Call to Order and Roll Call
The Capital Projects and Bond Oversight Committee met on Tuesday, June 21, 2016, at 1:00 PM, in Room 169 of the Capitol Annex. Representative Chris Harris, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Representative Chris Harris, Co-Chair; Senators Julian M. Carroll, Chris Girdler, Stan Humphries, and Christian McDaniel; and Representative Steven Rudy.
Guests: Mr. Scott Aubrey, Director of Real Properties, Finance and Administration Cabinet; Ms. Janice Tomes, Deputy State Budget Director; Ms. Elizabeth Baker, Planning Director, University of Kentucky; Ms. Brandi Norton, Financial Analyst, Kentucky Infrastructure Authority; Mr. Ryan Barrow, Executive Director, Office of Financial Management; and Mr. Steve Collins, Bluegrass Station Division Director, Department of Military Affairs.
LRC Staff: Josh Nacey, Committee Staff Administrator; Julia Wang, Analyst; and Jenny Wells, Committee Assistant.
Election of Senate Co-Chair
Representative Harris, Chair, said that Senator Girdler recently stepped down as committee co-chair. Pursuant to KRS 45.790, a Co-Chair position is to be addressed by election. Senator McDaniel nominated Senator Humphries for the position of Senate Co-Chair. The motion was seconded by Senator Girdler. Senator Carroll moved that nominations cease and that Senator Humphries be elected by acclamation. The motion was seconded by Senator Girdler and approved by voice vote.
Approval of Minutes
Senator Carroll moved to approve the minutes of the May 24, 2016 meeting. The motion was seconded by Representative Rudy and approved by voice vote.
Correspondence Items
Mr. Nacey, Committee Staff Administrator, reported on a letter between the committee and Mary Vosevich, Vice President for Facilities Management, University of Kentucky, regarding the committee’s disapproval of the funding revision proposal for the Construct Housing 1-Alpha Gamma Rho Fraternity project at its May 24, 2016 meeting.
Information Items
Mr. Nacey said there was one information item for the committee members’ review. This item is a lease advertisement for the Department of Parks in Franklin County, exceeding $200,000. This lease advertisement is due to the need to relocate current tenants of the Capital Plaza Tower.
Project Reports from the Universities
Ms. Elizabeth Baker, Planning Director, University of Kentucky (UK), reported on a lease renewal for UK, College of Social Work, Small Business Administration, College of Agriculture, located in the Kentucky Utility Building. The lease renewal will reduce the square footage from 32,684 square feet to 16,342 square feet. The cost per square foot is $7.48 and the annual cost is $122,238. Representative Rudy made a motion to approve the lease renewal, seconded by Senator McDaniel. The motion passed by roll call vote of 6 yeas, 0 nays.
Lease Reports from Finance and Administration Cabinet
Mr. Scott Aubrey, Director, Division of Real Properties, Finance and Administration Cabinet, presented one item which was for a lease modification for the Cabinet for Health and Family Services, Department for Community Based Services in Boone County. The lease modification will relieve over-crowding, provide offices for new employees, and accommodate the realignment for regional staff members. All the original terms of the lease will remain in place and an additional four automatic renewals have been added to the lease modification. This lease modification will increase the square footage from 21,454 square feet to 27,236 square feet. The costs per square foot is $13.45 and the annual cost is $366,342. Representative Rudy made a motion to approve the lease modification, seconded by Senator Carroll. The motion passed by a roll call vote of 6 yeas, 0 nays.
Project Reports from the Finance and Administration Cabinet
Ms. Janice Tomes, Deputy State Budget Director, reported on two pool projects from the Finance and Administration Cabinet. The first project was for the Department of Parks in Henderson County in the amount of $1,317,236. The land acquisition is funded from the Kentucky Heritage Land Conservation Pool, and involves the purchase of 649 acres adjacent to John James Audubon State Park. No action was required.
The second project was for an appropriation increase for Military Affairs for the renovation of Bay A at Bluegrass Station in Fayette County. The requested appropriation of $2,300,000 is funded from Bluegrass Station Agency Restricted Funds. The project was authorized with a budget of $2 million dollars from Agency Restricted Funds by the 2016 General Assembly in HB 303. This request is for an increase of $300,000 in restricted funds for the project which involves renovation of 18,000 square feet at Bluegrass Station.
In response to a question from Senator McDaniel, Steve Collins, Bluegrass Station Division Director, Department of Military Affairs (DMA), said that the bid for the project was for $1.9 million dollars. A contingency and architectural work pushed it over $2 million. Senator McDaniel stated that his recollection was that the project was initially authorized for the use of restricted funds. Ms. Tomes and Mr. Collins said this is correct. Mr. Collins also said these funds are provided to the Commonwealth through a lease with the federal government. In response to a question from Senator McDaniel, Mr. Collins confirmed that the distribution of these funds is controlled by DOD. Mr. Collins further said that DMA is allowed to retain an overage that it costs to run the facility, so it is using those retained funds for this project. This is a headquarters for Special Operations Forces Support Activity (SOFSA) which has occupied the building for 18 years and has done most of the renovations to it. SOFSA has asked DMA to do the renovations which justifies the lease increase for this project. Senator McDaniel made a motion to approve the appropriation increase, seconded by Representative Rudy. The motion passed by roll call vote of 6 yeas, 0 nays.
Report from the Office of Financial Management
Ms. Brandi Norton, Financial Analyst, Kentucky Infrastructure Authority (KIA), reported on six items. Senator Carroll made a motion to consolidate all the projects in one vote, seconded by Senator Humphries. The motion was approved by voice vote.
The first items was for a Fund A loan for the City of Elkhorn City in Pike County. The request was for $560,000 for the Wastewater Treatment Plant project. The loan will have a 30 year term, an interest rate of .75 percent and an annual estimated debt service payment of $12,179.
In response to a question from Senator McDaniel, Ms. Norton said she did not know specifically the extent to which the consent decrees, as compared to the plant’s failure, contributed to the rate increases. She stated that the city is facing a lot of challenges right now including a dwindling population and existing debt which will be addressed later in this meeting.
The second item was for a Fund A loan for the City of Hawesville in Hancock County. The request was for $3,000,000 for the Hawesville Sewer Plant Rebuild project. The loan will have a 20 year term, an interest rate of 1.75 percent and an annual estimated debt service payment of $184,427.
The third item was for a Fund A loan for the Farmdale Sanitation District in Franklin County. The request was for $300,000 for the Ridgelea Investments, Inc., Package Treatment Plant Abandonment project. The loan will have a 1 year term, an interest rate of 1.75 percent and an annual estimated debt service payment of $15,227.
The fourth item was for a Fund B loan for the City of Lewisport in Hancock County. The request was for $115,000 for the Lewisport Water Tank Rehab project. The loan will have a 20 year term, an interest rate of 2.75 percent and an annual estimated debt service payment of $7,744.
The fifth item was for a Fund B loan for the City of Elkhorn City in Pike County. The request was for $402,061 for the Wastewater Treatment Plant project. The loan will have a 15 year term, an interest rate of .75 percent and an annual estimated debt service payment of $29,194.
Senator McDaniel noted the importance of distinguishing between the two factors mentioned during the discussion of the first loan for Elkhorn City: the consent decree versus the overall status of the plant. He also mentioned that, in addition to borrowing just to maintain the facilities, they are now borrowing to upgrade those facilities to comply with the consent decree. Senator McDaniel stated that he would like for KIA to be more proactive in terms of identifying cash flow problems facing local governments. Representative Harris said that Senator McDaniel’s point is well taken. He said that Elkhorn City is in his district and it is a very poor town with little economic activity and a wastewater treatment plant that is in terrible shape. It has been under a consent decree for some time and the city has been able to get some federal funding to pay the lion’s share of the new sewage treatment plant. Representative Harris also noted that the city has annexed some additional areas that will help them gain additional tax revenue.
The final item was for a Fund B loan for the City of Lancaster in Garrard County. The request was for $406,868 for the Wastewater Treatment Plant Sand Filter Replacement project. The loan will have a 20 year term, an interest rate of .75 percent and an annual estimated debt service payment of $22,759.
Representative Rudy made a motion to approve these six items, seconded by Senator Carroll. The motion was approved by roll call vote of 6 yeas and 0 nays.
Office of Financial Management
Mr. Ryan Barrow, Executive Director, Office of Financial Management (OFM), reported on two items. The first item was the Kentucky Infrastructure Authority (KIA) Wastewater and Drinking Water Revolving Fund Revenue Bonds, Funds A and F with a par amount of $49,070,000, a net present value savings of $3.6 million over the life of the bonds, which represents 7.1 percent. Proceeds from this bond issue will partially advance refunded KIA’s 2010A bonds and 2012A bonds. No action was required.
The second item was the Northern Kentucky University General Receipts Refunding Bonds, Series 2016 A. This bond issue refunded outstanding General Receipts 2007 Series A bonds with a par amount of $25,765,000, true interest cost of 2.20 percent, and a net present value savings of $2.5 million dollars which represents about 9.4 percent in savings. No action was required.
New School Bond Issues with School Facilities Construction Commission (SFCC) Debt Service Participation
Mr. Barrow, reported on 14 items, 3 will finance school renovations and the remaining 11 will refinance previous bond issues. These bond issues do not involve tax increases. Representative Rudy made a motion to approve the school bonds, seconded by Senator Humphries. The motion was approved by roll call vote of 6 yeas and 0 nays.
Local School Bonds – New School Bonds Issues with 100 Percent Locally-Funded Debt Service Participation
Mr. Nacey reported that three 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 these bonds include refunding of previous issues, the financing of energy conservation measures, the financing of improvements to an existing school building, as well as the construction of a new school building. No action was required.
Mr. Nacey said that the updated debt issuance calendar was included in the members’ folders.
With there being no further business, the meeting was adjourned at 1:27 p.m.