Call to Order and Roll Call
The Capital Projects and Bond Oversight Committee met on Tuesday, July 19, 2016, at<MeetTime> 1:00 PM, in Room 169 of the Capitol Annex. Senator Stan Humphries, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Stan Humphries, Co-Chair; Representative Chris Harris, Co-Chair; Senators Julian M. Carroll, Chris Girdler, and Christian McDaniel; and Representative Jim Wayne.
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, Mr. Ryan Barrow, Executive Director, Office of Financial Management; Ms. Katie Smith, Executive Director, Office of Financial Services; Ms. Amber Halloran, Chief Financial Officer, Kentucky Center for the Arts; Mr. Chuck Schmidt, Vice President of Facilities, Kentucky Center for the Arts; and Mr. Jeremy Ratliff, Managing Director of Multifamily Housing, Kentucky Housing Corporation.
LRC Staff: Josh Nacey, Committee Staff Administrator; Julia Wang, Analyst; and Jenny Wells, Committee Assistant.
Approval of Minutes
Representative Harris moved to approve the minutes of the June, 21, 2016 meeting. The motion was seconded by Representative Wayne and approved by voice vote.
Informational Items
Mr. Nacey reported on two information items. The first item is a status report from the Kentucky Transportation Infrastructure Authority (KPTIA) for the Louisville-Southern Indiana Ohio River Bridges project. The new Abraham Lincoln Bridge is complete and open to traffic in both directions. The rehabilitation of the Kennedy Bridge is underway and should be completed later this year. Overall, the project is 85 percent complete. The project has an estimated substantial completion date of December 9, 2016, and a final completion date of April 15, 2017.
The second 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.
Project Reports from the Universities
Ms. Elizabeth Baker, Planning Director, University of Kentucky (UK), reported on two new leases for UK. The first lease is for UK, College of Agriculture, Food, and the Environmental (CAFE) and the Kentucky Corn Growers Association, in excess of $100,000, located in Caldwell County. UK seeks to acquire 292.33 acres in Princeton, KY, adjacent to a research farm which the college has operated for many years. The annual cost is $199,000. Representative Wayne moved to approve the new lease, seconded by Senator McDaniel. The motion passed by a roll call vote of 5 yeas, 0 nays.
The second lease is for the University of Kentucky Health Care (UKHC) and Kentucky Medical Services Foundation, in excess of $100,000, located in Fayette County. The university currently has several clinics and other ancillary services at this location. UKHC’s expansion of its clinical services is fueling the need to expand administrative and clinical space at its Turfland location in Fayette County. UK is seeking to expand the lease by 45,000 sq. ft. The annual cost is $1,181,250. In response to a question from Representative Wayne, Ms. Baker said the term of the new lease is set for two years with three renewals after the initial two year period. Ms. Baker further said that there is a 30 day termination in the lease agreement if UK needed to replace space or terminate the lease. Representative Wayne moved to approve the new lease, seconded by Representative Harris. The motion passed by a roll call vote of 5 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 a new lease for the Cabinet for Health and Family Services, Department for Community Based Services, in excess of $100,000, located in Fayette County. The new lease will consolidate two offices and is for 87,846 sq., with an annual cost of $777,437, and an annual savings of $106,051. This lease will expire June 30, 2024. In response to three questions from Senator McDaniel, Mr. Aubrey said that the lower county percentage rate of $8.85 cost per sq. ft., with a county average of $13.86 cost per sq. ft., appears to be based on market conditions at the time of the new bids for additional space. All lease-based inventory in any particular county is maintained at the Cabinet through an in-house database which monitors the averages for the county included in any new bid process. When looking at some of the older leases for possible renegotiation, most of them already have an old rate and would normally generate higher rates when put out to bid. Senator McDaniel made a motion to approve the new lease, seconded by Representative Wayne. The motion passed by a roll call vote of 5 yeas, 0 nays.
Project Reports from the Finance and Administration Cabinet
Ms. Janice Tomes, Deputy State Budget Director, reported on two projects from the Finance and Administration Cabinet. The first project is a new project for the Kentucky Transportation Cabinet (KTC), Department of Aviation, Capital Airport Lighting System Replacement, in Franklin County. The project appropriation is $1,925,000, and will be funded with 90 percent federal funds and 10 percent restricted funds. That equates to $1,732,500 federal funds from the Federal Aviation Administration and $192,500 restricted funds from the Aviation Economic Development Fund. This project will fully replace the existing 20 year old, outdated system with an LED lighting system and meets all current FAA standards for operations safety and provides energy efficiency. This project was not requested in the 2016-2018 budget due to it being a new federal grant. In response to two questions from Senator Humphries, Mr. Craig Farmer, Engineering Branch Manager, Department of Aviation, KTC, said that the monies being used for this project comes from a combination of the money that typically comes to Capital City Airport annually in addition to state appropriation monies for the entire state. Mr. Famer said that the Federal Aviation Administration (FAA) gives each airport in the state their annual entitlements which amounts to 90 percent in federal grant money. Mr. Farmer further said that there are approximately fifty new general aviation projects that will be receiving FAA grants within the next few months. Senator McDaniel made a motion to approve the project, seconded by Representative Harris. The motion passed by a roll call vote of 5 yeas, 0 nays.
The second project is for an appropriation increase for the Kentucky Center for the Arts (KCA), Chiller Replacement, in Franklin County. The new total is $2,578,900 and will replace the existing chiller for KCA. It is being funded with a grant award from the Louisville/Jefferson County Metro Government in the amount of $2,507,500. This project was previously reported to the committee in December, 2015, with 100 percent private funds coming from the Louisville/Jefferson County Metro Government. Currently, KCA is asking for an additional $71,400 of restricted funds from the 2014-2016 Maintenance Pool Funds. Ms. Tomes said that after receiving the bids for the project, the appropriation amount must be amended in order to award the contract. In response to two questions from Representative Wayne, Ms. Tomes said that the Maintenance Pool, which was authorized in the 2014-2016 budget, was specifically for KCA and the Center is using the remaining FY 2016 balance of $71,400. In response to another question from Representative Wayne, Mr. Chuck Smith, Vice President of Facilities, Kentucky Center for the Arts, said that the remaining $71,400 would not be sufficient to meet the needs for the project; however, the pool funds will help reduce the impact of the out-of-pocket expenses.
In response from another question from Representative Wayne, Ms. Amber Halloran, Chief Financial Officer, Kentucky Center for the Arts, said that, as for the remaining balance needed for the project, the bid was completed in three alternates and the Center is currently assessing how to accept those alternates. In response to a question from Senator McDaniel, Mr. Schmidt said that this project originally had three phases; the first phase was the cooling tower, the second phase was the chillers, and the third phase was for the air handling units. Mr. Schmidt said that KCA had estimated the cost on rebuilding the cooling towers and, before the bid went out, the cooling towers failed and had to be completely replaced. During this same phase, the chiller that was to be rebuilt broke down and had to be replaced. Mr. Schmidt further stated that in phase three of the air handler unit bid, those bids came in over budget.
In response to questions from Senator McDaniel, Mr. Schmidt and Ms. Halloran said that initially the committee had approved the funding amount in one lump sum for the cooling tower, the chillers, and the air handlers. Mr. Schmidt said that the original bid for the project covered the repair work to the cooling tower, the chillers, and purchase of the new air handlers. After replacing the cooling towers and chillers, the air handler scope stayed the same. In response to questions from Senator McDaniel, Ms. Halloran said that KCA is still paying the bills associated with the replacement costs of all three phases; the total cost of replacing the cooling towers was $375,000 which was the budgeted price. Ms. Halloran said that the budgeted price for the chillers was $450,000 but did not have the contractor’s price to report at this time. The budgeted price for the air handlers was for $1,225,000. Senator McDaniel said that by his calculations he came up with approximately $2.045 million dollars, of which $2.5 million dollars of this amount was the original appropriations. Senator McDaniel said he could not determine the deficit and his concern was that there was a half million dollars’ worth of engineering fees relating to a $2 million dollar job and he could not determine the shortfall without all the figures. Ms. Halloran said that the engineering cost is separate from that amount and could provide those figures as a follow-up.
Representative Wayne said that he believes since the committee is an oversight committee, it would be best to pass over this project and vote on the project once all the figures have been presented to the committee. In response to questions from Senator McDaniel, Mr. Schmidt said that the air conditioning, the coolers, the chillers are working, and the air handlers are currently working at 25 percent. Mr. Schmidt said that, specifically, KCA is looking at issues with some of the resident groups using the balcony area because the air handlers are not sufficient to keep the balcony cool. Mr. Schmidt said that KCA has just accepted a bid on the air handlers and Ms. Halloran said that the contractors could not sign a contract until KCA has all the appropriations. In response to a question from Representative Harris, Mr. Schmidt said that there is a six week lag time while the contractors gets some of their materials and the project is estimated to last until March, 2017. Mr. Schmidt said that each air handler at the KCA will be replaced. Representative Wayne made a motion to table the project until next month’s meeting, pending any additional information that clarifies where the committee is regarding the process on the project, seconded by Senator McDaniel. The motion to table the project passed by a roll call vote of 5 yeas, 1 pass, 0 nays.
Report from the Office of Financial Management
Ms. Katie Smith, Executive Director, Office of Financial Services, Cabinet for Economic Development, reported on one item which is for a $450,000 Economic Development Bond (EDB) grant to the Lexington-Fayette Urban County Government f/b/o Ashland, Inc. Ashland is the leading global specialty chemical company with customers in over 100 countries. The company plans to lease a facility in Lexington and the facility will serve as a new headquarters for Ashland’s Valvoline unit. The total investment is approximately $7 million dollars which excludes the lease cost for the facility. The company will be required to retain 616 existing, permanent, full-time Kentucky resident jobs in Fayette County with an average hourly wage of $42, excluding benefits, within one year of the date of Kentucky Economic Development Finance Authority (KEDFA) approval and maintain those jobs and wages for an additional three years. This is a performance based grant and disbursements will occur after each of the annual compliance dates. The agreement will include reduction provisions should the company fail to meet the job and wage requirements. KEDFA approved the project at its meeting on June 30, 2016, and the State Property and Buildings Commission approved the project on July 18, 2016.
In response to several questions from Senator McDaniel, Ms. Smith said that the monies for this grant comes from a bond pool that is used to attract new investment into the state and to retain operations and investment in the state in order to grow jobs, to retain jobs, and increase wages. Ms. Smith said that the amount in the bond pool in the recent budget was $7 million dollars in reserve monies. Ms. Smith said that the available current balance of $60 million dollars is shared across three different programs and the balance rolls forward each year. Ms. Smith said that the legislature had approved the same amount as in previous years which was $7 million dollars for economic development, $7 million dollars for the high tech pool, and $7 million dollars for KEDFA loans for a total of $21 million dollars. Ms. Smith further said that the proceeds are carried forward each year; the EDC prefers to use these funds to attract companies to the area instead of using cash funds. Ms. Smith said that the Division of State Properties is the issuance authority and provides the funding on this bond issue. In response to a question from Senator Humphries, Ms. Smith said that the company is required to retain all 616 existing, permanent, full-time Kentucky resident jobs which is 100 percent of the job retention requirements for this project. Senator McDaniel made a motion to approve the grant, seconded by Representative Wayne. The motion passed by a roll call vote of 6 yeas, 0 nays.
Mr. Ryan Barrow, Executive Director, Office of Financial Management (OFM), reported on eight items. The first item was the Kentucky Housing Corporation (KHC) Tax-Exempt Conduit Multifamily Housing Revenue Bonds, Series 2016, for Parkway Plaza Apartments, located in Lexington, KY. Proceeds from this bond will finance the acquisition, rehabilitation, and equipping the units. The anticipated net proceeds of the bonds is $10,000,000; the project is estimated above $21,000,000. In response to a question from Representative Wayne, Mr. Jeremy Ratliff, Managing Director of Multifamily Housing, KHC, said that KHC had notified local legislators, and had received confirmed return receipts from the legislators regarding the two projects being presented to the committee. In response to a question from Senator McDaniel, Mr. Barrow said that the interest rate of 5 percent is the developer’s credit and is viewed as a private entity transaction and seems reasonable given the credit package backing it. Mr. Barrow said that the developer does put in a portion of cash but there is always risk involved in these private transactions. Senator McDaniel made a motion to approve the bonds, seconded by Representative Wayne. The motion passed by a roll call vote of 6 yeas, 0 nays.
The second item was the Kentucky Housing Corporation Tax-Exempt Conduit Multifamily Housing Revenue Bonds, Series 2016, Arlington Lofts Apartments, located in Lexington, KY. Proceeds from this bond issue will finance the acquisition, construction, and equipping of the 81 unit property. The anticipated bond proceeds is $6,000,000 with the total project cost being $8.7 million dollars. Senator Carroll made a motion to approve the bonds, seconded by Representative Wayne. The motion passed by a roll call vote of 6 yeas, 0 nays.
The third item was the State Property and Building Commission (SPBC) Agency Fund Revenue Bonds, Project No. 113, with a par amount of $10,850,000, true interest cost of 2.29 percent, and a net present savings of $1.77 million dollars. This bond issue provided funds to refund SPBC’s outstanding Agency Fund Revenue Bonds (Project No. 91) and pay associated cost of issuance. No action was required.
The fourth item was the State Property and Building Commission Agency Fund Revenue Bonds, Project 114, with a par amount of $44,555,000, and a true interest cost of 3.023 percent. This bond issue provided funds to permanently finance approximately $52,250,000 of Agency Fund supported capital projects (BuildSmart) and pay associated cost of issuance. No action was required.
The fifth item was the Kentucky Economic Development Finance Authority (KEDFA) Healthcare Facilities Revenue and Revenue Refunding Bonds, Series 2016, Baptist Life Communities project, with a par amount of $64,420,000, a true interest rate of 6.48 percent, and paid associated cost of issuance. This bond issue financed and refinanced the acquisition and construction of healthcare and health related facilities located in three locations in Northern Kentucky. No action was required.
The sixth item was the Kentucky Higher Education Student Loan Corporation (KHESLC) Student Loan Backed Notes, Series 2016-1, priced May 4, 2016 with a par amount of $89,500,000. This bond issue is a variable rate transaction based on a LIBOR rate; Tax-Exempt, One Month LIBOR plus .09 percent, and Taxable, One Month LIBOR plus 1.25 percent, as a direct purchase with Bank of America. The Tax-Exempt and Taxable Direct Purchase Student Loan Backed Notes will be issued for the purpose of financing Federal Family Education Loan Program (FFELP) Student loans and rehabilitated FFELP loans recently originated by KHESLC and currently held on KHESLC’s balance sheet and its warehouse lines. No action was required.
The last item was the Kentucky Housing Corporation Housing Revenue Bonds, 2016 Series A. This bond issue refunded certain Series 2006 and 2007 bond issues with a par amount of $72,465,000, true interest cost of 3.37 percent, a net present value savings of approximately $4.8 million dollars, and the present value savings was 6.6 percent. No action was required.
New School Bond Issues with School Facilities Construction Commission (SFCC) Debt Service Participation
Mr. Ryan Barrow reported on two school bond issues. The first school bond issue will finance construction of the new area Technology Center located in Logan County. This is new money with approximately 95 percent local money and is for $18 million dollars. Logan County enacted a recallable nickel tax increase which was passed by the Logan County Board of Education in 2014 to finance the proposed bond and other projects. The new tax rate will increase real estate tax from 40.1 to 45.1 cents per $100 valuation for county residents.
The second school bond issue will refinance a previous bond issue, Series 2008, for Jefferson County and will involve no tax increase. Senator Carroll made a motion to approve the two bonds, seconded by Senator McDaniel. The motion passed by a roll call vote of 6 yeas, 0 nays.
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 1:56 p.m.