Call to Order and Roll Call
The Capital Projects and Bond Oversight Committee meeting was held on Tuesday, April 21, 2015, at 1:05 p.m., in Room 169 of the Capitol Annex. Representative Sinnette, Chair, called the meeting to order, and the secretary called the roll.
Members: Representative Kevin Sinnette, Co-Chair; Senators Julian M. Carroll and Christian McDaniel; Representatives Steven Rudy and Jim Wayne.
Guests: Mr. Bryan Russell, Chief Facilities Officer, WKU; Ms. Elizabeth Baker, Director of Planning, UK; Mr. Scott Aubrey, Director of Real Properties, Finance and Administration Cabinet; Mr. John Hicks, Deputy State Budget Director; Jeff Abshire, Financial Analyst for Kentucky Infrastructure Authority; Mr. Charles Martin, Director of the Division of Water Quality for Lexington-Fayette Urban County Government; Mr. Ryan Barrow, Executive Director, Office of Financial Management; Ms. Kristi Culpepper, Executive Director, School Facilities Construction Commission.
LRC Staff: Katherine Halloran and Maurya Allen.
Election of House Co-Chair
Katherine Halloran, Committee Analyst, said that, pursuant to KRS 45.790, a Co-Chair election was needed for the positions of Senate and House Co-Chairs. Representative Rudy nominated Representative Sinnette for the position of House Co-Chair. The motion was seconded by Representative Wayne. Representative Rudy moved that nominations cease and that Representative Sinnette be elected House Co-Chair by acclamation. The motion was seconded by Representative Wayne and approved by voice vote.
Election of Senate Co-Chair
Senator Carroll nominated Senator Girdler for the position of Senate Co-Chair. The motion was seconded by Senator McDaniel. Senator McDaniel moved that nominations cease and that Senator Girdler be elected as Senate Co-Chair by acclamation. The motion was seconded by Senator Carroll and approved by voice vote.
Approval of Minutes
Senator Carroll moved to approve the minutes of the January 20, 2015 meeting. The motion was seconded by Senator McDaniel and approved by voice vote.
Correspondence Items
Ms. Halloran said there were six correspondence items for review by the committee members. First were letters to and from the Transportation Cabinet regarding the Louisville-Southern Indiana Ohio River Bridges environmental justice study. Additionally, there were letters regarding cancellation of the February and March committee meetings and an informal legal opinion from the Office of the Attorney General regarding the Louisville Arena Authority.
Representative Wayne addressed the committee in regards to the Transportation Cabinet’s withholding of the environmental justice study report from their response. An open records request has been made to release this document after receiving advice from LRC legal counsel. The request was denied and then submitted to the Attorney General for formal opinion. He feels it is very important to receive a copy of this report. Senator McDaniel posed a question to Representative Wayne asking for clarification on exactly which documents he was seeking. Representative Wayne explained that documents regarding the environmental justice study were submitted to the Federal Highway Administration in December. These documents are the ones that Representative Wayne is requesting; he has been informed that these are not available for the public because they are considered draft documents. Representative Wayne believes is that these are no longer confidential because they have been submitted from a state agency to a federal agency and therefore subject to open records requests.
Representative Wayne commented on the informal opinion of the Attorney General. He does not feel that the submitted correspondence fully addressed the questions of the committee regarding the arena financing plan. Senator Carroll stated that he has concerns in this matter. Senator Carroll moved that a letter be drafted to the LRC Director requesting an independent actuary to evaluate the financing of the Louisville Arena Authority on behalf of the committee if funds are available. Representative Wayne seconded the motion, which passed by voice vote.
Information Items
Ms. Halloran said there were five information items for the committee members to review: (1) a document presenting passed legislation related to the jurisdiction of the committee; (2) a notice of advertisement for leased space for the Cabinet for Health and Family Services in Fayette County; (3) quarterly lease modification reports from the Finance and Administration Cabinet through the second quarter of this year; (4) quarterly status reports on major capital projects from the Administrative Office of the Courts, Commonwealth Office of Technology, Finance and Administration Cabinet, and the universities that manage their own capital construction programs; and (5) the semi-annual report of the Kentucky Asset/Liability Commission (ALCo).
Project Reports from the Universities
Bryan Russell, Chief Facilities Officer, Western Kentucky University requested interim authorization for the Confucius Institute Facility Design/Build Project, a 7,000 square foot facility involving no university or state funds. Senator Carroll made a motion to approve the project. Senator McDaniel asked if it would be used for instructional use at the university. Mr. Russell assured him that it would not be used for collegiate instruction. Senator McDaniel then asked who was financing this project. Mr. Russell explained that the Confucius Institute/HanBan, a public institution affiliated with the Chinese Ministry of Education, had supplied the funding for this project. Senator McDaniel asked who would be staffing and providing general guidance for the programming at the institute. Mr. Russell stated that Western Kentucky University would be staffing the facility and Mr. Terrill Martin had been named the managing director for the facility. Senator McDaniel asked whether there would be oversight of curriculum at the Institute by the Chinese government. Mr. Russell assured him that that would not be the case. Senator McDaniel seconded the motion to approve the project. It was approved by a roll call vote of 5 yeas, 0 nays.
Elizabeth Baker, Planning Director of the University of Kentucky, reported on three items. The first was the purchase of eight pieces of medical and research equipment by the university. All of these purchases were reported as being purchased with university cash funds with the exception of a plot combine being 90 percent funded by the Kentucky Soybean Promotion Board.
Ms. Baker presented a scope modification/consolidation for the Patient Care Facility project. The university board authorized the consolidation of two projects in relation to the health care facilities for ease of accounting. Both were authorized in House Bill 235 of the 2014 Regular Session. The first was the renovate/upgrade healthcare facilities project which was authorized for $150 million in agency bonds and the second was the renovate/upgrade healthcare facilities project authorized for $130 million of restricted funds.
Ms. Baker’s discussed two lease modifications. The first was for the Department of Pediatrics Regional Extension Center in Lexington. As a result of substantial growth by the department, the square footage of the lease will increase by 1,147 square feet. There will be no increase in the per square footage cost resulting in an overall increase to the lease cost of $17,778 annually. The second lease modification is to accommodate ten visiting international professors who will be on campus for two months. The extra cost of ten housing units will be $4,750. No action was required on these items.
Ms. Halloran, on behalf of University of Louisville, reported a lease modification of less than $50,000 for University of Louisville’s Health Sciences Center offices and the purchase of unbudgeted research equipment from designated gift sources for a spinal cord simulator system. No action was required on these items.
Lease Reports from Finance and Administration Cabinet
Scott Aubrey, Director of Real Properties for the Finance and Administration Cabinet presented two lease items. The first was a lease modification for the Transportation Cabinet in Jefferson County. The lease will be modified to increase the area by 45,547 square feet at an added annual cost of $343,999. Representative Rudy made a motion to approve, which was seconded by Senator Carroll. The motion passed by a roll call vote of 5 yeas, 0 nays.
Mr. Aubrey presented a new “build-to-suit” lease award for the Finance and Administration Cabinet in Franklin County. The lease is for 371,160 gross square feet of office space at an annual cost of $4,525,574. Upon issuance of the certificate of occupancy (expected summer of 2016), the lease will be in effect for a period of 35 years, after which the property will revert to the Commonwealth at no cost with a clear title.
Senator McDaniel asked Mr. Aubrey to explain “build-to-suit” for the benefit of the committee and guests. Mr. Aubrey stated that the property was owned by the Commonwealth and was conveyed to a developer, according to statute, following a bidding and proposal period. The facility will be leased from the developing company following construction completion. At the fulfillment of the lease term, the property is returned to the Commonwealth. Senator McDaniel asked if the developer also had a management contract to maintain the building while it was occupied. Mr. Aubrey responded that yes, the development company would be responsible for maintaining and managing the building as a term of the lease agreement.
Representative Wayne asked which employees were going to be relocated to the new building, specifically which employees from the Capital Plaza Tower location. Mr. Aubrey responded that it was unclear at this time exactly which state employees were going to be relocated with the exception of employees in the Fair Oaks properties, as that lease will be expiring requiring the current occupants to vacate. Representative Wayne asked about the costs associated with terminated leases caused by moving employees into the new building from existing leased properties. John Hicks, State Budget office, came forward to address this question. He explained that the net financial effect of leaving Fair Oaks and the Capital Plaza Tower is estimated at $500,000 per year greater than the Commonwealth is currently spending on space in these other locations. Agencies to be relocated are still being determined, this includes agencies moved to the new building as well as those moved into existing leased space.
Representative Wayne also asked about parking spaces, specifically that the plans show approximately 1,200 parking spaces for approximately 1,400 employees. He asked if the local planning and zoning board has approved this to be an adequate amount of parking space. Mr. Aubrey explained the location of the new building and that the city had required a traffic study on the location that established this was an appropriate number of spaces.
Senator Carroll shared with the committee that an earlier meeting had been held with an outline of the project and all the facilities affiliated with it. He asked about provisions in the “build-to-suit” law to allow the Commonwealth to own the property outright. Mr. Aubrey explained that when the lease ends in 35 years, it reverts back to the Commonwealth’s ownership. Staff said the Commonwealth also has the right to purchase it outright at any time as long as the other terms of the lease are met. Senator Carroll commented that he was pleased, after reviewing the plans, that the space is well utilized in this building with little wasted space. Senator Carroll moved to approve the project, which was seconded by Representative Wayne. The motion passed by a roll call vote of 5 yeas, 0 nays.
Office of Financial Management
Ryan Barrow, Executive Director, Office of Financial Management, presented three items. The first was the State Property and Buildings Commission Revenue and Revenue Refunding Bonds. The refunding portion saved the Commonwealth nearly $33 million. The second report was a Kentucky Higher Education Student Loan Corporation (KHESLC) Asset-Backed Notes issue, removing the 1997 indenture and financing other loans. The final item was a university transaction for Morehead State University General Receipts Revenue Bonds to finance the cost of construction of a new student residence hall on the main campus with approximately 550 new beds and a 50 bed residence hall at the Derrickson Agricultural complex. No action was required.
Project Reports from the Finance and Administration Cabinet
John Hicks, Deputy State Budget Director, reported on two information items. The first was a pool project for the Finance and Administration Cabinet to perform electrical distribution repairs at the L&N Building in Louisville totaling $1,439,185. The second was a pool project for the Department of Fish and Wildlife Resources Fee-in-Lieu-Of project on Trammel Creek in Allen County. This is an increase of $150,000 for maintenance and monitoring of the project as required by the U.S. Army Corps of Engineers. No action was required on these items.
Mr. Hicks then presented a new project for the Transportation Cabinet funded with federal funds to replace the rest area pump station, water line and sewer line at the Whitley County Rest Area on I-75. Senator Carroll moved to approve. Representative Wayne seconded. The motion passed by a roll call vote of 5 yeas, 0 nays.
Kentucky Infrastructure Authority (KIA)
Jeff Abshire, Financial Analyst for Kentucky Infrastructure Authority, presented thirteen items. The first item was for a Fund A loan for the City of Barbourville in Knox County. The request was for a $1,856,109 loan for the Barbourville Sewer Rehab project. The loan will have a 20-year term, an interest rate of 0.75 percent, and a debt service payment of $93,443. Senator Carroll made a motion to approve the loan. The motion was seconded by Representative Rudy and approved by a roll call vote of 5 yeas, 0 nays.
The second item was for a Fund A loan for the Lexington-Fayette Urban County Government in Fayette County. The request was for a $36,000,000 loan for the West Hickman Wastewater Treatment Plant Wet Weather Storage project. The loan will have a 20-year term, an interest rate of 1.75 percent, and a debt service payment of $2,213,122.
Senator McDaniel asked about the impact on rate payers of the consent decree in Lexington. Mr. Charles Martin, Director of the Division of Water Quality for Lexington-Fayette Urban County Government, responded that the estimated cost of remedial measure projects will be close to $600 million over twelve years. This will have the immediate impact of raising rates 12 percent in July of this year and another 12 percent increase in July of next year. Senator McDaniel asked for the average cost to a rate payer before and after the increases. Mr. Martin explained that the average rate payer was paying $13 a month for 4,000 gallons of water and the bill will increase to approximately $63. Additionally, there will be an extra fee for storm water management of approximately $4.80 for an average rate payer.
Senator McDaniel clarified that this meant an increase of 5 times the bill as a result of the consent decree. Senator McDaniel stated that he was not trying to attack this project, but in the future, it would be wise to consider the hidden costs that are being passed on to citizens at a statewide level. Chairman Sinnette also stated that he has seen a similar situation in his area. Senator Carroll asked for more clarification on the difference between treatment of wastewater runoff and storm water runoff. Mr. Martin stated that the treatment of storm water and wastewater is different in that typically storm water is not treated. But as a result of overflow during heavy rain storms, there is sometimes co-mixture of water. This project, and others resulting from the consent decree, should help to mitigate situations where that occurs. Senator Carroll made a motion to approve the loan. The motion was seconded by Representative Wayne and approved by a roll call vote of 5 yeas, 0 nays.
The third item was for a Fund A loan for the City of Harrodsburg in Mercer County. The request was for a $10,000,000 loan for the Wastewater Treatment Plant Expansion project. The loan will have a 20-year term, an interest rate of 0.75 percent, and a debt service payment of $559,372. Representative Rudy made a motion to approve the loan. The motion was seconded by Representative Wayne and approved by a roll call vote of 5 yeas, 0 nays.
The fourth item was for a Fund A loan for the City of Harrodsburg in Mercer County. The request was for a $810,000 loan for the Harrodsburg Corning Pump Station and Force Main project. The loan will have a 20-year term, an interest rate of 0.75 percent, and a debt service payment of $45,309. Senator Carroll made a motion to approve the loan. The motion was seconded by Representative Rudy and approved by roll call vote of 5 yeas, 0 nays.
The fifth item was for a Fund A loan for the City of Nicholasville in Jessamine County. The request was for a $340,980 loan for the Orchard Parallel Sanitary Sewer project. The loan will have a 20-year term, an interest rate of 2.75 percent, and a debt service payment of $22,961. Senator Carroll made a motion to approve the loan. The motion was seconded by Representative Rudy and approved by roll a call vote of 5 yeas, 0 nays.
The sixth item was for a Fund A loan for the Sanitation District No. 1 of Northern Kentucky, serving Boone, Campbell, and Kenton Counties. The request was for a $3,000,000 loan for the Highland Pike Sewer Replacement Project. The loan will have a 20-year term, an interest rate of 1.75 percent, and a debt service payment of $184,427. Representative Wayne asked if there was any liability associated with the 2009 landslide that damaged the sewer resulting in a need to replace the lines. Mr. Abshire stated that to his knowledge there was no liability; the landslide had been caused by significant degradation of the area due to rain. Senator Carroll moved to approve the loan, which was seconded by Senator McDaniel and approved by a roll call vote of 5 yeas, 0 nays.
The seventh item was for a Fund A loan for the Sanitation District No. 1 of Northern Kentucky, serving Boone, Campbell, and Kenton Counties. The request was for a $2,750,194 loan for the Patton and 8th Street Wet Well Rehabilitation project. The loan will have a 20-year term, an interest rate of 1.75 percent, and a debt service payment of $169,070. Senator Carroll made a motion to approve the loan. The motion was seconded by Representative Wayne and approved by a roll call vote of 5 yeas, 0 nays.
The eighth item was for a Fund B loan for the City of Hustonville in Lincoln County. The request was for a $476,400 loan for the Water System Improvement project. The loan will have a 20-year term, an interest rate of 1.75 percent, and a debt service payment of $29,287. Senator Carroll made a motion to approve the loan. The motion was seconded by Representative Wayne and approved by a roll call vote of 5 yeas, 0 nays.
The ninth item was for a Fund B loan for the Northern Kentucky Water District in Kenton County. The request was for a $1,500,000 loan for the Latonia Lakes Water Main Replacement project. The loan will have a 20-year term, an interest rate of 0.75 percent, and a debt service payment of $83,906. Senator Carroll made a motion to approve the loan. The motion was seconded by Representative Wayne and approved by roll call vote of 5 yeas, 0 nays.
The tenth item was for a Fund B loan for the City of Barbourville in Knox County. The request was for a $130,000 loan for the Barbourville Levee Certification project. The loan will have a 5-year term, an interest rate of 0.75 percent, and a debt service payment of $26,800. Senator Carroll made a motion to approve the loan. The motion was seconded by Representative Wayne and approved by a roll call vote of 5 yeas, 0 nays.
The eleventh item was for a Fund C loan for the Warren County Water District in Warren County. The request was for a $1,090,000 loan for the Alvaton Area Sewer project. The loan will have a 20-year term, an interest rate of 3.00 percent, and a debt service payment of $75,055. Senator Carroll made a motion to approve the loan. The motion was seconded by Representative Wayne and approved by a roll call vote of 5 yeas, 0 nays.
The twelfth item was for a Fund F loan for the City of Burkesville in Cumberland County. The request was for a $811,600 loan for the Kentucky State Road 61 Water Distribution Extension project. The loan will have a 20-year term, an interest rate of 0.75 percent, and a debt service payment of $45,804. Senator Carroll made a motion to approve the loan. The motion was seconded by Representative Rudy and approved by a roll call vote of 5 yeas, 0 nays.
The thirteenth item was for a Fund F loan for the City of Harrodsburg in Mercer County. The request was for a $326,660 loan for the College and Chestnut Street Water Lines project. The loan will have a 20-year term, an interest rate of 0.75 percent, and a debt service payment of $18,436. Representative Rudy commented that of the thirteen water and sewer projects presented, only two were in the Central Time Zone and none were west of I-65. He hoped that next month the far west would see a share of the water and sewer project loans. Senator Carroll made a motion to approve the loan. The motion was seconded by Representative Wayne and approved by a roll call vote of 5 yeas, 0 nays.
New School Bond Issues with School Facilities Construction Commission (SFCC) Debt Service Participation
Ms. Kristi Culpepper, Executive Director, School Facilities Construction Commission, reported six school bond issues with SFCC debt service participation with a total par amount of $75,025,000. The state portion of the annual debt service payment was $775,010 and the local contribution was $5,196,906. Two bond issues will refund outstanding debt and the other four will finance new construction and improvements at existing school facilities, with the majority going to fund the new Floyd County High School. The bond issues did not involve tax increases.
Senator McDaniel asked about the cost of the Floyd County High School and specifically what the average cost was for a high school. Ms. Culpepper said that in her opinion $50 million did seem high, but they had seen $70 million for a high school. She explained that the SFCC does not handle the costs of construction, which is the purview of the Kentucky Department of Education. Senator McDaniel asked if this large a bond issue would burden the local community in repayment. Ms. Culpepper explained that the repayment schedule would be based on local tax revenues. Senator McDaniel asked if Ms. Culpepper could provide to the committee data concerning number of pupils and cost of schools for new high school construction with SFCC participation over the last five years. Representative Wayne made a motion to approve the school bond issues. The motion was seconded by Senator Carroll. The motion passed by a roll call vote of 5 yeas, 0 nays.
New School Bond Issues with 100 Percent Locally Funded Debt Service Participation
Ms. Halloran said ten local school bond issues were reported to the committee. Each bond issue has 100 percent local debt service support and involves no School Facilities Construction Commission participation. No tax increases were required for these issues. No action was required.
Ms. Halloran also said that included in members’ folders was the updated debt issuance calendar.
Other Business
Members briefly discussed the possibility of changing the meeting date and/or time for May as a concession to the regular date being the date of primary elections. Representative Wayne pointed out that in the past the committee has met regardless of the election. Many members stated they would be willing to keep the same date and time. Representative Rudy said the committee might consider moving the date to accommodate giving staff time for voting. Chairman Sinnette stated that he would further discuss the possibility of moving the meeting with Josh Nacey, Committee Staff Administrator, after the meeting.
With there being no further business, the meeting was adjourned at 2:07 p.m.