Call to Order and Roll Call
The Capital Projects and Bond Oversight Committee meeting was held on Tuesday, December 20, 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 Carroll, Stan Humphries, and Christian McDaniel; and Representatives Will Coursey, 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. Ryan Barrow, Executive Director, Office of Financial Management; and Ms. Ashley Adams, Financial Analyst, Kentucky Infrastructure Authority.
LRC Staff: Josh Nacey, Committee Staff Administrator; Julia Wang, Analyst; and Jenny Wells, Committee Assistant.
Approval of Minutes
Senator McDaniel moved to approve the minutes of the November 15, 2016 meeting. The motion was seconded by Representative Rudy and approved by voice vote.
Information Items
Mr. Nacey reported on four informational items. The first item is an update regarding the negative impact reimbursement due to the Kentucky State Fair Board (FSFB) from the Louisville Arena Authority (LAA). Committee Staff was recently asked to inquire as to whether and how much money the LAA has paid to the KSFB to cover the agreed upon amount of $1.47 million dollars. In an email from the Tourism, Arts, and Heritage Cabinet, staff was informed that $100,000 had been paid for each of the last three years. The balance is now at $1.17 million dollars.
The second item is a recent Courier Journal article involving the KFC Yum! Center. In particular, the paper quotes a radio interview with the University of Louisville (UofL) Athletic Director, Mr. Tom Jurich, in which he commented on the Arena’s financial situation and the relationships between the City, the Arena, and the University.
According to the article, Mr. Jurich made the following comments said that the University could build its own arena on the Belknap campus near Interstate 65, and host men’s and women’s basketball games there. The university is not wanted in downtown Louisville despite the fact that the Center has been an economic boon for the area. The university would help with the arena’s debt; however, Mr. Jurich did not want the university to be the only entity that helps. The City has received great benefit from the deal and brought in more investment for downtown Louisville. Additionally, Mr. Jurich commented that the university was “baited” into a downtown location for the arena.
The article quotes Mr. Scott Cox, chairman of the LAA, as saying that Mr. Jurich and other university officials had agreed earlier this year to be more involved in securing the Yum! Center’s financial future. Mr. Cox also said that Mr. Jurich has been a good partner to the arena authority and the county.
In a special meeting on December 9, the Metro Council Budget Committee passed a resolution, which would give the mayor more authority to reach an agreement to set the city’s debt payment below the $10.8 million dollar maximum.
Representative Wayne commented that he is pleased with Governor Bevin’s appointee as the new chair of the LAA and feels that Mr. Cox’s responses to the Arena’s financial crisis are diplomatic. Representative Wayne said that he is disappointed in the comments made by Mr. Jurich and believes that it is important to keep the tone that Mr. Cox is setting in regards to the arena.
The third item is an update on the Western Kentucky University (WKU) Sports Medicine Complex. The committee postponed action on the complex during its September meeting. According to a recent WKU press release, the university has determined that no proposal met all the requirements of the Request for Proposals (RFP) issued after the September meeting. Therefore, WKU is unable to award a contract and has decided to close the RFP process. With the bidding process closed, the university plans to pursue other options to build a sports medicine facility through private support or other means.
In response to several questions from Representative Wayne, Mr. Nacey said that, according to limited information provided to staff, WKU does not plan to pursue the project because requirements of the RFP were not met. Further, Mr. Nacey commented that staff does not have additional information in regards to responses to the RFP issued by the university and has no information as to what other options the university may use to acquire the funds to build the complex. Mr. Nacey said that at the present time the project is not moving forward.
Representative Wayne expressed concern as to why there were no responses to the university’s RFP and suggested that staff and members keep tabs on whether the “other options” to acquire funding for the complex will also have to follow the model procurement code.
The last item is presented for purposes of the record and it is an update on one School Facilities Construction Commission (SFCC) school bond that the committee approved in October. The issue was for $3 million dollars for the Frankfort Independent School system with both SFCC and local debt service participation. Staff has been informed that SFCC participation was not needed. The financing will now be 100% local since the District recently passed a recallable nickel. No action was required.
Project Report from the Universities
Ms. Elizabeth Baker, Planning Director, University of Kentucky (UK), reported on four items. The first three items are for the purchase of medical equipment in excess of $200,000. The first equipment purchase is for an EEG System (Electroencephalogram-brain monitoring system) which will be located at the UK A.B. Chandler Hospital. This system provides leading-edge features for comfort to allow monitoring while standing, sitting, and sleeping. It will also provide monitoring without being connected and can be moved to the patient’s location. The cost is $1,062,268 and was paid in cash with restricted funds.
The second equipment purchase is for a Pediatric Cardiopulmonary Pump which will also be located at the UK A.B. Chandler Hospital. This equipment is a modular heart-lung machine for pediatric patients to improve safety during transplants and open heart surgery. The cost is $222,977 and was paid in cash using restricted funds.
The third equipment purchase is for a Digital Radiography/Fluoroscopy System which will be located at UK Good Samaritan Hospital. This system provides improved images which lead to higher quality of diagnosis and greater treatment accuracy. The costs is $641,943 and was paid in cash using restricted funds. No action was required.
The last item is a request to transfer funds from restricted funds to private funds for the Repair/Upgrade/Improve Civil Site Infrastructure, University Court. This project is being done jointly between UK and Baptist Health Lexington. The project will create a new connection point to the Baptist Health Lexington Campus and widen University Court from that new connection point north of Alumni Drive. The upgrade of University Court will improve safety for pedestrians and bicyclists along University Court and improve traffic operations on Alumni Drive and Nicholasville Road. Baptist Health is paying for the cost of this at $1,600,000.
Representative Rudy moved to approve the project, 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 three items. The first item is for a new lease exceeding $100,000 for the Energy and Environment Cabinet (EEC) in Perry County. The agency is addressing the need for additional space due to an increase in employees from 26 to 30. Advertisements were put out for competitive bid and the Cabinet selected the low bid for 10,016 sq. ft. at a cost of $15.79 sq. ft. with no utilities. The total annual costs is $158,152 and the lease will expire June 30, 2024.
In response to several questions from Senator McDaniel, Mr. Aubrey said that he does not have the physical address where the facility is located but will get the address for the next meeting. Mr. Aubrey said that there are thirty employees for EEC located in Perry County and this new facility will have a lab function, along with additional office space. Mr. Aubrey said that the current location has no lab functions and does not meet ADA accessibility standards.
In response to several more questions from Senator McDaniel and Representative Harris, Mr. Aubrey said that $8.79 is per sq. ft. for the office space and $2.85 is per sq. ft. for storage space. Mr. Aubrey said that the blended rate for the new location is $15.79 per sq. ft., which is more than double what EEC is presently paying at the current location.
In response to two questions from Senator Carroll, Mr. Aubrey said that the need for additional space and four addition staff were due to the need for lab functions at the new location. Mr. Aubrey said that with the additional fit up of the lab requirements the proposed facility would be a new construction and all costs would be included in the total amount.
In response to a question from Representative Harris, Mr. Aubrey said that the proposed project would be considered a new construction instead of an addition to the existing location. The agency plans to build a new building which will meet their square footage needs.
Senator McDaniel said that the committee needs more information before proceeding with the project and to answer the question as to why the existing property cannot be made to work since the square footage price is more than double the average rate in the county. Senator McDaniel said that the project deserves more scrutiny and it may be that there is nothing else available and the need is justified.
Mr. Nacey said that a letter to the Finance and Administration Cabinet would go out from the committee regarding the motion to table the project until next month’s meeting. Also included in this letter would be the questions that the committee members brought up in today’s meeting.
Senator McDaniel moved to table the project until next month’s meeting, seconded by Senator Humphries. The motion passed by voice vote.
The second item is for tenant improvements for the “300 Building”, Education and Workforce Cabinet, located in Franklin County. This modification includes the installation of an electrical outlet and coax cable outlet in the Secretary’s suite. The cost is $2,100 and will be paid for through the Tenant Improvement Fund (TIF).
Representative Wayne moved to approve the item, seconded by Senator Carroll. The motion passed by a roll call vote of 7 yeas, 0 nays.
The third item is for tenant improvements for the “300 Building”, Energy & Environment Cabinet (EEC), the Education and Workforce Development Cabinet, and the Department of Education, located in Franklin County. This modification consists of the fit- up of the snack/vending/food service area in the building and will include construction of walls, painting, flooring, plumbing, electrical, and HVAC work. The cost is $449,900 and will be paid for through the TIF.
Representative Wayne moved to approve the item, seconded by Senator Humphries. The motion passed by a roll call vote of 7 yeas, 0 nays.
Report from the Office of Financial Management
Ms. Ashley Adams, Financial Analyst, Kentucky Infrastructure Authority (KIA), reported on seven items. The first item was for a Fund A loan for the City of Butler in Pendleton County. The request was for $987,243 for the Sewer System Rehabilitation project. The loan will have a 20 year term, an interest rate of 1.75 percent, and an estimated annual debt service payment of $60,691.
The second item was for a Fund A loan for The Daviess County Fiscal Court in Daviess County. The request was for $1,169,634 for the Friendly Park Village Sewer Extension project. The loan will have a 20 year term, an interest rate of .25 percent, and an estimated annual debt service payment of $31,166.
In response to several questions from Senator McDaniel, Ms. Adams said that the additional subsidization of the loan in the amount of $584,000 comes from KIA’s federal CAP Grant that requires KIA to allocate a certain amount of principal forgiveness. This is determined through a priority ranking system put together by the Division of Water (DOW) with package treatment plants that have been prioritized because of an emergent issue. This system of priority places the plants near the top of the list and are allocated a percentage of principal forgiveness as a result.
In response to several questions from Senator McDaniel, Ms. Adams said that it is a federal requirement that, if a district participates under this particular federal CAP program, a certain amount of the Commonwealth’s loan amount has to be forgiven. This forgiveness amount is in addition to Community Development Block Grant (CDBG) monies. KIA has to meet a range requirement of this grant.
Representative Wayne commented that there was a research article which appeared December 19th in USA Today, and written by Laura Unger regarding water districts that are orphaned, not functioning, nor governed in a way which guarantees the quality of the water. Representative Wayne also noted that Ms. Unger said in her article that some of these have been found in KY and wrote that the water is as bad, if not worse, than the water supply in Flint, Michigan.
In response to several questions from Representative Wayne, Ms. Adams said it is the responsibility of KIA to make sure that these communities which have been granted loans can pay back these loans. Ms. Adams said that KIA does not oversee the water districts as to the quality of water; this would most likely fall within the jurisdiction of the Environmental Protection Agency (EPA) or DOW. Ms. Adams said that either the EPA or the DOW could issue a consent decree or an agreed order if an emergent problem with the system is identified and may cause any kind of environmental impact. Additionally, Ms. Adams said that all KIA’s funds have a very strict set of rules that these cities must follow.
Ms. Adams said that Daviess County is an example of a package treatment plant that many wish to abandon even though there are a number of citizens that risks losing sewer service. The Daviess County fiscal court and the Water Resource Agency came together to make sure that this didn’t happen and took ownership of the project in order to fix it so that these citizens have the sewer service that is needed in order to live in this district.
Representative Wayne said he thought it would be helpful to the committee if it received a report back from KIA to determine if any of the water districts that KIA has granted loans to have any problems regarding the quality of the water or oversight of the operations. Further, Representative Wayne said that the committee approves these types of loans each month. However, there are citizens that are suffering because of water systems or districts that are not being properly administered.
The third item was for a Fund A loan for the City of Louisa in Lawrence County. The request was for $356,000 for the Infiltration Rehabilitation project. The loan will have a 5 year term, an interest rate of 2.75 percent and an estimated annual payment of $77,420.
The fourth item was for a Fund B loan to the City of New Castle in Henry County. The request was for $445,000 for the Water Main Replacement project. The loan will have a 20 year term, an interest rate of .25 percent, and an estimated annual payment of $23,715.
The fifth item was for a Fund B loan for the City of Bardstown in Nelson County. The request was for $1,129,000 for the Bardstown WTP Improvements project. The loan will have a 20 year term, an interest rate of 1.75 percent, and an estimated annual payment of $69,406.
The sixth item was for a Fund B loan for the City of Bowling Green f/b/o Bowling Green Municipal Utilities (BGMU) in Warren County. The request was for $2,000,000 for the Water Treatment Plan Disinfection System project. The loan will have a 20 year term, an interest rate of 1.75 percent, and an estimated annual payment of $122,951.
The final item was for a Fund C loan for the City of Bowling Green f/b/o Bowling Green Municipal Utilities (BGMU) in Warren County. The request was for $4,000,000 for the Water Treatment Plan Disinfection System project. The loan will have a 20 year term, an interest rate of 3 percent, and an estimated annual payment of $330,500.
Senator McDaniel moved to approve all seven items, seconded by Representative Wayne. The motion passed by a roll call vote of 7 yeas, 0 nays.
Report from the Office of Financial Management
Mr. Ryan Barrow, Executive Director, Office of Financial Management, reported on five items for the Office of Financial Management. The first item was the State Property and Building Commission (SPBC) Revenue Bonds, Project 115. Proceeds from this bond issue will provide financing for approximately $250 million dollars of General Fund projects authorized by the General Assembly from Sessions which span from 2004-2016. The proposed date of sale is January 24, 2017, an anticipated all in true interest rate of 4.113 percent, and $18,000,000 debt service payment.
In response to a question from Senator McDaniel, Mr. Barrow said that the 4.1 percent issue for the Commonwealth versus the next issue for UK which is at 2.4 percent, is due to UK’s numbers being dated and because UK has a better credit rating than the Commonwealth. Additionally, UK’s issue is underestimated and is not represented in the same interest rate climb that is seen in the current market for the 4.1 percent rate.
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 University of Kentucky (UK) General Receipts Refunding Bonds, 2017 Series A and Series B. Proceeds from the Series A issue will refund and retire all ALCo/UK General Receipts Project Notes, 2006 Series A. This issue has a par amount of approximately $30.6 million dollars, an all-in true interest cost of 2.433 percent, and will mature on October 1, 2022. Series B will be used to refund and retire all outstanding UK General Receipts Taxable Build America Bonds, 2010 Series A. This issue has a par amount of $7.5 million dollars for Series B, an all in true interest cost of 2.712 percent, and will mature on October 1, 2024. The savings to both issues are approximately $1.8 million dollars.
Representative Wayne moved to approve the item, seconded by Senator Carroll. The motion passed by a roll call vote of 7 yeas, 0 nays.
The third item was for the Kentucky Economic Development Finance Authority (KEDFA) Healthcare Facilities Revenue and Revenue Refunding Bonds, Series A, for Masonic Home Independent Living II, Inc. Proceeds from this bond issue will finance the acquisition, construction, installation, and equipping of independent and assisted living facilities to be operated by the Masonic Homes Campus in Louisville, and to refund bonds previously issued for similar facilities in the same location. This issue has a par amount of $122,880,000, an all-in true interest cost of 4.7 percent, with a pricing date of October 25, 2016. No action was required.
In response to a question from Representative Harris, Mr. Barrow said that this facility was an independent living facility and not limited to Masons although it is called a Masonic Home.
In response to a question from Senator McDaniel, Mr. Barrows said that although the Commonwealth is not responsible for the repayment of conduit loans, there have been rare transactions for partial conduit loans for industrial development parks, and there are backup guarantees on these types of transactions.
In response to another question from Senator McDaniel, Mr. Barrow said that if the Commonwealth began taking on conduit issues and backstopping them, it would affect the Commonwealth’s credit rating as a negative. In response to a question from Representative Harris, Mr. Barrow said that he had never presented an issue of that type to the committee.
The final item was for Kentucky Housing Corporation Single Family Housing Revenue Bonds 2016 Series B. This taxable bond issue will refund certain Series 2007 bond issues, Series E, G, and H. Proceeds from this issue was $41,110,000, a true interest cost of 3.73 percent, and will mature on July 1, 2037. No action was required.
Representative Harris said that the fifth item presented from OFM involved a bond issue for the Gallatin County Airport which does not require a vote. After discussions between OFM and committee staff, it was determined that, for transparency purposes, it was best to submit this item to the committee as an informational item. The reason it does not require a vote is because the state is not the issuer. A local government is issuing the bonds. On the other hand, the reason it was submitted is because a state agency, the Kentucky Transportation Cabinet, Department of Aviation, plays a role in this transition.
New School Bond Issues with School Facilities Construction Commission (SFCC) Debt Service Participation
Mr. Ryan Barrow reported on six school bond issues with SFCC debt service participation. Four issues will finance school renovations and the remaining two will refinance the construction of new schools. There were no local tax increases associated with these projects.
Representative Wayne 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 one school bond issue was reported to the committee which is for Spencer County. It is 100 percent locally funded and did not involve a tax increase. The issue will refund 2005 Series bonds. 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.
Senator Humphries said that this will be Representative Harris’s last meeting as Co-Chair of the committee and expressed his appreciation to Representative Harris for his work, leadership, professionalism, and intent to find the best answers for the Commonwealth through the committee.
Representative Rudy said that Capital Projects and Bond Oversight is an important committee and commended Chairman Harris on a job well done. Additionally, Representative Rudy said that Representative Harris has been an informed and effective chairman of the committee and has served it well.
Representative Harris said that it has been an honor to serve on the committee. In closing, Representative Harris said that the committee takes on issues regarding government transparency, accountability, and oversight. These issues are very important and Representative Harris expressed his intent to continue working on these issues in the 2017 General Assembly.
With there being no further business, the meeting was adjourned at 1:52 p.m.