call vote.
The fifth item was for a lease renewal for the Labor Cabinet in Franklin County, under the same terms and conditions, for a total annual rent cost of $578,784 through June 30, 2017.
The sixth item was for a lease renewal for the Cabinet for Health and Family Services in Franklin County, under the same terms and conditions, for a total annual rent cost of $1,127,854 through June 30, 2017.
The seventh item was for a lease renewal for the Cabinet for Health and Family Services in Kenton County, under the same terms and conditions, for a total annual rent cost of $106,925 through June 30, 2016.
The eighth item was for a lease renewal for the Cabinet for Health and Family Services in Martin County, under the same terms and conditions, for a total annual rent cost of $133,193 through June 30, 2019.
The ninth item was for a lease renewal for the Cabinet for Health and Family Services in Montgomery County, under the same terms and conditions, for a total annual rent cost of $130,356 through June 30, 2015.
The tenth item was for a lease renewal for the Cabinet for Health and Family Services in Morgan County, under the same terms and conditions, for a total annual rent cost of $138,530 through June 30, 2016.
The eleventh item was for a lease renewal for the Cabinet for Health and Family Services in Pike County, under the same terms and conditions, for a total annual rent cost of $112,063 through June 30, 2022.
The twelfth item was for a lease renewal for the Cabinet for Health and Family Services in Scott County, under the same terms and conditions, for a total annual rent cost of $216,736 through June 30, 2015.
The thirteenth item was for a lease renewal for the Department of Agriculture in Franklin County, under the same terms and conditions, for a total annual rent cost of $182,793 through June 30, 2015.
The fourteenth item was for a lease renewal for the Department of Corrections in Campbell County, under the same terms and conditions, for a total annual rent cost of $139,531 through June 30, 2019.
The fifteenth item was for a lease renewal for the Department of Insurance in Franklin County, under the same terms and conditions, for a total annual rent cost of $279,126 through June 30, 2016.
The sixteenth item was for a lease renewal for the Department for Local Government in Franklin County, under the same terms and conditions, for a total annual rent cost of $191,025 through June 30, 2017.
The seventeenth item was for a lease renewal for the Department of Revenue in Boone County, under the same terms and conditions, for a total annual rent cost of $110,110 through June 30, 2022.
The eighteenth item was for a lease renewal for the Department for Workforce Investment in Fayette County, under the same terms and conditions, for a total annual rent cost of $214,648 through June 30, 2017.
The nineteenth item was for a lease renewal for the Energy and Environment Cabinet in Floyd County, under the same terms and conditions, for a total annual rent cost of $117,975 through June 30, 2022.
The twentieth item was for a lease renewal for the Energy and Environment Cabinet in Franklin County, under the same terms and conditions, for a total annual rent cost of $114,308 through June 30, 2016.
In response to a question from Senator McDaniel, Mr. Aubrey said all real property information was maintained in an inventory database, which includes the county average lease rate cost from leases paid by the state.
Senator Carroll made a motion to approve the lease renewals. The motion was seconded by Senator Leeper and approved by roll call vote.
Project Reports from the Finance and Administration Cabinet
Mr. John Hicks, Deputy State Budget Director, presented five items. The first item was for an unbudgeted capital project request from the Tourism, Arts and Heritage Cabinet, Department of Parks, for the approval of the Beech Fork Covered Bridge Upgrade project in Washington County. The project appropriation was $1,939,300 and was 100 percent federally funded.
Senator Carroll made a motion to approve the capital project. The motion was seconded by Representative Damron and approved by roll call vote.
The second item presented was a request from the Justice and Public Safety Cabinet, Kentucky State Police, for a $2,725,000 (136%) scope increase for the Demolition and Construction of Training Academy Building project. The scope increase will be funded from federal asset forfeiture funds and will result in a revised appropriation of $4,725,000. The scope increase will enable the project to fully finance the demolition of the administration building and the construction of new office, conference room, classroom, and food service facilities.
In response to a question from Senator McDaniel, Mr. Hicks said he would provide a financial overview of the project to the committee.
In response to questions from Senator Leeper, Mr. Hicks said there is an account that holds the asset forfeiture funds. The funds for the project have been moved to the project account. The asset forfeiture fund account maintains a balance and federal restrictions exist for the usage of the funds.
Representative Damron made a motion to approve the scope increase. The motion was seconded by Senator McDaniel and approved by roll call vote.
The third item presented was a report for a pool project in excess of $600,000 for the Department of Fish and Wildlife Resources Big River Phase II – Crittenden County Land Purchase project. The $12,681,300 project involved the purchase of 4,285 acres of land and will be funded with $5,770,000 from the Kentucky Heritage Land Conservation Pool, $1,161,300 from the Fish and Wildlife Resources Land Acquisition Pool, $650,000 from the Fees-in-Lieu-Of Stream Mitigation Pool, and $5,100,000 in federal funds from a forest legacy grant.
Representative Rudy expressed his constituents’ concerns regarding the loss of property tax proceeds related to the project. In response, Mr. Tony Wheatley, Land Acquisition Coordinator, Kentucky Department of Fish and Wildlife, said the department’s resources, including staff, outweigh the loss of the property tax proceeds.
In response to a question from Representative Damron, Mr. Hicks said he was unaware of anything permitting or prohibiting the payment of fees-in-lieu-of taxes to school districts. No action was required.
The fourth item presented was a report for a pool project in excess of $600,000 for the Department of Fish and Wildlife Resources FILO-Hatchery Creek project in Russell County. The project will be funded with $1,807,000 from the 2010-2012 Fish and Wildlife Fees-in-Lieu-Of Stream Mitigation Pool. The project will establish 6,500 feet of new channel from the Wolf Creek National Fish Hatchery to the Cumberland River to replace an existing stream that is an eroded gulley causing sediment pollution into the Cumberland River.
In response to a question from Representative Damron, Mr. Hicks said the funds come from contractors and the Department of Highways when wetlands are disturbed during construction projects. After a feasibility analysis of wetland restoration, a fee amount is determined and paid by the contractor or department into the fund. The Department of Fish and Wildlife Resources maintains a cooperative agreement with the US Army Corp of Engineers and they evaluate projects requesting the use of the funds. No action was required.
The fifth item presented was a report for a pool project in excess of $600,000 for the Department of Fish and Wildlife Resources Letcher-Smoot Property Land Acquisition in Nicholas County. The $1,079,000 project involved the purchase of 464.5 acres of land adjoining the existing Clay Wildlife Management Area and will be funded with $692,000 from the 2012-2014 Land Acquisition Pool and $387,000 from the Fees-in-Lieu-Of Stream Mitigation Pool. No action was required
Kentucky Infrastructure Authority (KIA) Loans
Mr. John Covington, Executive Director, KIA, presented three loan increases, one new loan, and one grant request. The first request was for a Fund A loan increase for the City of Flatwoods in Greenup County. The request was for an increase of $40,000 to the previously approved $400,000 loan for the Sanitary Sewer Collection Systems Improvements project. The new Fund A loan amount is $440,000. The increase will fund the replacement of an existing six-inch pipe that was originally thought to be eight inches prior to the final design. The loan will have a 20-year term, an interest rate of two percent, and an estimated annual debt service payment of $27,681.
Representative Leeper made a motion to approve the Fund A loan increase. The motion was seconded by Senator Carroll and approved by roll call vote with one “no” vote.
The second request was for a Fund B loan increase for the City of Greenville for the benefit of Greenville Utilities Commission in Muhlenberg County. The request was for an increase of $111,500 to the previously approved $1,115,000 loan for a sewer improvement project. The new Fund B loan amount is $1,226,500. The increase was for funding soil stabilization, replacing portions of aeration equipment, and changing materials for a new supplemental basin. The loan will have a 20-year term, an interest rate of one percent, and an estimated annual debt service payment of $70,267.
The third request was for a Fund B loan increase for the City of Elkton in Todd County. The request was for an increase of $32,000 to the previously approved $320,000 loan for the Elkton Todd County Water District Separation project. The new Fund B loan amount is $352,000. The increase was for additional pipeline route connections, a master meter valve pit, and additions to the system that monitors and controls flow from the water supplier. The loan will have a 20-year term, an interest rate of 1.75 percent, and an estimated annual debt service payment of $21,639.
In response to a question from Senator McDaniel, Mr. Covington said it is KIA’s policy to include in each conditional commitment a provision that an increase in the loan amount up to ten percent may be requested without having to go before the KIA board.
In response to a question from Senator Carroll, Mr. Covington said the policy allows flexibility for immaterial project scope changes without board approval. Mr. Covington said KIA would provide a letter to the committee describing the statutory basis for the agency creation, the administrative regulation authorizing the agency to approve up to ten percent scope increases, and the plan for reviewing the administrative regulations.
The fourth request was for a Fund B loan for the Paradise Park Regional Industrial Development Authority in Muhlenberg County. The request was for a $350,000 loan for the Paradise Park Water Transmission project. The project involves the construction of approximately 34,000 feet of new water mains, an upgrade to the pump station to provide for industrial demands at the business park, and the addition of fire protection for the park and existing customers. The loan will have a 20-year term, an interest rate of 1.75 percent, and a debt service payment of $21,516.
Senator Carroll made a motion to approve the Fund B loan increases and the new loan. The motion was seconded by Senator Leeper and approved by roll call vote with one “no” vote.
Mr. Covington reported an Infrastructure for Economic Development Grant (Non-coal County) for the City of Georgetown in Scott County for the Georgetown/Scott County South Sewer Extension. No action was required.
Reports from the Office of Financial Management
Mr. Ryan Barrow, Executive Director, Office of Financial Management, presented one information item, two new bond issues, and one follow-up report on a previously approved bond issue. The first item was a letter from the Transportation Cabinet reporting the total payments made to-date to Public Financial Management for financial advisory services provided to the Kentucky Public Transportation Infrastructure Authority.
The second item was a new bond issue for Northern Kentucky University General Receipts Revenue Bonds, 2014 Series A, to fully finance the renovation and expansion of the Albright Health Center and the acquisition and renovation of a new residence hall, which were authorized by 2013 HB 7.
Senator McDaniel made a motion to approve the new bond issue. The motion was seconded by Representative Damron and approved by roll call vote.
The third item presented was Kentucky Housing Corporation (KHC) Conduit Multifamily Housing Revenue Bonds (Maple Street Apartments Project) Series 2013, for the acquisition, construction, and equipping of a multifamily residential rental facility consisting of approximately 56 units.
The anticipated gross proceeds will be up to $1,225,000 and the proposed date of sale will be in December 2013 with an estimated interest rate of 4.25 percent. It will be a private placement and Peck, Shaffer & Williams LLP will serve as bond counsel.
In response to a question from Chairman Sinnette, Ms. Lisa Beran, General Counsel, KHC, said that there was not a conflict of interest with McBrayer, McGinnis, Leslie & Kirkland, PLLC, representing the borrower and developer and also serving as special counsel to KHC. McBrayer, McGinnis, Leslie & Kirkland, PLLC, represented the borrower and developer on the competitively awarded nine percent tax credits and not on the noncompetitive four percent tax credit portion, which is a part of the conduit bond issue. If the project proceeds and nine percent tax credit are applied for, a waiver will be executed.
Senator McDaniel made a motion to approve the new bond issue. The motion was seconded by Senator Leeper and approved by roll call vote.
Mr. Barrow presented a follow-up report on Western Kentucky University General Receipts Bonds, 2013 Series A. The par amount of the bonds was $36,095,000 with a true interest cost of 3.799 percent. No action was required.
New School Bond Issues with School Facilities Construction Commission (SFCC) Debt Service Participation
Mr. Barrow reported eight school bond issues with SFCC debt service participation with a total par amount of $53,695,000. The state portion of the annual debt service payment was $1,040,829 and the local contribution was $2,814,897. The bond issues did not involve tax increases.
Senator McDaniel made a motion to approve the school bond issues. The motion was seconded by Senator Leeper and approved by roll call vote.
New School Bond Issues with 100 Percent Locally Funded Debt Service Participation
Four local school bond issues have been reported to the committee. The bond issues were 100 percent locally funded and do not involve tax increases. The bond issues will finance improvements to existing facilities, construct a new facility, and refinance a previously approved bond issue. No action was required.
With there being no further business, the meeting adjourned at 2:30 p.m.