Call to Order and Roll Call
The Capital Projects and Bond Oversight Committee meeting was held on Tuesday, November 17, 2015, at 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: Senator Chris Girdler, Co-Chair; Representative Linda Belcher, Co-Chair; Senators Stan Humphries and Christian McDaniel; Representatives Will Coursey and Steven Rudy.
Guests: Mitchell Payne, J.D., Senior Associate Vice President for Business Affairs, University of Louisville; Elizabeth Baker, Planning Director, University of Kentucky; Steve Nienaber, Architect, Northern Kentucky University; Scott Aubrey, Director, Real Properties; John Hicks, Deputy State Budget Director; Jamie Johnson, Financial Analyst, Kentucky Infrastructure Authority; Adam Scott, Staff Assistant, Kentucky Infrastructure Authority; Katie Smith, Executive Director, Office of Financial Services, Cabinet for Economic Development; Sandy Williams, Deputy Executive Director, Office of Financial Management; Kristi Culpepper, Executive Director, School Facilities Construction Commission.
LRC Staff: Josh Nacey, Committee Staff Administrator; Katherine Halloran, Analyst; and Maurya Allen, Committee Assistant.
Approval of Minutes
Representative Rudy moved to approve the minutes of the October 20, 2015 meeting. The motion was seconded by Senator McDaniel and approved by voice vote.
Information Items
Mr. Nacey presented four information items to the committee. The first was the annual report from the Cabinet for Economic Development which details the status of previously approved Economic Development Bond grant projects. The report is an update on the extent to which the grant recipients have complied with the job creation and wage requirements of the grants. Of the 17 grants listed, three projects are still in the process of executing an agreement, two have withdrawn from the program, two have completed the requirements, four have reported employment, and six have not yet reached a reporting date.
The second and third items were advertisements for leased space. One for the Auditor of Public Accounts in Franklin County and one for the Department of Corrections in Fayette County.
The last information item was a follow-up from a question raised at the October meeting. During that meeting, it was asked whether emergency vehicles crossing the new downtown Ohio River bridge would be required to pay a toll. The Transportation Cabinet had informed committee staff that emergency vehicles will be exempted from the tolls.
Project Reports from the Universities
Mr. Mitchell Payne, J.D., Senior Associate Vice President for Business Affairs, University of Louisville presented two items for the University of Louisville. The first was a scope increase for the Expand and Renovate Student Activities Center project. Mr. Payne stated that the initial scope was for $9.6 million and will be increased to $40 million due to the project being reevaluated to renovate all three levels of the building, including infrastructure and an addition to the west wing. The funding source for the scope increase will be private funds.
The second item was a scope increase for the Athletic Academic Support Facility project. The scope will be increasing from $17 million to $19 million due to the building size increasing from 37,000 sq. ft. to 40,000 sq. ft. to accommodate a more open floor plan and larger kitchen.
Senator McDaniel asked for more detail regarding the increase to the Student Activity Center project, specifically why it was increasing so dramatically and from where the funds were originating. Mr. Payne answered that the funds were mostly private and that the initial proposal was for renovation to one wing and to some of the practice courts and offices, however, the decision has been made to expand the renovation to all three floors of the building concentrating on the infrastructure of the building including accessibility, HVAC, and some asbestos abatement. Senator McDaniel asked if any of this had been anticipated when the initial budget request was made. Mr. Payne stated that the change was unanticipated and was partly due to significant changes to the university over time. At this time, 40 percent of students live on campus and use the facilities more. The main sources of funding will be two RFPs that are currently outstanding, one for food services operation and one for the bookstore. Representative Belcher asked if the funds were not in hand and if construction would begin before funds were available. Mr. Payne clarified that capital investment is part of the RFPs coming from vendors to fund the project. He assured the committee there will be no construction until funding is in hand.
Senator Girdler informed the committee that the two scope increases would be voted on separately. Representative Belcher made a motion to approve the Scope Increase for the Expand and Renovate Student Activities Center project. Representative Coursey seconded the motion and the motion passed by a roll call vote of 6 yeas, 0 nays.
Regarding the Scope Increase for the Construct Athletic Academic Support Facility project, Senator McDaniel asked again if this had been anticipated prior to the initial budget request, stating that this was reminiscent of the difficulties caused to the Fair Board by the Yum! Center lease arrangement. Mr. Payne answered that this was a different situation because the academic center was not in an agreement with another agency. He couldn’t comment on the Yum! Center and its relationship with the Fair Board. Senator McDaniel understood but expressed reservations about continuing to approve money for the University of Louisville athletics program when it seemed to be doing very well with the income from the Yum! Center. From his perspective, it presented a very unfavorable public perception situation. With there being no further discussion, Representative Belcher made a motion to approve the scope increase, seconded by Representative Coursey. The motion passed by a roll call vote of 5 yeas, 1 nays.
Ms. Elizabeth Baker, Planning Director, University of Kentucky presented one item, a scope increase for the Renovate/Expand Student Center project. The increase would be $26.25 million of which $6 million would be private funds. The funding increase allows for the incorporation of the alumni gym and the 1936 section of the student center into the design and preservation of the historical integrity of the structures, which was more costly than originally anticipated. Additionally, several other elements are being expanded to better meet student needs, including expanding the visitor center, food retail services, performance center, landscaping, and parking.
Senator McDaniel stated that at a time when budgets are already strained, it seemed odd to him for the universities to be approaching the committee with such large scope increases. For more clarification, he asked the origin of the $20 million in restricted funds. Ms. Baker stated that those were cash funds that the university had been saving for a considerable time to put toward renovation of the student center. Senator McDaniel stated that if there were funds available at the time of the initial budget request, it might have changed the initial allocation from the General Assembly. He added that universities should be more understanding of the overall financial situation of the Commonwealth when they bring projects and that legislators should look more closely at university budget requests going forward. Chairman Girdler echoed many of the sentiments expressed by Senator McDaniel. Representative Belcher asked if it would be desirable for the committee to send a letter to the universities regarding project funding and project scope increases. Chairman Girdler stated that it would be the prerogative of the committee and he would entertain a motion to that effect. Representative Belcher made a motion to send a letter to universities to express their concerns regarding budget requests and scope increases. Senator McDaniel seconded the motion and it passed by voice vote.
Senator McDaniel made a motion to approve the Scope Increase for the Renovate/Expand Student Center project, seconded by Representative Rudy. The motion passed by a roll call vote of 6 yeas, 0 nays.
Mr. Steve Nienaber, Architect, Northern Kentucky University presented two items. The first was a scope increase for the Renovate Old Science/Construct Health Innovation Center. The increase will be funded primarily with private funds, $15 million of the $17 million requested. The rest are university restricted funds. This will bring the scope of the project from $97 million to $114 million. Senator McDaniel asked if this increase was for the building or for equipment costs. Mr. Nienaber answered that it was for equipment and the technology necessary to support the equipment. Senator McDaniel made a motion to approve, seconded by Representative Belcher. The motion passed by a roll call vote of 6 yeas, 0 nays.
Mr. Nienaber then presented an informational item, an emergency maintenance project to repair and replace HVAC in Kentucky and Commonwealth residence halls. It was discovered earlier in the year that there were humidity issues that require the systems to be replaced. The project cost is $1.7 million. Chairman Girdler asked what the age of the current system was. Mr. Nienaber answered that the system is 32 years old. No action was required on this item.
Lease Reports from the Finance and Administration Cabinet
Chairman Girdler stated that the lease reports would be heard and voted upon as a single item unless there were any objections. Hearing none, Mr. Scott Aubrey, Director, Real Properties presented five items.
The first item was a lease renewal exceeding $100,000 for the Cabinet for Health and Family Services in Franklin County under the same terms and conditions through June 30, 2017. The second item was a lease renewal for the Unified Prosecutorial System in Fayette County under the same terms and conditions through June 30, 2020. The third item was a lease renewal for the Cabinet for Health and Family Services in Fayette County under the same terms and conditions through June 30, 2017.
The fourth item was a lease modification exceeding $50,000 for the Department of Workers Claims in Fayette County. The lease is being modified to reduce the amount of square footage under lease by 6,602 sq. ft. resulting in occupation of 4,220 sq. ft. at a total annual rent cost of $55,619 including janitorial services through June 30, 2015. The final item was a lease modification for the Department of Corrections in Fayette County. The lease is being modified to change using agencies to the Cabinet for Health and Family Services and reduce the leased space to 13,979 sq. ft., reduce number of parking spaces to 55, and reduce rental rate by $1.90 per sq. ft. This will result in the lease being reduced from $322,449 to $262,106. Additionally, the rental term will be extended one additional period through June 30, 2023. Senator McDaniel asked why the square footage was being reduced for the Department of Workers Claims rental space. Mr. Aubrey answered that recent renovations divided the office, relocating some staff to Franklin County, so they no longer need the additional space. Representative Rudy moved to approve the lease reports as given. The motion was seconded by Senator Humphries. The motion passed by a roll call vote of 6 yeas, 0 nays.
Project Reports from the Finance and Administration Cabinet
Mr. John Hicks, Deputy State Budget Director presented two items. The first was an emergency repair, maintenance, or replacement project for the Kentucky State Fair Board. The project appropriation is $4,286,800 for the South Wing, A, B, and East Hall Roof repair. The funds will come from insurance proceeds from the Fire and Tornado Fund. The damage was a result of a hail storm in April 2012. No action was required on this item.
The second item was an appropriation increase for the Kentucky Education Television (KET) DTV Antenna Upgrades project. KET received federal funds to upgrade two transmitter site areas in eastern Kentucky. The project requires an additional $73,000 to fund the low bid on the project. The increase will be funded from KET’s 2014-16 Maintenance Pool funds which are used to maintain the transmitter sites. The total appropriation will be $763,200. Senator McDaniel moved to approve the project, seconded by Representative Rudy. The motion passed by a roll call vote of 6 yeas, 0 nays.
Kentucky Infrastructure Authority
Ms. Jamie Johnson, Financial Analyst, Kentucky Infrastructure Authority and Mr. Adam Scott, Staff Assistant, Kentucky Infrastructure Authority presented four items to the committee. The first two items were a Fund A Loan and Fund A Loan increase for Lincoln County Sanitation District in Lincoln County. Mr. Scott stated that this project was unique in that it was seeking retroactive approval for the initial $2,000,000 loan because the wastewater system received piecemeal funding. The project is now ready to proceed and needs approval from the committee. The Lincoln County Sanitation District was therefore requesting a total $4,365,793 Fund A loan to provide wastewater collection and treatment to approximately 593 unserved residential and commercial customers in western Lincoln County and portions of the City of Hustonville, including Hustonville Elementary School. The loan will have a 30-year term, an interest rate of 0.75 percent, and a debt service payment of $116,514. The loan will receive principal forgiveness in the amount of $1,400,000 based on financial statements spanning from 2012 to 2014. Representative Coursey made a motion to approve the initial project, seconded by Senator McDaniel. The motion passed by a roll call vote of 6 yeas, 0 nays. Senator McDaniel made a motion to approve the scope increase of $2,365,793 from the initial $2,000,000 Fund A loan. Senator Humphries seconded the motion and it passed by a roll call vote of 6 yeas, 0 nays.
The third item was a Fund F loan for the Cumberland Falls Highway Water District in Whitley County. The request was for $1,720,500 for the CFHWD-Line Replacement and Reinforcement project. The loan will have a 20-year term, an interest rate of 0.75 percent, and a debt service payment of $72,825. The project qualifies for principal forgiveness in the amount of $430,125 based on financial statements spanning from 2012-2014. Senator McDaniel made a motion to approve the loan, seconded by Representative Belcher. The motion passed by roll call vote of 6 yeas, 0 nays.
The fourth item was a Fund F loan for the Western Pulaski County Water District in Pulaski County. The request was for $3,304,000 for the Water System Improvements and Replacement project. The loan will have a 20-year term, an interest rate of 1.75 percent, and a debt service payment of $204,767. Senator McDaniel made a motion to approve the project, seconded by Senator Humphries. The motion passed by a roll call vote of 6 yeas, 0 nays.
Office of Financial Management
Ms. Katie Smith, Executive Director, Office of Financial Services, Cabinet for Economic Development presented an Economic Development Bond (EDB) fund grant for the City of Morgantown for the benefit of ARC Automotive, Inc. The grant will be for $325,000 to offset expenses of installing new equipment to produce airbag inflators at ARC Automotive, Inc.’s existing space in Butler County. The company agrees to create 129 new permanent full-time Kentucky resident jobs, paying an average hourly wage of $13 including benefits, within three years of Kentucky Economic Development Finance Authority (KEDFA) approval and maintain those jobs for three additional year. Senator McDaniel made a motion to approve the grant. Representative Coursey seconded the motion. The motion passed by a roll call vote of 6 yeas, 0 nays.
Ms. Sandy Williams, Deputy Executive Director, Office of Financial Management presented six items. The first item was a new bond issue for Kentucky Economic Development Finance Authority (KEDFA) Healthcare Facilities Revenue Bonds Series 2015 for the benefit of Christian Care Communities, Inc. Obligated Group. The proceeds from this bond issue will refinance nine transactions to consolidate the Issuer’s, and its affiliates, debt and pay associated costs of issuance. They are expected to be issued in one or two series in an aggregate amount not to exceed $50 million with a tax-exempt component not to exceed $41 million and a taxable component not to exceed $9 million. As a conduit bond issue, the Commonwealth is not responsible for its repayment. Senator McDaniel made a motion to approve, seconded by Representative Rudy. The motion passed by a roll call vote of 6 yeas, 0 nays.
The second item was a new bond issue for the University of Kentucky General Receipts Bonds, 2016 Series A (Tax-Exempt) and Series B (Taxable). The estimated $160 million in bond proceeds will fund the renovation and expansion of the university student center as authorized by House Bill 235 of the 2014 Regular Session and to pay associated costs of issuance. The proposed date of sale will be January 20, 2016 on a competitive basis. Representative Rudy made a motion to approve the bond issue. Senator Humphries seconded the motion and it passed by roll call vote of 6 yeas, 0 nays.
The third item was a follow-up report on the Kentucky Asset/Liability Commission (ALCo) Project Notes, 2015 Federal Highway Trust Fund First Series A bond issue. The $106,850,000 of project notes will provide permanent tax-exempt financing of grant anticipation revenue vehicles (GARVEEs) authorized, but unissued, by House Bill 3 of the 2010 Extraordinary Session. No action was required on this item.
The fourth item was a follow-up report on the State Properties and Buildings Commission (SPBC) Judicial Branch Agency Fund Revenue Bonds, Project No. 109. The $20,075,000 will provide permanent, tax-exempt, Agency Fund financing for Phase I of the Administrative Office of the Courts’ E-Case and Docket Management system. No action was required on this item.
The fifth item was a follow-up report on the Kentucky Economic Development Finance Authority (KEDFA) Healthcare Facilities Revenue and Refunding Revenue Bonds, Series 2015 Kenton Housing for the Rosedale Green Project. The $48,700,000 of bond proceeds will finance and refinance the acquisition and construction of healthcare and health related facilities consisting of long-term care beds, skilled-care nursing beds, short-term inpatient rehabilitation, outpatient rehabilitation, and dementia care facilities. As a conduit bond issue, the Commonwealth is not responsible for its repayment. No action was required on this item.
The final item was a follow-up report on Western Kentucky University General Receipts Refunding Bonds, 2015 Series A sold on September 22, 2015. The $5,960,000 of bond proceeds will advance refund outstanding General Receipts Bonds, 2006 Series A maturing on and after September 1, 2017 and pay associated costs of issuance for a net present value savings of 5.56 percent ($328,484). No action was required on this item.
Representative Belcher asked if states had to have permission from the federal government to use GARVEE funds. Ms. Williams answered that the Transportation Cabinet has an agreement with the federal government outlining the project for which the GARVEE funds are used.
New School Bond Issues with School Facilities Construction Commission Debt Service Participation
Ms. Kristi Culpepper, Executive Director, School Facilities Construction Commission (SFCC), reported seven school bond issues with SFCC debt service participation with a total par amount of $51,809,000. The state portion of the annual debt service payment was $699,669 and the local contribution was $3,775,233. Four of these issues will refund outstanding debt to achieve a net present value savings and three will finance the construction and improvement of school facilities. There were no local tax increases associated with these projects. Senator McDaniel made a motion to approve the school bond issues. The motion was seconded by Representative Belcher. The motion passed by a roll call vote of 6 yeas, 0 nays.
New School Bond Issues with 100 Percent Locally Funded Debt Service Participation
Mr. Nacey said ten local school bond issues were reported to the committee. Each bond issue had 100 percent local debt service support and involved no School Facilities Construction Commission participation. No tax increases were required for these issues. Of these bond issues, six will refund previous issues, one will finance construction of a new school, two will finance improvements to existing school buildings, and one will fund the purchase of a building and property for a bus garage. No action was required on this item.
Mr. Nacey also said that included in members’ folders was the updated debt issuance calendar.
With there being no further business, the meeting was adjourned at 1:50 p.m. The next meeting of the committee will be December 15, 2015 at 1:00 p.m. in Capitol Annex Room 169.