Call to Order and Roll Call
The Capital Projects and Bond Oversight Committee meeting was held on Tuesday, August 18, 2015, at 1:05 p.m., in Room 129 of the Capitol Annex. Senator Girdler, Chair, called the meeting to order, and the secretary called the roll.
Members: Senator Chris Girdler, Co-Chair; Senators Julian M. Carroll, Stan Humphries, and Christian McDaniel; Representatives Linda Belcher, Will Coursey, and Steven Rudy.
Guests: 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; Mr. Ryan Barrow, Executive Director, Office of Financial Management; Ms. Kristi Culpepper, Executive Director, School Facilities Construction Commission.
LRC Staff: Josh Nacey, Katherine Halloran, and Rhonda Hall.
Election of House Co-Chair
Josh Nacey, Committee Staff Administrator, said that, pursuant to KRS 45.790, a Co-Chair election was needed for the position of House Co-Chair. Representative Coursey nominated Representative Belcher for the position of House Co-Chair. The motion was seconded by Representative Rudy. Representative Rudy moved that nominations cease and that Representative Belcher be elected House Co-Chair by acclamation. The motion was seconded by Representative Coursey and approved by voice vote.
Approval of Minutes
Senator Carroll moved to approve the minutes of the May 19, 2015 meeting. The motion was seconded by Senator McDaniel and approved by voice vote.
Correspondence Items
Mr. Nacey presented a series of letters between the committee and the Finance and Administration Cabinet, the University of Kentucky, and Kentucky Community and Technical College System regarding the lack of quorum at the committee’s June meeting and cancellation of the committee’s July meeting. Mr. Nacey additionally noted that the item from Chris Brumett, Director of Asset Management for Kentucky Community and Technical College System referenced a project that should have been presented to the committee last year. Senator Carroll asked how a project proceeded without approval commenting that he did not think that was legal. Chairman Girdler asked that staff look into that project.
Information Items
Mr. Nacey said there were four information items for the committee members to review. First was an advertisement for lease space for the Cabinet for Health & Family Services in Fayette County. Senator McDaniel expressed concern about the lease advertisement stating that he had been approached by the current landlord to investigate the current leasing rate. It was also his understanding that this was for a consolidation that was unwarranted as the current space used by CHFS in Fayette County is sufficient. Mr. Scott Aubrey, Director of Real Properties, Finance and Administration Cabinet, explained that this was a consolidation resulting from a lack of space. He also stated that after the advertisement period closed, they may find a more cost effective solution than consolidation or relocation. Chairman Girdler said that a concern about the burdensome cost of a consolidation had been brought to him as well. He joined Senator McDaniel in asking the staff to keep the committee abreast of the situation.
The second item was the quarterly status reports on capital projects for the Administrative Office of the Courts; the Commonwealth Office of Technology; the Finance and Administration Cabinet and the universities that manage their own capital construction programs. Senator McDaniel asked if a representative of the Commonwealth Office of Technology was present to address the Business One Stop Portal Phase II project. There being no one, he asked staff to look into that project. He also expressed a concern about the length of time that some projects remained listed on the reports. Mr. John Hicks, Deputy State Budget Director, responded saying that he would look into the reasoning for that and report back to the committee. Mr. Hicks clarified that projects will remain on the status reports as open even after construction if there are still purchases outstanding.
Senator McDaniel inquired into the Equine Isolation Facility at University of Kentucky which was reported as completed in 2008 but its current status is reported as in litigation as of 2009. Mr. Hicks yielded to Elizabeth Baker, Director of Planning at the University of Kentucky, who responded that it was her understanding that the project is still the subject of litigation regarding settlement negotiations. She said she would look into the specific status of the litigation and report back to the committee, but that the project will remain open until the litigation is settled.
The third item was a status report on the Louisville Southern Indiana Ohio River Bridges (LSIORB) Project from Kentucky Public Transportation Infrastructure Authority (KPTIA) and the fourth was Moody’s 2015 State Debt Medians Report. Senator McDaniel ask if there was anyone present representing the LSIORB Project who could report on the toll and fee rates. There being no one present, he asked if committee staff would look into that issue on behalf of the committee. Senator McDaniel then directed members’ attention to the total debt of the Commonwealth going into the next Regular Session of the General Assembly and consideration of the bi-annual budget. Chairman Girdler echoed this sentiment regarding focusing on state debt burden going forward.
Mr. Nacey also presented a follow-up to a question asked previously by the committee as to whether agency representatives should be present even if the items being reported are non-action items. Senator Girdler stated that he felt it was important as sometimes questions arise in meeting that cannot be anticipated in advance, even in regards to non-action items. Senator Carroll added that he agreed, but that the committee should also take into consideration the effect of taking an individual away from normal work duties to attend meetings in which they may not be called on to speak. He suggested that in the future the committee should be more proactive in reviewing material and notifying staff if individuals need to be present to answer questions about non-action reports.
Project Reports from the Universities
Elizabeth Baker, Planning Director of the University of Kentucky, reported on three items. The first was the $323,484 purchase of a Philips Digital X-ray System from restricted funds. The system provides for high quality x-ray images and will be located at the university’s Turfland Clinic. No action was required.
Ms. Baker next reported a funding source change authorization for the construction of Alpha Gamma Rho housing project. The UK chapter of Alpha Gamma Rho will pay $3.06 million from private funds and $2.94 million will be provided as a loan from the university which will be repaid by the fraternity over the course of ten years. Senator Carroll moved to approve the project and Representative Rudy seconded. The motion was passed by a roll call vote of 7 yeas, 0 nays.
The final item presented by Ms. Baker was the intent of the University of Kentucky to use the Construction Manager-at-Risk delivery method to construct Research Building 2, authorized by the General Assembly in House Bill 235 of the 2014 Regular Session. She stated that the project is still in the design phase. No action was required on this issue.
Senator Girdler directed member’s attention to the report from the University of Louisville of the purchase of a liquid chromatography mass spectrometry system. No action was required.
Project Reports from the Finance and Administration Cabinet
Mr. John Hicks, Deputy State Budget Director, reported on three information items. The first was emergency repair to the Kentucky Fair and Exposition Center’s Freedom Hall roof. The roof was damaged by hail on April 28, 2012 and will be repaired using $1,277,600 from the Fire and Tornado Insurance fund. The second report was of an appropriation of $1,830,267 for a floor replacement project at the L&N Building located in downtown Louisville, Kentucky. No action was required on these items.
Mr. Hicks then presented a report of a $5,026,400 appropriation increase for the Eligibility Systems Integration Services project for the Cabinet for Health and Family Services. The increase will be funded with 100 percent federal funds and will bring the total project amount to $85,026,400. Senator McDaniel asked if this project tied into the state’s efforts to track fraud and waste in the Cabinet for Health and Family Services system. Mr. Hicks said that having a more uniform system would help the Cabinet track data and perform better data review and analytics. Ms. Beth Jurek, Executive Director, Office of Policy and Budget for the Cabinet for Health and Family Services, came forward and explained that yes, this system would allow for data integration and easier identification of sources of fraud as well as allowing more efficient assistance of clients. Senator Carroll made a motion to approve the project, seconded by Representative Coursey. The motion passed by a roll call vote of 7 yeas, 0 nays.
Senator Carroll asked about hiring of qualified personnel to manage systems such as this and if the state budget needed to take into consideration providing increased salaries as incentives for better quality applicants. Mr. Hicks explained that the Personnel Cabinet runs metrics on all state agencies to evaluate attrition as well as mean salaries for specific job categories. Senator Carroll commented that with the changes to the retirement system it seems to be more difficult to attract good candidates to replace retirees. Mr. Hicks said that he was not aware of any comprehensive studies that reflected that as a trend in the state. A study of correctional officers is underway to evaluate effects on recruitment caused by changes to hiring packages. Senator Carroll suggested that it might be beneficial to have the Personnel Cabinet report to the committee about current hiring practices to compensate for retirement of employees in state agencies.
Kentucky Infrastructure Authority (KIA)
Before presentation of the projects by Kentucky Infrastructure Authority, Senator Carroll made a motion to consider all the projects in one vote. Senator McDaniel requested to amend the motion to exclude Agenda Items 9.A.3. and 9.A.5. before seconding. The motion was approved by voice vote.
Mr. Adam Scott, Staff Assistant for Kentucky Infrastructure Authority and Ms. Jamie Johnson, Financial Analyst for Kentucky Infrastructure Authority presented twelve items. Agenda Item 9.A.1. was a Fund A loan for the Augusta Regional Sewer Authority in Bracken County. The request was for a $600,000 Fund A1 loan for the Augusta/Brooksville Regional Wastewater Treatment Plant Planning and Design project. The loan will have a 5 year term, an interest rate of 2.75 percent and an annual estimated debt service payment of $130,461.
Agenda Item 9.A.2. was a Fund A loan for the City of Brodhead in Rockcastle County. The request was for a $1,275,000 for the Sewer Rehabilitation project. The loan will have a 30 year term and an interest rate of 0.75 percent based on the District MHI of $19,591. Estimated annual debt service payments will be $25,045.
Agenda Item 9.A.4. was a Fund A loan for the City of Hardinsburg in Breckinridge County. The request was for a $1,279,500 loan for the Hardinsburg Wastewater Treatment Plant Phosphorus Removal and Effluent Monitoring project. The loan will have a 20 year term and an interest rate of 0.75 percent based on the District MHI of $31,465. Estimated annual debt service payments will be $71,572.
Agenda Item 9.A.6. was a Fund A loan for the City of West Point in Hardin County. The request was for $250,000 for the West Point Sewer Rehabilitation Phase III project. The loan will have a 20 year term and an interest rate of 0.75 percent. Estimated annual debt service payments will be $13,984.
Agenda Item 9.A.7. was a Fund B loan for the U.S. 60 Water District in Shelby County. The request was for $2,300,000 for the Transmission Main project. The loan will have a 20 year term and an interest rate of 1.75 percent. Estimated annual debt service payments will be $141,394.
Agenda Item 9.A.8. was a Fund B loan for the City of Jeffersonville in Montgomery County. The request was for $309,000 for the Radio Read Meter Installation project. The loan will have a 20 year term and an interest rate of 0.75 percent. Estimated annual debt service payments will be $17,285.
Agenda Item 9.A.9. was a Fund B loan for the City of Pineville in Bell County. The request was for $323,313 for the Wastewater Treatment Plant Lagoon Failure project. The loan will have a 20 year term and an interest rate of 0.75 percent. Estimated annual debt service payments will be $18,085.
Agenda Item 9.A.10. was a Fund F loan for the Whitley County Water District in Whitley County. The request was for $932,500 for the Water System Improvement project. It will replace 36,400 linear feet of deteriorated water lines across areas of Whitley County. The loan will have a 20 year term and an interest rate of 0.75 percent. Estimated annual debt service payments will be $52,628.
Agenda Item 9.A.11. was a Fund F loan for the City of Crab Orchard in Lincoln County. The request was for $265,000 for the Radio Read Conversion Project. This project involves the installation of 550 new radio read meters with half of the existing meters receiving a new setter and meter box. The loan will have a 20 year term and an interest rate of 0.75 percent. Estimated annual debt service payments will be $14,956.
Agenda Item 9.A.12. was a Fund F loan for the City of Nicholasville in Jessamine County. The request was for $416,120 for the Fund F1 Planning and Design loan for the 24-inch Parallel Transmission Main, Water System Improvements project. The loan will have a 5 year term and an interest rate of 2.75 percent. Estimated annual debt service payments will be $90,687.
Senator Carroll made a motion to approve these ten items. The motion was seconded by Senator McDaniel. There being no questions, the motion was approved by a roll call vote of 7 yeas, 0 nays.
Agenda Item 9.A.3. was a Fund A loan for the City of Liberty in Casey County. The request was for $4,156,000 for the Wastewater Treatment Plant Upgrade and Improvements project. The focus of this project is addressing a wet weather flow equalization basin and a duplex submersible wet weather pump station. The loan will have a 30 year term and an interest rate of 0.75 percent. Estimated annual debt service payments will be $146,945. Senator McDaniel said there were conflicting statements concerning whether or not the rate would increase to cover the increased debt in light of negative cash flow. Ms. Johnson said they are paying off a debt in 2017 and taking on more debt, which is why an ordinance was passed for an increase. Senator Carroll made a motion to approve the loan. The motion was seconded by Representative Coursey and approved by a roll vote of 6 yeas, 1 nay.
Agenda Item 9.A.5. was for a Fund A loan for the City of Owensboro in Daviess County. The request was for a $397,500 increase to an existing $3,975,000 Fund A loan. The increase will allow pavement reconstruction in disturbed areas. The loan will have a 20 year term with an interest rate of 1.75 percent and an annual debt service payment of $268,802. Senator McDaniel expressed concern about the calculation of engineering fees. The original note reported a cost of $360,000 but the current report listed a cost of $144,000. He asked for clarification regarding the discrepancy. Mr. Scott asked if anyone was present from Daviess County who could speak to this issue. There being no one, he said he would have to look into it and report back to the committee on it.
Chairman Girdler thanked Senator McDaniel for bringing up a great point on the engineering fees. Senator Carroll made a motion to approve the loan. The motion was seconded by Senator Humphries and approved by roll vote of 7 yeas, 0 nays.
Office of Financial Management
Ms. Sandy Williams, Deputy Executive Director, Office of Financial Management reported on four items. The first was a new bond issue for the State Property and Buildings Commission (SPBC) Judicial Branch Agency Fund Revenue Bonds, Project No. 109. This bond issue will provide permanent, tax-exempt, Agency Fund for Phase I of the Administrative Office of the Courts’ E-Case and Docket management system. Representative Belcher moved to approve the issue, seconded by Senator Carroll. The motion passed 7 yeas, 0 nays.
The second item was a new bond issue for the Kentucky Economic Development Finance Authority (KEDFA) Hospital Revenue Refunding Bonds, Series 2015A. Proceeds from this bond issue will refund the City of Madisonville’s Variable Rate Demand Hospital Revenue Bonds, Series 2010 (The Trover Clinic Foundation, Inc.), which funded the Baptist Health Madisonville Project. Senator Carroll moved to approve the issue. Senator McDaniel seconded the motion, which passed by a roll call vote of 7 yeas, 0 nays.
The third item was a follow-up report for the Turnpike Authority of Kentucky (TAK) Economic Development Road Revenue 2015 Series A and Revenue Refunding Bonds (Revitalization Projects) 2015 Series B. Proceeds from this bond issue provided permanent, tax-exempt, Road Fund supported financing for approximately $75 million of the projects authorized by the 2010 Extraordinary Session of the General Assembly in House Bill 3; advance refunding of approximately $134.43 million of the TAK’s Economic Development Road Revenue Bonds (Revitalization Projects), 2006 Series A and Series B Bonds for a net present value savings of 9.25percent ($12.4 million); and paid associated costs of issuance. No action was required on this item.
New School Bond Issues with School Facilities Construction Commission (SFCC) Debt Service Participation
Ms. Kristi Culpepper, Executive Director, School Facilities Construction Commission, reported on one school bond issue with SFCC debt service participation with a total par amount of $1,050,000. The state annual debt service participation will be $8,020 and the local contribution will be $65,896. The bond issue will be used to finance improvements at Washington County High School. The bond issue did not involve tax increases. Senator McDaniel made a motion to approve the school bond. The motion was seconded by Senator Carroll and approved by roll call vote of 7 yeas, 0 nays.
Representative Belcher brought the attention of the committee to the earlier discussion of agency attendance at meetings for non-action items and inquired if a resolution had been reached. Chairman Girdler asked to postpone formally voting on the measure until the next meeting to allow members adequate time to consider their decision. Mr. Nacey directed members’ attention to the updated monthly and weekly debt issuance calendar included in their folders.
With there being no further business, the meeting was adjourned.