Call to Order and Roll Call
The Capital Projects and Bond Oversight Committee meeting was held on Tuesday, July 15, 2014, at<MeetTime> 1:00 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, Julian Carroll, and Christian McDaniel; Representatives Steven Rudy, Kevin Sinnette, and Jim Wayne.
Guests Testifying Before the Committee: Mr. Scott Aubrey, Director of Real Properties, Finance and Administration Cabinet; Mr. John Hicks, Deputy State Budget Director; Mr. Jeff Abshire, Financial Analyst, Kentucky Infrastructure Authority; Mr. Roger Recktenwald, Director of Research and Planning, Kentucky Association of Counties; Ms. Katie Smith, Executive Director, Office of Financial Services, Kentucky Cabinet for Economic Development; and Mr. Ryan Barrow, Executive Director, Office of Financial Management.
LRC Staff: Josh Nacey, Katherine Halloran, and Angela Offerman.
Approval of Minutes
Representative Rudy moved to approve the minutes of the June 17, 2014, meeting. The motion was seconded by Senator Carroll and approved by voice vote.
Information Items
Mr. Josh Nacey, Committee Staff Administrator, presented four information items. The first items were notices of advertisement for leased space from the Finance and Administration Cabinet for the Department of Corrections in Jefferson and Fayette Counties and the Cabinet for Health and Family Services in Perry County.
The second item included quarterly status reports on capital projects provided by the Administrative Office of the Courts, the Commonwealth Office of Technology, Finance and Administration Cabinet, and the universities that manage their own capital construction programs.
The third item was an article from Standard & Poor’s on U.S. State Pension Funding.
The fourth item was a letter from the committee co-chairs to the Attorney General regarding the Louisville Arena Authority. The letter was requesting an opinion on various issues concerning the Authority and the financial management of the arena.
Lease Reports from the Finance and Administration Cabinet
Mr. Scott Aubrey, Director of Real Properties, Finance and Administration Cabinet, presented seven items. The first item was for new leases for the Department for Workforce Investment in Fayette County to create separate regional and local offices. The lease for the regional office was for 7,275 square feet (sq ft) of office space at $16.40 per sq ft for an annual cost of $119,310. The lease for the local office was for 11,513 sq ft of office space at $16.50 per sq ft for an annual cost of $189,965. The leases will expire June 30, 2020.
Senator McDaniel made a motion to approve the new leases. The motion was seconded by Representative Rudy and approved by roll call vote.
The second item was for a new lease for the Cabinet for Health and Family Services in Clay County. The lease was for 12,755 sq ft of office space at $12 per sq ft for an annual cost of $153,060. The lease will expire June 30, 2021.
Senator Carroll made a motion to approve the new lease. The motion was seconded by Representative Sinnette and approved by roll call vote.
The third item was for a lease renewal for the Cabinet for Health and Family Services in Franklin County for office and storage space. The lease was for 44,263 sq ft of office space ($9.35 per sq ft) and 1,311 sq ft of storage space ($4 per sq ft) for an annual cost of $124,300. The lease will expire October 17, 2014.
In response to questions from Senator McDaniel, Mr. Aubrey said the state currently occupies, and will be vacating, approximately 400,000 sq ft of space in the Fair Oaks buildings. Due to the lack of supply in rental facilities in Frankfort, the rental rates are increasing.
Senator McDaniel made a motion to approve the lease renewal. The motion was seconded by Senator Carroll and approved by roll call vote.
The fourth item was for a lease renewal for the Department of Public Advocacy in Franklin County for office and storage space. The lease was for 45,495 sq ft at $10.50 per sq ft for office space and $3.85 per sq ft for storage space for an annual cost of $288,650. The lease will expire August 31, 2015.
Senator McDaniel made a motion to approve the lease renewal. The motion was seconded by Representative Rudy and approved by roll call vote.
The fifth item was for a lease modification and amortization of leasehold improvements for the Department of Public Advocacy in Jessamine County. The department assumed responsibility of the lease from the Cabinet for Health and Family Services and revised the terms to include four automatic extension periods, reduction of six sq ft, quarterly payments, and the addition of eight windows.
The lease was for 3,313 sq ft at $7.14 per sq ft for an annual cost of $23,600. Two estimates were obtained for the improvements and the department recommended accepting the lowest bid of $6,986 from Warnick Construction. The cost will be amortized through the term of the lease, which will expire June 30, 2018. No action was required.
The sixth item was for a lease modification and amortization of leasehold improvements for the Transportation Cabinet in Jefferson County. The cabinet requested an additional 51,383 sq ft of space to increase storage capacity to 110,000 tons of road salt.
The lease was for a total of 126,400 sq ft for salt storage space (47,850 sq ft at $2.08 per sq ft and 78,550 sq ft at $1.97 per sq ft) for an annual cost of $254,272. The cost will be amortized through the term of the lease, which will expire June 30, 2019.
Senator Carroll made a motion to approve the lease modification. The motion was seconded by Senator McDaniel and approved by roll call vote.
The seventh item was for a lease modification and amortization of leasehold improvements for the Cabinet for Health and Family Services in Franklin County for security improvements.
Two estimates were obtained for the improvements and the cabinet recommended accepting the lowest bid of $17,600 from Frankfort Leasing and Rental. The cost will be amortized through the term of the lease, which will expire June 30, 2015. No action was required.
Project Reports from the Finance and Administration Cabinet
Mr. John Hicks, Deputy State Budget Director, presented two items. The first item was a new unbudgeted capital project from the Department of Military Affairs. The Construct Weapons Repair Shop – Bluegrass Station project involved the construction of 2,800 sq ft for a new weapons repair shop, renovation of an existing building, and the construction of new electrical, security, sprinkler, and HVAC systems.
The $656,744 capital project will be funded with $328,372 (50 percent) from the federal funds provided by the Department of Defense Special Operations Forces Support Activity and $328,372 (50 percent) from restricted funds.
Senator Carroll made a motion to approve the capital project. The motion was seconded by Representative Rudy and approved by roll call vote with one “no” vote.
The second item was a report of equipment pool project in excess of $200,000. The Kentucky Community and Technical College System reported the purchase of a double two-story portable live fire-training unit to simulate fires in a controlled environment for firefighter training. The total cost of the purchase was $661,100. No action was required.
Kentucky Infrastructure Authority (KIA) Loans
Mr. Jeff Abshire, Financial Analyst, KIA, presented 11 items. The first item was for two Fund A loan assumptions and a new Fund B loan for the Greenup Joint Sewer Agency in Greenup County. The $2,000,000 Fund B loan will retire the $1,884,938 Fund A loan debt and fund $90,062 of equipment updates. The loan will have a 20-year term, an interest rate of 1.75 percent, and an estimated annual debt service payment of $122,951.
Mr. Abshire said Sun Chemical was responsible for approximately 90 percent of the City of Wurtland’s wastewater treatment revenues. Sun Chemical terminated operations with the city in March 2013, resulting in an unsustainable debt structure. The best solution identified for the region was to consolidate wastewater treatment activities with the City of Greenup and form a regional entity, Greenup Joint Sewer Agency.
In response to questions from Representative Wayne, Mr. Roger Recktenwald, Director of Research and Planning, Kentucky Association of Counties, said there was no involvement of the Economic Development Cabinet with Sun Chemical. The existing Wurtland plant was built to accommodate insufficient capacity and to accommodate the new Sun Chemical flow. There were no penalties if Sun Chemical left the area, but if any payment is received it will go toward the debt.
Senator Carroll made a motion to approve the Fund A loan assumptions and the new Fund B loan. The motion was seconded by Representative Rudy and approved by roll call vote.
The second item was for a Fund A loan increase for Lexington-Fayette Urban County Government in Fayette County. The request was for an increase of $10,159,970 to a previously approved loan for the Town Branch Wastewater Treatment Flow Equalization Storage Tank project to replace local funds that were originally budgeted for the project. The $31,801,000 loan will have a 20-year term, an interest rate of 1.75 percent, and a debt service payment of $1,954,986.
Senator Carroll made a motion to approve the Fund A loan increase. The motion was seconded by Senator McDaniel and approved by roll call vote.
The third item was for a Fund A loan for Lexington-Fayette Urban County Government in Fayette County. The request was for a $19,837,063 loan for Phase I of a multi-phase wastewater storage facility at the Lower Cane Run Pump Station. The loan will have a 20-year term, an interest rate of 1.75 percent, and a debt service payment of $1,219,495.
In response to questions from Representative Wayne, Mr. Abshire said the Fund A loans to the Lexington-Fayette Urban County Government represent approximately 40 percent of available loan funds.
Senator McDaniel made a motion to approve the Fund A loan. The motion was seconded by Senator Carroll and approved by roll call vote.
The fourth item was for a Fund B loan for the City of Greensburg in Green County. The request was for a $350,000 loan for the Greensburg New Water Treatment Plant project. The loan will have a 20-year term, an interest rate of 0.75 percent, and a debt service payment of $19,578.
In response to questions from Senator McDaniel, Mr. Abshire said this loan will supplement a previously approved loan and was necessary due to higher than expected expenses.
Senator Carroll made a motion to approve the Fund B loan. The motion was seconded by Representative Rudy and approved by roll call vote.
The fifth item was for a Fund C loan for the City of Glasgow for the benefit of the Glasgow Water Company in Barren County. The request was for a $3,000,000 loan for the Glasgow Peak Storage Basin project. The loan will have a 20-year term, an interest rate of three percent, and a debt service payment of $206,563.
Senator Carroll made a motion to approve the Fund C loan. The motion was seconded by Representative Rudy and approved by roll call vote.
The sixth item was for a Fund F loan increase for the City of Harrodsburg in Mercer County. The request was for an increase of $1,014,472 to a previously approved loan for the Water Distribution Improvements and North Main Water Storage Tank projects to replace an additional 15,000 linear feet of six-inch water lines with eight-inch PVC lines. The $2,703,422 loan will have a 20-year term, an interest rate of 1.75 percent, and a debt service payment of $150,792.
Senator Carroll made a motion to approve the Fund F loan increase. The motion was seconded by Representative Wayne and approved by roll call vote.
The seventh item was for a Fund F loan increase for the City of Danville in Boyle County. The request was for an increase of $4,467,849 to a previously approved loan for the Water Treatment Plant and Raw Water Intake project to replace previously proposed bond funding. The $12,467,849 loan will have a 20-year term, an interest rate of 1.75 percent, and a debt service payment of $247,902.
Senator Carroll made a motion to approve the Fund F loan increase. The motion was seconded by Senator McDaniel and approved by roll call vote.
The eighth item was for a Fund F loan increase for the Northern Kentucky Water District in Kenton County. The request was for an increase of $4,000,000 to a previously approved loan for the Kenton and Campbell County Water Main projects to fund additional costs. The $8,000,000 loan will have a 20-year term, an interest rate of 1.75 percent, and a debt service payment of $495,805.
In response to questions from Senator McDaniel, Mr. Abshire said the federal American Iron and Steel provisions of the Consolidated Appropriations Act of 2014 contributed to the increased costs of the project.
Senator Carroll made a motion to approve the Fund F loan increase. The motion was seconded by Senator McDaniel and approved by roll call vote.
The ninth item was for a Fund F loan for the City of North Middletown in Bourbon County. The request was for a $680,000 loan for the Water Tank Reconstruction and SCADA project. The loan will have a 20-year term, an interest rate of 0.75 percent, and a debt service payment of $38,377.
Senator Carroll made a motion to approve the Fund F loan. The motion was seconded by Senator McDaniel and approved by roll call vote.
The tenth item was for a Fund F loan for the City of Flatwoods in Greenup County. The request was for a $325,000 loan for the Jones Street Waterline Upgrade project. The loan will have a 20-year term, an interest rate of 1.75 percent, and a debt service payment of $20,142.
Senator McDaniel made a motion to approve the Fund F loan. The motion was seconded by Senator Carroll and approved by roll call vote.
Mr. Abshire reported 12 non-coal Infrastructure for Economic Development Grants. The grants were for Shelbyville Municipal Water and Sewer Commission in Shelby County for the Benson Road Gravity Sewer project; Bourbon County Fiscal Court for the Bourbon County-City of Paris Centerville Sewer project; City of Wurtland in Greenup County for the sewer project; Greenup County Fiscal Court for the Water Lines project; Greenup Fiscal Court for the Water and Sewer Lines project; Jessamine-South Elkhorn Water District in Jessamine County for the Catnip Hill Pike 1.0MG Elevated Storage Tank Project; City of Tompkinsville in Monroe County for the Beldon Water Tank Rehabilitation project; Monroe County Water District for the Tooley Ridge Tank Replacement project; Monroe County Water District for the Monroe County-City of Edmonton Interconnect project; Monroe County Water District for the Treatment Plant Upgrade Phase Two project (two grants); and City of Campbellsville in Taylor County for the Wastewater Treatment Plant Improvements. No action was required.
Reports from the Office of Financial Management (OFM)
Ms. Katie Smith, Executive Director, Office of Financial Services, Kentucky Cabinet for Economic Development, presented one Economic Development Bond project. The $1,000,000 grant was made to Inter-Modal Transportation Authority, Inc. for the benefit of Bilstein Cold Rolled Steel LP (Bilstein) to establish a 150,000 sq ft production plant in Bowling Green, Kentucky to produce steel for the automotive and tooling industries.
The company agreed to create 90 new full-time jobs for Kentucky residents with an average hourly wage of $21, including benefits. Bilstein will be required to create 50 new, full-time Kentucky resident jobs in Warren County by January 1, 2021, increasing to 75 jobs on the measurement dates of January 1, 2022, 2023, and 2024, and reaching 90 jobs by January 1, 2025.
In response to questions from Senator McDaniel, Ms. Smith said once the $1,000,000 is spent, Bilstein may submit construction or equipment invoices, including documentation, to the Inter-Modal Transportation Authority who will submit the documentation for reimbursement to the cabinet. Disbursement of funds occurs through the local government agency.
Ms. Smith said incentive programs are available to new and existing businesses. Approximately 75 percent of the projects are with existing businesses to aid in growth and retention.
In response to questions from Representative Wayne, Ms. Smith said job creation, future projects, new suppliers and customers are considered factors in the incentive packages. Collateral in the form of a letter of credit and the mortgage on the property was required.
Representative Wayne made a motion to approve the grant. The motion was seconded by Representative Sinnette and passed by roll call vote with one “pass” vote.
Mr. Ryan Barrow, Executive Director, OFM, presented two items. The first item was a new bond issue for the Kentucky Economic Development Finance Authority (KEDFA) Healthcare Facilities Revenue Bonds, Series 2014, (Masonic Homes Independent Living II, Inc. Project), anticipated to be issued in two series in an aggregate amount not to exceed $13,000,000. As a conduit bond issue, the debt will be a general obligation of Masonic Homes and not a debt of the state or KEDFA.
The bond issue will finance the acquisition, construction, installation, and equipping of independent living units on the Masonic Homes campus in Louisville, Kentucky.
Representative Wayne made a motion to approve the new bond issue. The motion was seconded by Senator McDaniel and approved by roll call vote.
The second item was a follow-up report for the Turnpike Authority of Kentucky (TAK) Economic Development Road Revenue Refunding Bonds (Revitalization Projects), 2014 Series A, dated June 25, 2014. The bond issue will finance the advance refunding of TAK’s Economic Development Road Revenue Bonds (Revitalization Projects), 2005 Series B, for economic savings, and to pay certain costs of issuance.
The total par amount of the bonds was $121,325,000. Peck, Shaffer and Williams, a division of Dinsmore and Shohl served as bond counsel; Goldman Sachs, underwriter; Office of Financial Management, financial advisor; and Bank of New York Mellon, trustee. No action was required.
New School Bond Issues with School Facilities Construction Commission (SFCC) Debt Service Participation
Mr. Barrow reported nine school bond issues with SFCC debt service participation with a total par amount of $83,600,000. The state portion of the annual debt service payment was $866,343 and the local contribution was $5,871,346. The bond issues did not involve tax increases.
Representative Rudy made a motion to approve the school bonds. The motion was seconded by Senator Carroll and approved by roll call vote.
New School Bond Issues with 100 Percent Locally Funded Debt Service Participation
Mr. Nacey said two local bond issues were reported to the committee. The bond issues were 100 percent locally funded and do not involve tax increases. No action was required.
With there being no further business, the meeting was adjourned at 2:05 p.m.