Call to Order and Roll Call
The Capital Projects and Bond Oversight Committee meeting was held on Tuesday, December 15, 2015, at 1:00 p.m., in Room 169 of the Capitol Annex. Representative Linda Belcher, 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 Julian M. Carroll and Christian McDaniel; Representatives Will Coursey and Steven Rudy.
Guests: John Hicks, Deputy State Budget Director; Brandi Norton, Financial Analyst, Kentucky Infrastructure Authority, and Adam Scott, Staff Assistant, Kentucky Infrastructure Authority.
LRC Staff: Josh Nacey, Committee Staff Administrator; Katherine Halloran, Committee Analyst; and Maurya Allen, Committee Assistant.
Approval of Minutes
Representative Coursey moved to approve the minutes of the November 17, 2015 meeting. The motion was seconded by Senator McDaniel and approved by voice vote.
Correspondence Items
Mr. Nacey said that following discussion at the previous meeting, letters were sent from the committee to state-supported postsecondary education institutions regarding scope increases. A sample of that letter was in each members’ packet for their information. There was no other correspondence to or from the committee.
Project Reports from Universities
Mr. Nacey said that there was only one university project reported to the committee. The University of Kentucky reported the purchase of an item of unbudgeted medical equipment, a GE Digital Mobile C-Arm for Good Samaritan Hospital. The device will help patients by reducing exposure to and providing better reports on radiation dosage. The system will replace the current equipment which was purchased in 1995 and is supported by older technology. The cost for the purchase was $209,903 and was paid in cash with restricted funds. No action was required on this item.
Project Reports from the Finance and Administration Cabinet
Mr. John Hicks, Deputy State Budget Director, was present to report on five projects for the Finance and Administration Cabinet. The first was an appropriation increase of 15 percent requested by the Kentucky State Fair Board for the Kentucky International Convention Center Renovation and Expansion. The project was authorized in House Bill 235 of the 2014 Regular Session for $180 million in agency bond funds and other funds. After design work had begun, it was discovered that the preliminary cost estimates were too low. The Cabinet, the Fair Board, and the Convention Bureau worked closely with the architect and engineering consultants to change, eliminate, and reduce various elements of the project’s design without impacting the most important of the intended improvements. The requested increase of $27 million will be financed with bond proceeds from the Louisville and Jefferson County Visitors and Convention Bureau. The new total appropriation will be $207 million.
Senator McDaniel commented that he would like a more in-depth look at the interaction between the Kentucky State Fair Board and the Yum! Center, specifically into the impact on revenues and financing. With no further questions, Senator McDaniel moved to approve the project. Senator Carroll seconded and the motion passed by a roll call vote of 6 yeas, 0 nays.
The second item was an appropriation increase for the Transportation Cabinet for the Construct C-1 Garage project. The project was authorized in House Bill 236 of the 2014 Regular Session for $5 million in agency bond funds. The Transportation Cabinet requested a 9 percent appropriation increase ($450,900) from unbudgeted restricted funds for a total appropriation of $5,450,900. The request was being made because the bids for the project were higher than estimated. Senator McDaniel asked what the precise fund source for the project was. Mr. Hicks answered that the equipment replacement fund was being used because the garage was used for the storage of trucks and related equipment.
Senator McDaniel asked if these were the salt trucks and plows, and if so, would using this money impact the ability of the state to upgrade or repair the existing fleet of trucks. Mr. Hicks answered that yes, the trucks in question were salt trucks and plows. He explained that the Transportation Cabinet and the Finance and Administration Cabinet had worked closely to keep the scope as close to bid prices as possible without impacting the functionality of the facility, but whenever funds were used there was an opportunity cost. Senator McDaniel asked what the total funds were in the account. Mr. Hicks said he did not know, but would find out and report back to the committee. Senator Carroll made a motion to approve the project, seconded by Representative Rudy. The motion passed by a roll call vote of 5 yeas, 1 nay.
The third item was a new project for the Tourism, Arts and Heritage Cabinet, Kentucky Center for the Arts. The Center was requesting approval for the Chiller Replacement project, an unbudgeted capital project to replace existing chillers at the facility. The project appropriation was $2,507,500 and would be completely funded by a grant from the Louisville/Jefferson County Metro Government. Senator McDaniel moved to approve the project, seconded by Senator Carroll. The motion passed by a roll call vote of 6 yeas, 0 nays.
The fourth item was an appropriation increase of $900,000 for Kentucky State University’s Enterprise Resource Planning Information Technology System. The increase will be funded with $705,000 in federal funds and $195,000 in restricted funds. The total appropriation will be $3.5 million. The overall project is aimed at organizing and automating Kentucky State University’s business processes to improve planning, financial accountability, and student services. The university plans to begin implementing the project this month and to complete its implementation by November 2016. The increase is necessary to cover the costs associated with system cutover training of Kentucky State University staff, to provide initial post-implementation technical support, to complete data transfer from the old mainframe system, and to add the integration of systems used by Housing and Admissions into the new system. Senator Carroll made a motion to approve the project. Senator McDaniel seconded the motion. The motion passed by a roll call vote of 6 yeas, 0 nays.
The final item was a new project, the Renovation of the Grauman Building, for the Cabinet for Health and Family Services, Department of Income Support. The renovation of this building, which is located on the grounds of the Central State Hospital, will enable staff to be relocated from leased space to state-owned space. The Department’s current location is in the Chestnut Centre in Louisville. The Chestnut Centre building is 100 years old and has experienced numerous safety and health problems such as flooded rooms, falling ceilings, and reports of breathing difficulties. The project appropriation is $2,150,000 and will be funded by $2,068,000 in federal funds from the Social Security Administration and $82,000 from the Cabinet for Health and Family Services 2014-2016 Maintenance Pool. Senator Carroll made a motion to approve the project, seconded by Senator McDaniel. The motion passed by a roll call vote of 6 yeas, 0 nays.
Kentucky Infrastructure Authority
Ms. Brandi Norton, Financial Analyst, Kentucky Infrastructure Authority, and Mr. Adam Scott, Staff Assistant, Kentucky Infrastructure Authority were present to report six items. The first was a Fund A loan for the Southern Water and Sewer District in Floyd County. The request was for $235,000 for the Harold Sewer – Phase III project. The loan will have a 20-year term, an interest rate of 0.75 percent, and a debt service payment of $8,950. Senator Carroll made a motion to approve the loan, seconded by Representative Coursey. The motion passed by a roll call vote of 6 yeas, 0 nays.
The second item was a Fund A loan for the City of Harrodsburg in Mercer County. The request was for $1,566,370 for the Sewer Rehabilitation 2015 project. The loan will have a 20-year term, an interest rate of 0.75 percent, and a debt service payment of $68,440. Senator McDaniel made a motion to approve the loan. Representative Coursey seconded, and the motion passed by a roll call vote of 6 yeas, 0 nays.
The third item was a Fund A loan for the City of Morehead for the benefit of the Morehead Utility Plant Board in Rowan County. The request was for $1,300,000 for the Sunnybrook Sewer Line Extension project. The project entails the installation of about 12,000 linear feet of 8-inch PVC lines, lift station, and 45 manholes to provide sewer service for 100 unserved households. The loan will have a 20-year term, an interest rate of 0.75 percent, and a debt service payment of $72,718. Senator McDaniel stated that the pricing appeared to be low for the risk on the debt repayment. Ms. Norton answered that the conditions were standard assuming the debt coverage ratio declines to 1.0 in 2019 as anticipated. Mr. Scott added that it is not the policy of Kentucky Infrastructure Authority to make risk projections when pricing the loans. Senator McDaniel asked if this was by statute. Mr. Scott answered that it was. Representative Coursey made a motion to approve the loan, seconded by Senator Carroll. The motion passed by a roll call vote of 6 yeas, 0 nays.
The fourth item was a Fund A loan also for the City of Morehead for the benefit of the Morehead Utility Plant Board. The request was for $1,800,000 for the KY-801 and KY-158 project within the City of Sharkey. The loan will have a 20-year term, an interest rate of 0.75 percent, and a debt service payment of $100,687. Senator Carroll made a motion to approve the loan. Representative Coursey seconded the motion. The motion passed by a roll call vote of 6 yeas, 0 nays.
The fifth item was a Fund B loan for the Perry County Fiscal Court in Perry County. The request was for $350,000 for the Vicco Water System Emergency Repair Project. Perry County Fiscal Court recently acquired the Vicco Water & Wastewater System from the City of Vicco. The system is currently being operated by Utility Management Group under an emergency contract. This project aims to eliminate several problems in the water system to include installation of two new pump stations, several water meters, as well as the replacement of the telemetry at the Acup Tank, and the replacement of approximately 3,385 linear feet of exposed service line and a chlorine tester kit.
Chairman Belcher asked what expenses were expected to amount to $158,000 listed as “other” in the project costs. Mr. Scott answered that the City of Vicco had been purchasing approximately 81 million gallons of water annually from Knott County Water and Sewer District. The city was unable to continue to make payments for the amount of water being purchased and when the Perry County Fiscal Court took over the Vicco Water System, they also assumed the debts for that water purchase. A portion of the Fund B loan money will go towards debt owed to Knott County Water and Sewer District in the amount of $158,000. Representative Rudy made a motion to approve the loan, seconded by Senator Carroll. The motion passed by a roll call vote of 6 yeas, 0 nays.
The sixth and final item was a Fund F loan increase for Monroe County Water District in Monroe County. The Monroe County Water District was requesting an additional increase of $3,550,694 to a previously approved $12,013,638 Fund F loan for the Regional Water Treatment Plant and System Improvements project. The project was competitively bid in three contracts. The lowest bid exceeded the engineer’s estimate by $3,865,694. The loan will have a 30-year term, a hardship interest rate of 0.75 percent, and an annual debt service payment of $503,701.
Senator McDaniel asked why the costs for this project had increased by such a large amount over the course of only eleven months. Mr. Scott answered that the project had been underway for eight years and during that time several issues had come to light. The most unexpected was that the proposed location for the project was found to be a Native American burial ground and required a large sum to resolve those issues. Additionally, initial cost estimates were very low and later project scope was expanded to incorporate the future possibility of assuming responsibility for the City of Tompkinsville. Kentucky Infrastructure Authority had negotiated with Monroe County Water District following the most recent increase request and achieved a reduction of $500,000, but some increase was still necessary. Senator Carroll made a motion to approve the project. Representative Rudy seconded, and the motion passed by a roll call vote of 5 yeas, 1 nay.
New School Bond Issues with School Facilities Construction Commission Debt Service Participation
Mr. Nacey reported six school bond issues with School Facilities Construction Commission debt service participation with a total par amount of $69,425,000. The state portion of the annual debt service payment was $427,942 and the local contribution was $1,612,948. One issue will refinance previous school construction and the other five will finance new school improvements, energy conservation measures, or new construction. The issues for Fleming County, Perry County, and Pike County involve an urgent need portion for a total of $2,954,610 and these districts were required to levy a five cent equivalent tax in order to qualify for project funding under House Bill 235 of the 2014 Regular Session. Representative Rudy made a motion to approve the bond issues, seconded by Senator Carroll. The motion passed by a roll call vote of 6 yeas, 0 nays.
Mr. Nacey also said that the updated debt issuance calendar was included in members’ folders.
With there being no further business, the meeting was adjourned at 1:30 p.m. The next meeting of the committee will be January 19, 2016 at 1:00 p.m. in Capitol Annex Room 169.