Call to Order and Roll Call
The Capital Projects and Bond Oversight Committee meeting was held on Tuesday, March 15, 2016, at 1:00 PM, in Room 131 of the Capitol Annex. Representative Chris Harris, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Chris Girdler, Co-Chair; Senator Stan Humphries, and Representatives Will Coursey, Chris Harris, Steven Rudy, and Jim Wayne.
Guests: Mr. Scott Aubrey, Director of Real Properties, Finance and Administration Cabinet; Mr. John Hicks, Deputy State Budget Director; Ms. Brandi Norton, Financial Analyst, Kentucky Infrastructure Authority; Mr. Ryan Barrow, Executive Director, Office of Financial Management; Mr. Jeremy Ratliff, Managing Director of Multifamily Programs, Kentucky Housing Corporation; Ms. Lisa Collins, Acting Director, School Facilities Construction Commission.
LRC Staff: Josh Nacey, Committee Staff Administrator; Jennifer Luttrell, Committee Assistant.
Election of House Co-Chair
Representative Harris, Chair, said that pursuant to KRS 45.790, an election was needed for the position of House Co-Chair, to fill the unexpired term of the previous Co-Chair, Representative Kevin Sinnette. Representative Coursey nominated Representative Harris for the position of House Co-Chair. The motion was seconded by Representative Wayne. Representative Wayne moved that nominations cease and that Representative Harris be elected House Co-Chair by acclamation. The motion was seconded by Representative Coursey and approved by voice vote.
Approval of Minutes
Representative Rudy moved to approve the minutes of the December 15, 2015 meeting. The motion was seconded by Representative Coursey and approved by voice vote.
Correspondence Items
Mr. Nacey, Committee Staff Administrator, reported on a series of letters between the committee and the Finance and Administration Cabinet and the University of Kentucky regarding the cancellation of the January and February committee meetings and the intentions of the agencies to either proceed with the various projects or bond issues, or to delay them so that the committee would have an opportunity to review them. No action was required.
Information Items
Mr. Nacey said there were two informational items for the committee members to review. The first item includes 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.
The second information item is a list of proposed legislation related to the committee’s jurisdiction. The list includes a summary of each bill and its current status. No action was required.
Project Reports from the Universities
Mr. Nacey said there was one project report from the University of Kentucky (UK). UK reported the purchase of the Siemen’s MAGNETOM Aera 1.5T Magnetic Resonance Imaging (MRI) system. This device will be used at the UK A.B. Chandler Hospital. Due to increased need for MRI examinations and the Department of Radiology’s new location on the ground floor of Chandler, an additional MRI is needed. The new MRI will benefit patients due to its ability to shorten exam time, thus reducing patients’ time at the facility. The cost is $1,306,197 and will be paid in cash with UK restricted funds. No action was required.
Lease Reports from Finance and Administration Cabinet
Mr. Scott Aubrey, Director, Division of Real Properties, Finance and Administration Cabinet, presented four items. The first item was for a new lease exceeding $100,000 for the Department of Corrections in Fayette County.
The second item was for a lease renewal exceeding $100,000 for the Council of Postsecondary Education in Franklin County under the same terms and conditions through June 30, 2018.
The third item was for a lease renewal exceeding $100,000 for the Cabinet for Health and Family Services in Clark County under the same terms and conditions through June 30, 2017.
Representative Rudy made a motion to approve all three items, seconded by Representative Wayne. The motion passed by a roll call vote of 5 yeas, 0 nays.
The fourth item was for a lease modification less than $50,000 for improvements to the leased property for the Cabinet for Health and Family Services in Harlan County. The changes involve the installation of one electronic key pad lock, the addition of a steel door, and a hallway wall extension of approximately twelve (12) linear feet. The agency recommended the acceptance of the lowest bid: $43,938 from Interproperty Investments. The annual rent on the property is $176,608. The improvements will be amortized through the lease expiration date of June 30, 2023. No action was required.
Project Reports from the Finance and Administration Cabinet
Mr. John Hicks, Deputy State Budget Director, Finance Administration Cabinet, reported on six land acquisitions projects for the Department for Fish and Wildlife Resources. In all six of these projects, the projects are funded with 75 percent federal funds and 25 percent restricted funds. The restricted funds are from the Department’s program income account and are primarily generated through leasing out the use of wildlife management areas. Those land acquisition projects were:
1. Ikerd Property, Pulaski County
2. Forestland Group Property, Crittenden County
3. Gills’ Branchy Property, Owen County
4. House Property, Owen County
5. Jones Property, Ballard County
6. Reesor Property, Nelson and Larue County
In response to Representative Rudy’s procedural question as to what happens if the motion to approve the projects fails, Mr. Hicks said this is a reporting item and that the Finance Cabinet would move forward. The Finance Cabinet would abide by the statutory requirement if the Committee were to not act or to object. The Secretary of Finance would then take a step to either agree with the Committee or to proceed with the acquisitions. Representative Coursey moved to approve the land acquisitions, seconded by Representative Wayne. The motion failed by a roll call of 4 yeas, 1 nay.
Senator Girdler, who arrived after the vote, said he would like to cast an “aye” vote on the land acquisitions submitted by the Department of Fish and Wildlife Resources. Senator Girdler moved to reconsider the previous vote. The motion to reconsider failed due to a point of order raised by Representative Rudy.
Senator Girdler said he would like the record to reflect that, had he been present for the vote, he would have cast an “aye” vote. Senator Girdler asked that a letter be included to the Secretary of the Finance Administration Cabinet stating that he would have cast an “aye” vote had he been present for the vote on the land acquisitions.
Representative Rudy said he would like to explain his “no” vote to the committee. He has asked the Department of Fish and Wildlife numerous times not to purchase any more property in the First House district without notification or explanation. Once again, the agency proceeded with these land acquisitions without honoring his request as promised. Representative Rudy said this is why he continues to vote “no” on the Fish and Wildlife Department’s property acquisition to take good property off the tax rolls for the citizens of Ballard County.
In response to Senator Girdler’s question of a letter to the Secretary of the Finance Administration Cabinet, Chairman Harris said the committee will include the letter along with the results of the vote by the committee.
Representative Wayne said he thought the committee needed to appreciate Representative Rudy’s point. Representative Wayne suggested a way to resolve this issue might be similar to how the committee addressed the issue of Kentucky Housing Corporation’s low income multiplexes. That agency has guidelines requiring that notification must be given to the legislators regarding the location of a project.
Representative Wayne suggested that a letter could come from the co-chairs of the committee to the Department of Fish and Wildlife stating that the committee requests formalization of a notification policy by the agency in their proceedings when it purchases lands. Representative Wayne moved that the committee co-chairs send this letter to the Department of Fish and Wildlife, seconded by Senator Girdler. The motion passed by a roll call of 6 yeas, 0 nays.
Kentucky Infrastructure Authority (KIA)
Brandi Norton, Financial Analyst, Kentucky Infrastructure Authority, reported on seven items. Representative Coursey made a motion to vote for all projects in one vote, seconded by Senator Humphries. The motion was approved by voice vote.
The first item was a Fund A loan for the Regional Water Resource Agency in Daviess County. The request was for a $7,282,500 Fund A loan for the Southwest Master Pump Station and Airport Bittle Road Project. The loan will have a 20 year term, an interest rate of 1.75 percent and an annual estimated debt service payment of $447,696.
The second item was a Fund A loan for the Regional Water Resource Agency in Daviess County. The request was for a $3,296,951 loan for the Treatment Plant Ultraviolet (UV) Disinfection and Electrical Remediation Project. The loan will have a 20 year term and an interest rate of 1.75 percent and an annual estimated debt service payment of $202,682.
The third item was a Fund A loan for the City of Hopkinsville in Christian County. The request was for a $1,500,000 loan for the Phase VIII-Expand Hammond-Wood, WWTP and Interceptor project. The loan will have a 5 year term and an interest rate of 2.75 percent and an estimated annual debt service payment of $326,152.
The fourth item was a Fund A loan for the City of New Haven in Nelson County. The request was for $251,000 for the City of New Haven I & I Sewer Rehab Phase II. The loan will have a 20 year term and an interest rate of .75 percent and an estimated annual debt service payment of $14,040.
The fifth item was a Fund A loan for the City of Elizabethtown in Hardin County. The request was for $11,005,500 for the Village and Poplar Drive Sewer Improvements Project. The loan will have a 20 year term and an interest rate of 2.75 percent and an estimated annual debt service payment of $741,095.
The sixth item was a Fund F loan for the City of Hopkinsville in Christian County. The request was for $8,000,000 for the US41A Water Main Improvement, 2 MG Southpark Tank, and Tank Rehabilitation Project. The loan will have a 20 year term and an interest rate of 1.75 percent and an estimated annual debt service payment of $495,805.
The seventh item was a Fund F loan for the Southern Water and Sewer District in Floyd County. The request was for $550,000 for the Mink Branch Tank Replacement Project. The loan will have a 20 year term and an interest rate of 0.75 percent and an estimated annual debt service payment of $23,280.
Representative Wayne made a motion to approve these seven items, seconded by Representative Rudy. The motion was approved by a roll call vote of 5 yeas, 0 nays.
Office of Financial Management
Mr. Ryan Barrow, Executive Director, Office of Financial Management (OFM), reported on five items. Chair Harris asked that the first two items be blocked together. The first item was the State Property and Building Commission (SPBC) Agency Fund Revenue Refunding Bonds, Project No. 113, for the Kentucky River Authority. Proceeds from this bond issue will refund SPBC Project No. 91 (Dam 9) for a net present value savings of 15.54 percent ($1.6 million), fund a debt service reserve and rate stabilization fund, and pay associated costs of issuance. Payments will be made, as for SPBC Project No. 91, from Tier II fees, which charges for water withdrawn from the main stem of the Kentucky River for capital construction projects (locks and dams).
The second item was the Kentucky Housing Corporation (KHC) Conduit Multifamily Housing Revenue Bonds, Waterson Lakeview Apartments, Series 2016. Proceeds from this bond issue will finance the acquisition, rehabilitation, and equipping of a multifamily residential rental facility containing 184 units in Louisville, Kentucky, developed by Millennia Housing Development (MHD). As a conduit issuer, the Commonwealth is not responsible for repayment of debt, which will be stated in the SPBC Resolution. The bond proceeds are $10,750,000 with the date of sale on April 20, 2016, for a term of 24 months at 0.95 percent.
In response to Representative Wayne’s questions regarding the exact location in Louisville where the project is located and whether all or a part of the project is Section 8, Mr. Barrow said that the project is residential facilities consisting of 184 units located on 3703 West Wheatmore Drive, Louisville, Kentucky, which would be Louisville Section 8. It would also include those who would not qualify as Section 8, but would qualify based on income level. Representative Wayne asked Mr. Barrow if the state legislators in the district are notified prior to the issue of these bonds in accordance with the agreement and if the Office of Financial Management is required to notify the legislators in writing. Representative Wayne said that, in a recent case, one legislator had not received his certified letter from KHC and there was no follow-up by the agency. Representative Wayne wanted to bring this to the attention of OFM to make sure the legislators are informed. Mr. Jeremy Ratliff, Director of Multifamily Programs, KHC, said that KHC is required to notify the district legislator in writing. Mr. Ratliff said there was a public hearing held by KHC on March 14, 2016, in regards to the bond issue. Representative Wayne expressed his appreciation to the Office of Financial Management for doing the project. Representative Coursey moved to put the two projects together as a block vote, seconded by Representative Wayne. The motion passed by voice vote.
Representative Wayne moved to approve the two items, seconded by Senator Humphries. The motion was approved by roll call vote of 6 yeas, 0 nays.
The third item was a bond issue that provided financing for the “Renovate/Expand University Student Center” project and associated costs of issuance. The tax-exempt (70 percent) versus taxable (30 percent) allocation ($112M/$48M project fund deposits) was based upon anticipated square footage to be utilized for private use space (calculations by UK, with the assistance of Commonwealth Economics and Bond Counsel). These bonds sold at approximately 3.4 percent. No action was required.
The fourth item was a refunding for Murray State University General Receipts Refunding Bonds, 2016 Series A, dated February 11, 2016, for $8,310,000, with a net present savings of approximately $850,000 to the University. Proceeds from this bond issue financed the advance refunding of Murray State University General Receipts Bonds, 2007 Series A and pay associated costs of issuance. No action was required.
The fifth item was for modifications to an Economic Development Bond Grant Modification to the City of Winchester for the benefit of AMZN wacs, Inc. The Kentucky Economic Development Finance Authority (KEDFA) authorized modification of the agreement at its February 2016 meeting to allow for program disbursements based upon compliance ($49,000 for the first year and $67,000 for the next three years), elimination of collateral, and changing the requirements and compliance dates to align with companion Kentucky Business Investment programs targets (400 new full-time jobs by December 31, 2015 and an additional 150 new full-time jobs for a total of 550 full-time jobs for Kentucky residents for the next three years). No action was required.
New School Bond Issues with School Facilities Construction Commission (SFCC) Debt Service Participation
Mr. Ryan Barrow, Executive Director, Office of Financial Management, reported on 28 items evenly split, 14 new money transactions, for an estimated par of 91 million dollars. There was 14 refunding transactions with an estimated par of 6.23 million dollars, with an aggregate net present savings of approximately 2.4 million dollars realized by each school district over the term of the bonds.
Representative Rudy asked if the funds for construction on building a new elementary school for Henderson County were funds from the last budget. Mr. Barrow deferred this question to Ms. Lisa Collins, Acting Director, School Facilities Construction Committee (SFCC). Ms. Collins said that funding for the new construction in Henderson County comes from their regular offers of assistance that the agency receives every biennium. Districts are allowed to escrow their offers with the SFCC for up to eight years. Henderson County has saved several offers and the school will be using debt service that has already been authorized for that issue. Representative Rudy asked whether the construction is one of those ten schools that there are questions about and Ms. Collins said it is not. Representative Rudy said it was his understanding that none of these projects are dealing with the last budget. Representative Rudy asked if this is the only one dealing with new construction with the rest being renovations only. Mr. Barrow said that all of the new money issues are new improvements with the exception of Henderson County. Representative Wayne made a motion to approve the school bonds, seconded by Representative Rudy. The motion was approved by roll call vote of 5 ayes, 0 nays.
New School Bond Issues with 100 Percent Locally Funded Debt Service Participation
Mr. Nacey reported on nine local school bond issues have been reported to the committee. These bond issues are 100 percent locally funded and do not involve tax increases. The purposes for which these bonds will be issued include refunding of previous issues, finance energy conservation measures, and to make various improvements to existing school buildings. No action was required on these items.
Mr. Nacey said that the updated debt issuance calendar was included in the members’ folders.
Lastly, Chairman Harris said the committee had a resolution honoring Mr. John Hicks and his 32 years of service to the Commonwealth and to the committee. Mr. Nacey read the resolution being presented to Mr. Hicks and, on behalf of the committee, extended its best wishes to Mr. Hicks in his new role as executive director of the National Association of State Budget Officers. The resolution also stated that, when the committee adjourns, it shall do so in honor of Mr. Hicks.
Representative Wayne made a motion to adopt the resolution, seconded by Representative Coursey. The motion was approved by voice vote.
With there being no further business, the meeting was adjourned at 1:29 p.m.