Call to Order and Roll Call
The Capital Projects and Bond Oversight Committee meeting was held on Tuesday, November 15, 2016, at 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; Senators Julian Carroll, Chris Girdler, and Christian McDaniel; and Representatives Chris Harris, Steven Rudy, and Jim Wayne.
Guests: Ms. Elizabeth Baker, Planning Director, University of Kentucky; Mr. Scott Aubrey, Director of Real Properties, Finance and Administration Cabinet; Mr. Steve Starkweather, Inventory and Forecasting Program Specialist, Office of Financial Management; Mr. Jeremy Ratliff, Managing Director of Multifamily Housing, Kentucky Housing Corporation; Ms. Katie Smith, Executive Director, Office of Financial Services, Cabinet for Economic Development; Ms. Brandi Norton, Financial Analyst, Kentucky Infrastructure Authority; Mr. Harlan Sands, Senior Vice President for Finance and Administration, University of Louisville; Mr. James Sears, Associate Vice President for Facilities Management, University of Louisville; Mr. Andy Barber, Executive Director, Kentucky Transportation Cabinet; and Ms. Karen Haskell, President, The Healing Place Rehabilitation Center, Louisville.
LRC Staff: Josh Nacey, Committee Staff Administrator; Julia Wang, Analyst; and Jenny Wells, Committee Assistant.
Approval of Minutes
Mr. Josh Nacey said that two errors to the October 18, 2016 meeting minutes had been corrected and outlined those corrections for the benefit of the members and public. Mr. Nacey said that four words were added to the last paragraph of page 7, which now states “and $8.1 million, respectively.” This language was added to show the distinction between two separate sources of funds in regards to the Louisville Arena Authority (LAA). The second corrected error is in the first paragraph of page 8, reflecting a change to $17.2 “million,” which was mistakenly phrased as $17.2 “billion.”
Representative Rudy moved to approve the minutes of the October 18, 2016 meeting. The motion was seconded by Representative Harris and approved by voice vote.
Discussion Item
Senator Humphries said that there is one discussion item on today’s agenda, which is a draft of a letter to be sent to the Auditor of Public Accounts requesting a special examination or audit of the finances of the LAA. Senator Humphries said that at the October meeting, staff was directed to draft a letter which would be presented to the committee this month for discussion and approval.
Representative Wayne commented said that he appreciated how this process had been handled, especially in working together with the auditor’s office to understand the requirements for this issue. Additionally, Representative Wayne said that it is important that the committee recognize the effort on its part to validate all the facts in order to reassure the public and the taxpayers who are subsidizing the arena that the LAA is being run in the best way possible and with full financial disclosure. Further, Representative Wayne said that he is hopeful that the auditor will take this letter seriously and will act on the request of this committee.
Representative Harris moved to approve the letter, seconded by Senator McDaniel. The motion passed by a roll call vote of 7 yeas, 0 nays.
Information Items
Mr. Nacey reported on three informational items which are nonaction items. The first item is an advertisement for leased space for the Department of Corrections in Jefferson County. Pursuant to KRS 48.111(6), such advertisements are required to be reported to the committee.
The second item is an update on the Drumanard property in Jefferson County. At the October meeting, additional questions were raised regarding the purchase price paid by the Kentucky Transportation Cabinet (KYTC) and the timing of its designation as a historic property.
The information provided by KYTC explained: The property was listed on the National Register of Historic Places in 1983 as “Fitzhugh House.” Due to a boundary change, the estate was later renamed to Drumanard. In 1988, the Jefferson County Office of Historic Preservation and Archives submitted an application for the current Drumanard estate to be placed in the registry. However, the preservation easement was not executed and placed on the property until May 30, 2014, approximately two years after the KYTC acquired the property. The owner of the estate (Soterion Corporation) was not interested in placing a preservation easement on, nor in negotiating the damages or the decrease of property value associated with, the permanent easement. KYTC stated that it was necessary to enter into the right of way acquisition process with the property owner. The estimated daily cost from the delay of construction was $100,000. The cabinet stated that it determined that paying a negotiated price of $8.1 million more that the appraised price was a better course of action as opposed to delaying a $763 million project for several months, if not years. The property is being sold by sealed bids starting November 3, 2016, with a minimum bid reserve of $3.5 million. The Commonwealth reserves the right to reject any or all bids. The cabinet stated that the current significantly lower appraised value is the result of the preservation easement.
In response to a question from Representative Wayne, Mr. Nacey said that the KYTC paid $1.8 million more than the appraised value of the Drumanard estate. Representative Wayne said that was a significant amount and voiced concern about the precedent this sets by purchasing properties in order to speed a project through.
In response to several more questions from Representative Wayne, Mr. Andy Barber, Executive Director, KYTC, said that the estimated price of $6.8 million and the purchase price of $8.3 million paid for the property, resulted from negotiations and KYTC holding out as long as possible before purchasing the property. Mr. Barber said that, normally, KYTC normally does not proceed with construction of a project or with a start date until the Cabinet has all the right-of-way in place with a project of this size. Mr. Barber further said that in order to avoid delay and in order to fulfil KYTC’s commitment, KYTC made the decision to proceed with the East End Crossing project. Additionally, Mr. Baber said that the purchase of property over the estimated purchase price is not a practice that is used frequently; however, it is used in dire cases. Mr. Barber said that during negotiations with the owner of the property beneath which the tunnel goes, the property owner could have exercised his legal right to stop work. Further, Mr. Barber said that Indiana held the lead on this project and, had the project been halted, KYTC could have exceeded the purchase price of $8.3 million quickly.
In response to several more questions from Representative Wayne, Mr. Barber said that KYTC looked at sixteen alternatives at the beginning of the project in 1998, for alignments for the East End Crossing project. Three of them included a tunnel. The alignment that was selected for the project was the least environmentally invasive for the area. Mr. Barber said that the tunnel was an avoidance of a direct environmental impact to the historical property and, without the tunnel, there would not have been a project. Mr. Barber said that the compelling argument to build a tunnel was an avoidance of an impact that would fall under Section 4(F), the Build Alternative of the Department of Transportation Act (DOT Act) of 1966. Additionally, Mr. Barber said that if a property is eligible to be listed on the National Register of Historic Places, the Section 4(F) provision may apply. Further, Mr. Barber said that federal laws were followed in acquiring the property for this project and several funding sources were used, which included federal funding.
In response to questions from Representative Harris, Mr. Barber said that he was not involved in the project when the Drumanard property was bought and could not answer as to why the Cabinet did not utilize the condemnation process using the appraised value of $6.8 million before paying $8.3 million for the Drumanard property. Mr. Barber said he would find out more information and forward it on to Representative Harris after the meeting.
In response to a question from Senator Humphries, Mr. Barber said that if a property is eligible to be placed on the National Registry of Historical Places, such as the Drumanard property, the property still has Section 4(f) federal law protection.
Senator Humphries commented that the regulations that are placed on the Commonwealth as it faces the challenge of trying to build more roads with less dollars each year, and without federal assistance, is alarming.
The last information item is the annual report from the Cabinet of Economic Development which details the status of previously-approved Economic Development Bond grants 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 9 grants listed in the report that were approved in previous fiscal years 1 project is still in the process of executing an agreement; 0 projects have withdrawn from the program; 0 projects have completed the requirements; 3 projects have reported employment; and 5 projects have not yet reached a reporting date.
Project Report from the Universities
Ms. Elizabeth Baker, Planning Director, University of Kentucky (UK), reported on three items. The first item is the purchase of the Somatom Definition Edge CT Scanner. This system will be located in the Emergency Department at UK A. B. Chandler Hospital. The purchase will replace the equipment that is presently at the end of its life and it will provide medical imaging and leading technology for low dose therapy control and early tumor detection. The cost is $1,239,095 and was paid for in cash with restricted funds. No action was required.
The second item is a lease modification between the University and the Lowry Group, LLC. The three organizations located at this property are the Kentucky Regional Extension Center, UK-Norton Stroke Network, and UK Healthcare External Affairs. All three programs have experienced growth and additional space is needed to efficiently manage daily operations. The lease modification will include an expansion of 1,186 sq. ft., and the total lease cost is $111,147. The lease addendum is pursuant to the same terms and conditions as the original lease. No action was required.
The final item is a request to transfer restricted funds to private funds for the Construct Baseball Field project which was authorized as part of the 2016-18 Executive Branch budget bill. The authorization was for $49,000,000 in restricted funds for the construction of the baseball facility. UK is requesting to use $12,056,020 in private funds in lieu of restricted funds.
In response to several questions from Representative Wayne, Ms. Baker said that the old baseball stadium was built in 1969, remodeled in 2003, and presently is not large enough to host NCAA tournaments and other important events. The university plans to repurpose the old stadium, which is located the south side of campus. Ms. Baker said that by the fall of 2017, with UK’s housing initiative, it will have approximately 7,500 beds on campus, 5,000 of which will be located on the south side of campus. Pursuant to UK’s Revised Campus Master Plan and the Revised Transportation Master Plan, the university will provide more recreational areas and parking for students who will be located in this area. Ms. Baker said that the university will move the Athletics Department closer to the football stadium in order to share facilities and bring the departments closer together in proximity. This project will be paid by the Athletics Department.
Representative Rudy moved to approve the project, seconded by Senator McDaniel. The motion passed by a roll call vote of 7 yeas, 0 nays.
Mr. Harlan Sands, Senior Vice President for Finance and Administration, University of Louisville (U of L), and Mr. Jim Sears, Associate Vice President for Facilities Management, U of L, requested a scope increase of $8,250,000 for the Papa Johns Cardinal Stadium Football Complex Expansion project. Mr. Sands said that with this appropriation increase, the north end of the stadium will be totally enclosed. The original scope authorized for this project was $55,000,000. Higher than anticipated construction costs and design fees have contributed to a 14 to 15 percent price increase over budget. U of L has added 6,500 sq. ft. of additional space in the Schnellenberger Training Facility to accommodate its athletic program.
In response to questions from Representative Wayne, Mr. Sands said that the increase will be funded through seat licenses and seat sales from the 10,000 additional seats that will be added to the stadium. The project requires no additional debt service and is consistent with the original debt service plan. The increase will be funded through the University of Louisville Athletic Association by private gift donations specifically earmarked for this project.
Senator Carroll moved to approve the increase, seconded by Representative Wayne. The motion passed by a roll call vote of 7 yeas, 0 nays.
Lease Reports from Finance and Administration Cabinet
Mr. Scott Aubrey, Director of Real Properties, Finance and Administration Cabinet, reported on two items. The first item is for a new lease exceeding $100,000 for the Department of Corrections (DOC) in Daviess County. The proposed space will accommodate the staff of DOC currently housed in a different office facility which requires extensive renovations and recurring maintenance to accommodate the agency needs. The current facility has a lack of appropriate-sized individual offices. Due to these issues, the agency went through the competitive bid process. This new lease is for 8758 sq. ft., with a cost of $13.24 per sq. ft. The annual cost for the lease is $116,043.52 and will expire June 30, 2024.
In response to a question from Senator Humphries, Mr. Aubrey said that the new space is located at the same facility. The agency will move from the 5th floor to available space located on the 2nd and 3rd floors during the renovation period.
Senator Carroll moved to approve the lease, seconded by Representative Wayne. The motion passed by a roll call vote of 7 yeas, 0 nays.
The second item is a Leasehold Improvement Report for leasehold modifications over $50,000, located in Franklin County. In October, another group of modifications was presented to the committee and those improvements totaled $46,840. The Finance and Administration Cabinet is requesting approval on behalf of the Energy & Environment Cabinet (EEC), the Education and Workforce Development Cabinet, and the Department of Education, which are located at the new state office building known as the “300 Building.” The EEC is requesting to install a badge reader and a magnetic lock for a file room and additional electrical and data outlets in its conference rooms. All three agencies have submitted a request to install and mount a television in the lobby area for visitors to the “300 Building.” The cost for these improvements, which will be paid through the Tenant Improvement Fund, is $64,641.30. To date, the cost of the total improvements is $111,482.21.
In response to questions from Senator Humphries, Mr. Aubrey said that the modifications that were reported last month are either complete or in the process of being completed.
Senator Carroll moved to approve the modifications, seconded by Senator McDaniel. The motion passed by a roll call vote of 7 yeas, 0 nays.
Report from the Office of Financial Management
Ms. Brandi Norton, Financial Analyst, Kentucky Infrastructure Authority (KIA), reported on five items. The first item was for a Fund A loan increase for the Mountain Water District in Pike County. The request was for an increase of $370,000 for a total amount of $3,472,921, for the Douglas Wastewater Treatment Plant project. The loan will have a 20 year term, an interest rate of .75 percent and an annual estimated debt service payment of $194,266.
The second item was for a Fund A loan for the City of Winchester in Clark County. The request was for $1,404,000 for the Hampton Manor Sewer project. The loan will have a 20 year term, an interest rate of 1.75 percent and an annual estimated debt service payment of $86,312.
The third item was for a Fund A loan for the City of Maysville in Mason County. The request was for $4,000,000 for the Wastewater Treatment Plant Upgrade project. The loan will have a 20 year term, an interest rate of .25 percent and an estimated annual payment of $143,887.
The fourth item was for a Fund A loan to the City of Jackson in Breathitt County. The request was for $593,000 for the Lift Station Rehabilitation project, Phase II. The loan will have a 20 year term, an interest rate of .25 percent and an annual payment of $15,801.
The final item was for a Fund B loan to the Northeast Woodford County Water District in Woodford County. The request was for $400,000 for the Northeast Woodford County Improvement project. The loan will have a 20 year term, an interest rate of 1.75 percent and an estimated annual payment of $24,590.
Representative Wayne moved for all items to be considered as one vote, seconded by Senator McDaniel. The motion was approved by voice vote.
Representative Rudy moved to approve the items, seconded by Senator McDaniel. The motion passed by a roll call vote of 7 yeas, 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 Economic Development Bond (EDB) Grant. The request is for the use of $1,350,000 in economic development bond funds to make a grant to the City of Midway for the for the benefit of Lakeshore Equipment Company d/b/a Lakeshore Learning Materials (Lakeshore). Lakeshore is a leading U.S. developer of educational materials and classroom furniture and supplies and has selected Midway for its new assembly distribution and storage facility. The proposed EDB grant funds will be used to extend gas service to the company and any future tenants of the industrial park including, but not limited to, companies such as Brown-Forman Corporation and American Howa Kentucky, Inc. In consideration for the grant, Lakeshore will be required to make investment and create up to 262 full-time Kentucky resident jobs paying an average hourly wage of $19 including benefits. Disbursement of grant funds will occur after the annual compliance reporting has occurred and the amount of the disbursements will be based on the performance requirements achieved.
Senator Carroll moved to approve the grant, seconded by Senator McDaniel. The motion passed by a roll call vote of 7 yeas, 0 nays.
Mr. Steve Starkweather, Inventory and Forecasting Program Specialist, Office of Financial Management, reported on six items for the Office of Financial Management. The first item was the Kentucky Economic Development Finance Authority (KEDFA) Hospital Revenue and Refunding Bonds, Series 2016 C, for Baptist Healthcare System Obligated Group. Proceeds from this bond issue will finance various Baptist Healthcare System projects throughout the Commonwealth and partially refund KEDFA Hospital Revenue Bonds, Series 2009 A. This issue has a par amount not to exceed $445,000,000 and contains $314,000,000 of new money. The duration of the bonds is 35 years and has an anticipated net interest rate of 5.0 percent. This issue also has a refunding component of $87,259,000. These refunding Series have an anticipated true interest cost of $3,202,000, an 11 year term, with a net present value savings of $1,479,000.
Representative Rudy moved to approve the item, seconded by Senator McDaniel. The motion passed by a roll call vote of 7 yeas, 0 nays.
The second item was for the Kentucky Housing Corporation Tax-Exempt Conduit Multifamily Housing Revenue Bonds, Series 2016, in an amount not to exceed $17,500,000. Proceeds from this bond issue will finance the construction and equipping of the Healing Place project, a 176 unit property in Louisville. This bond issue is a direct placement transaction with an anticipated interest rate of 5.50 percent.
In response to a question from Representative Wayne, Mr. Jeremy Ratliff, referred to Ms. Karen Haskell, President of the Healing Place. Ms. Haskell said that the Healing Place has demonstrated its success by having raised, to date, almost $9,000,000 in an aggressive capital campaign and anticipates raising the remainder of $8,000,000 over the next 30 months using the same campaign.
Representative Wayne commented that, as a clinical social worker, he frequently refers clients to the Healing Place. Further, Representative Wayne said that, in this time of crisis in the Commonwealth with drug overdoses and addictions, the Healing Place is a salvation for many people.
Senator McDaniel moved to approve the item, seconded by Representative Rudy. The motion passed by a roll call vote of 7 yeas, 0 nays.
The third item was for the Kentucky Housing Corporation Single Family Housing Revenue Bonds 2016, Series B, in an amount not to exceed $45,000,000, and is a refund of Kentucky Housing Corporation 2007 E, G and H bonds. This issue is a negotiated transaction with a true interest cost of 2.8 percent and a term of 20 years. This taxable bond issue will refund certain Series 2007 bond issue, Series E, G and H, for an aggregate net present value savings of $3.1 million at approximately 7.6 percent (7.9 percent Series E; 6.8 percent Series G, H combined).
Representative Wayne moved to approve the item, seconded by Representative Rudy. The motion passed by a roll call vote of 7 yeas, 0 nays.
The fourth item was the University of Louisville General Receipts Bonds, 2016 Tax-Exempt Series D; University of Louisville General Receipts Bonds, 2016 Taxable Series E; and the University of Louisville General Receipt Refunding Bonds, 2016 Series F. This bond will finance the project “Expand Papa John’s Stadium/Football Complex” as authorized in 2016-2018 executive budget; and advance refund Louisville/Jefferson County Metro Government, U of L Papa John’s Cardinal Stadium project, 2008 Series A and B. The par amount for Series D, E and F totals $81,385,000, which includes $28,985,000 in refunding monies, and new money of $52,400,000. The net present value savings is $2,167,000 or 6 percent.
In response to several questions from Representative Harris regarding the funding as discussed in agenda item 5.B.: Appropriation Increase-Expand Papa John’s Cardinal Stadium Football Complex, Mr. Sands said that the project itself is a combination of refinancing and additional debt on the stadium, which is also funded exclusively through revenues from seat sales at the stadium, and is self-contained in the athletics budget. Mr. Sands further said that no money would be coming from the LAA to pay on bonds that are going to be used to increase the size of the stadium.
Senator Carroll moved to approve the item, seconded by Representative Rudy. The motion passed by a roll call vote of 7 yeas, 0 nays.
The fourth item was the Western Kentucky University General Receipts Bonds, 2016 Series B, Parking Garage project, and General Receipts Refunding Bonds, Series 2016 Series C, dated October 25, 2016. The 2016 Series B bond issue consisted of $8,905,000 in new money, priced at 3 percent. The refunding bond issue 2016 Series C had a par amount of $27,395,000 and a true interests cost of 2.26 percent. These bond issues yielded a savings to the University of $2,500,000, and resulted in a net present value savings of 8.8 percent. No action was required.
The final item was the Kentucky Housing Corporation Multifamily Housing Revenue Bonds, Volunteer Management project, Series 2016, dated October 21, 2016, at a par amount of $8,500,000, and a net interest cost of 1.20 percent. No action was required.
New School Bond Issues with School Facilities Construction Commission (SFCC) Debt Service Participation
Mr. Starkweather reported on seven school bond issues with SFCC debt service participation. Two issues will finance school renovations and the remaining five will refinance previous bond issues. There were no local tax increases associated with these projects.
Representative Rudy moved to approve the school bond issues, seconded by Senator Carroll. The motion passed by a roll call vote of 7 yeas, 0 nays.
New School Bond Issues with 100 Percent Locally Funded Debt Service Participation
Mr. Nacey said that seven local school bond issues were reported to the committee. The purposes for which these bonds will be issued include refunding of previous issues, construction of a new bus garage, and district wide energy improvements. No tax increases were involved. No action was required on this item.
Debt Issuance Calendar
Mr. Nacey said that the updated debt issuance calendar was included in the members’ folders.
Lastly, Chairman Humphries said the committee had a resolution honoring Senator Chris Girdler for his four years of service to the Commonwealth and to the committee. Senator Humphries read the resolution being presented to Senator Girdler and, on behalf of the committee, extended its best wishes to Senator Girdler upon his departure of the General Assembly. The resolution also stated that, when the committee adjourns, it shall do so in honor of Senator Girdler.
With there being no further business, the meeting was adjourned at 1:52 p.m.