Call to Order and Roll Call
The Capital Projects and Bond Oversight Committee met on Wednesday, March 15, 2017, at 8:30 AM, in Room 169 of the Capitol Annex. Representative Phil Moffett, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Representative Phil Moffett, Co-Chair; Senators Rick Girdler, Stan Humphries, and Christian McDaniel; and Representatives Larry Brown and Steven Rudy.
Guests: Mr. Scott Aubrey, Director, Division of Real Properties; Ms. Ashley Adams, Financial Analyst, Kentucky Infrastructure Authority; Ms. Janice Tomes, Deputy State Budget Director, Governor’s Office for Policy Management; and Ms. Sandy Williams, Deputy Executive Director, Office of Financial Management.
LRC Staff: Shawn Bowen, Committee Staff Administrator; Julia Wang, Legislative Analyst; and Jenny Wells, Committee Assistant.
A motion was made by Senator McDaniel to approve the minutes of the February 21, 2017 meeting. The motion was seconded by Representative Rudy and approved by voice vote.
Project Report from the Universities
Ms. Bowen said the University of Louisville and the University of Kentucky have provided correspondence reporting the purchase scientific research equipment with restricted funds. The purchases are to be reported to the committee within 30 days, and no further action is required.
Lease Reports from the Finance and Administration Cabinet
Ms. Scott Aubrey, Director, Division of Real Properties, reported on leasehold improvements at the 300 Building in Franklin County. The modifications include the installation of badge readers and a mag lock system on a communications closet. The total cost for the modifications is $4,055, which brings the total cost of improvements to date to $183,629. The agencies requesting the modifications included the Energy and Environment Cabinet, the Education and Workforce Development Cabinet, and the Department of Education.
In response to questions from Representative Moffett, Mr. Aubrey said the cost of improvements to the cafeteria, snack, and food service area ($449,900) was reported to the committee in December 2016. The cost of the improvements was outside the budget for the project in the beginning, and was reported as a separate item, not to be included in the total cost of the leasehold modifications reported today. The plans were to bid the space in hopes of obtaining a private operator, however, those efforts proved to be unsuccessful.
A motion was made by Representative Rudy to approve the report of leasehold modifications, seconded by Representative Brown, and approved by unanimous roll call vote.
Project Reports from the Finance and Administration Cabinet
Ms. Janice Tomes, Deputy State Budget Director, Governor’s Office for Policy Management, reported a $127,863 scope increase for the Department of Military Affairs Renovate Bay A in Building 3 project at Bluegrass Station. The project will renovate the headquarters of Bluegrass Station’s primary tenant, Special Operations Forces Support Activity (SOFSA). The scope increase is needed to cover the cost of a secure computer network required by the National Security Agency. The scope increase will be paid with federal funds provided by SOFSA. The revised project scope is $2,427,863.
A motion to approve the scope increase was made by Representative Rudy, seconded by Senator Humphries, and approved by unanimous roll call vote.
Report from the Office of Financial Management
Ms. Ashley Adams, Financial Analyst, Kentucky Infrastructure Authority (KIA), reported ten KIA loans: Fund A loans for the City of Frankfort, Franklin County (six), $2,041,000; $1,853,750; $1,954,500; $1,202,660; $2,175,965; Fund B loan, South Hopkins Water District, Hopkins County, $765,000; Fund F loan increase, City of Nicholasville, Jessamine County, $553,000; Fund F loan, City of Fleming-Neon, Letcher County, $1,500,000; and Fund F loan, Southern Water and Sewer District, Floyd County, $1,350,000.
Senator Humphries made a motion to roll the KIA loans into one vote. The motion was seconded by Representative Brown, and approved by voice vote.
In response to questions from Senator McDaniel, Ms. Adams said that had the six Fund A loans for the City of Frankfort been packaged as one loan, it would have been an administrative nightmare due to the many contracts, engineers, and timelines required to manage six different project locations within the city. She said the city also wished to provide more work opportunities by distributing the work to various contractors and engineers. Ms. Adams added that KIA receives loan repayments sooner if the projects are separate, and once a project is complete, KIA can then reconstruct the loan and receive its money back.
In response to questions from Senator McDaniel regarding the Fund F loan to the City of Fleming-Neon, Ms. Adams said she did not attend any city council meetings, but it was her understanding that there were no user objections to the water rate increases associated with the loan. The 14 percent increase recommendation was read twice at two different city council meetings and was published in the local paper. Ms. Adams said, according to the city’s Affordable Living Index, the loan is based on the city’s Medium Household Income at a rate of 1.5 percent, with a principal forgiveness of .50 percent, and an interest rate of .25 percent.
A motion was made by Senator McDaniel to approve the loans, seconded by Representative Rudy, and approved by unanimous roll call vote.
Report from the Office of Financial Management
Ms. Sandy Williams, Deputy Executive Director, Office of Financial Management, provided follow-up reports on four previously approved bond issues: State Property and Building Commission Bonds, Project No. 115, $227,815,000; University of Kentucky General Receipts Refunding Bonds, 2016 Series A and B, $29,265,000 and $7,540,000, respectively; Kentucky Housing Corporation (KHC) Multifamily Housing Revenue Bonds, Riverport Family Scholar House Project, Series 2016 A and B, $2,000,000 and $5,300,000, respectively; and KHC Revenue Bonds, Riverport Senior Apartments Project, Series 2016 A and B, $6,785,000 and $1,915,000, respectively. The follow-up reports did not require action.
New School Bond Issues with School Facilities Construction Commission (SFCC) Debt Service Participation
Ms. Williams reported one $4.75 million school bond issue for Lone Oak Intermediate School in McCracken County. There were no local tax increases associated with this project.
Senator McDaniel said there is speculation that the Federal Reserve, at its upcoming meeting, may raise interest rates. He expressed concerns that the anticipated interest rate on this bond issue may have been calculated with old data, and there could potentially be an issue with the bond’s financial structure. Senator McDaniel recommended that the bond issue be held over until the committee’s April meeting. He said given that the projected date of sale is not until May 2017, there is enough time for the Office of Financial Management to determine how changes in the interest rate may affect the bond issue, and provide that information to the committee. Ms. Williams agreed there could be a change in the interest rates by the Federal Reserve after it meets.
In response to a question from Representative Moffett, Ms. Williams said that the bond issue could be held until the next meeting date, and that a representative who is more knowledgeable with the bond issue would attend to answer any questions that members may have.
Representative Rudy said he did not think it was necessary to hold the bond issue until the next meeting. Senator McDaniel said postponing the committee’s review of this item until April will not interfere with the projected bond sale date of May 2017.
A motion to postpone the committee’s review of this bond issue until the April meeting was made by Senator McDaniel, seconded by Senator Humphries, and passed by a roll call vote of 5 yeas, and 1 nay.
New Local School Bond Issues with 100 Percent Locally-Funded Debt Service Participation
Ms. Bowen said three 100% locally-funded school bond issues were reported to the committee for review: two for Hopkins County and one for McCracken County. The bond issues total $8,315,000, and will refund outstanding bonds and make improvements to district schools. These bond issues do not involve a tax increase. No action was required on this item.
With there being no further business, the meeting adjourned at 8:49 a.m.