Call to Order and Roll Call
The Capital Projects and Bond Oversight Committee met Tuesday, July 18, 2017, at<MeetTime> 1:00 PM, in Room 131 of the Capitol Annex. Representative Phil Moffett, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Stan Humphries, Co-Chair; Representative Phil Moffett, Co-Chair; Senator Rick Girdler; Representatives Larry Brown, Will Coursey, and Steven Rudy.
Guests: Mr. Andrew McNeill, Deputy State Budget and Policy Director, Ms. Katie Smith, Director, Office of Financial Services, Cabinet for Economic Development; Ms. Natalie Brawner, Assistant Director, Real Properties; Ms. Ashley Adams, Financial Analyst, Kentucky Infrastructure Authority; Mr. Ryan Barrow, Executive Director, Office of Financial Management; and Mr. Lewis Diaz, Bond Counsel, Dinsmore & Shohl.
LRC Staff: Katherine Halloran, Committee Staff Administrator; Julia Wang, Legislative Analyst; and Jenny Wells Lathrem, Committee Assistant.
Approval of Minutes (June 20, 2017)
A motion was made by Representative Rudy to approve the minutes of the June 20, 2017 meeting. The motion was seconded by Representative Brown and approved by voice vote.
Representative Moffett referenced correspondence from Representative Jim Wayne thanking staff and members for the resolution presented to him at the June 20, 2017 meeting.
Representative Moffett welcomed Ms. Katherine Halloran to the committee as the new Committee Staff Administrator.
Correspondence Items
Ms. Halloran reported one correspondence item from the Finance and Administration Cabinet regarding unexpended debt service to support availability payments required by the Kentucky Communications Network Authority’s public-private partnership contract. The biennial budget bill requires the Secretary of the Finance and Administration Cabinet to certify the amount of debt service appropriations not needed to satisfy debt service obligations and report that amount to the committee before funds can be expended for availability payments.
Information Items
Ms. Halloran reported one information item which was comprised of the statutorily required quarterly capital projects status reports provided by the Administrative Office of the Courts; the Commonwealth Office of Technology, as they report separately from the Finance and Administration Cabinet; the Finance and Administration Cabinet; and the universities that manage their own capital construction programs: Eastern Kentucky University, Morehead State University, Murray State University, Northern Kentucky University, University of Kentucky, University of Louisville, and Western Kentucky University.
Representative Moffett said that he would like members to consider processes for monitoring public-private partnerships as well as the recent appropriation allocated to Commonwealth Seed Capital. Representative Moffett said that it has been his experience with public-private partnerships in other states that if they are not properly monitored, then things tend to founder for the taxpayers.
Project Report from the Universities
Ms. Halloran reported one equipment purchase in excess of $200,000 for the University of Louisville, which was a computed microtomography (micro-CT) scanner for the Speed School's Industrial Engineering Department. The micro-CT scanner will be the only one on campus used to analyze micro-scale internal structures. No action was required.
Project Report from Finance and Administration Cabinet
Mr. McNeill reported two projects in excess of $600,000 in the Laurel Creek Gorge area of Elliott County on behalf of the Tourism, Arts and Heritage Cabinet/Department of Fish and Wildlife Resources from the Fees-In-Lieu-of (FILO) Stream Mitigation Projects Pool.
$1,223,950 was appropriated for the Mart Whitt Fork project to preserve and restore over 15,300 linear feet of streams and $1,358,592 was appropriated for the Laurel Creek Gorge #2 (Green-Johnson tracts) project to rehabilitate and enhance over 9,200 linear feet of stream. Both projects are funded from a restricted fund (Kentucky Wetland and Stream Mitigation Fund - KRS 150.255). The FILO program is governed by an agreement with the U.S. Army Corps of Engineers. No action was required.
Project Report from the Cabinet for Economic Development
Ms. Smith reported one project in excess of $600,000 for the Office of Entrepreneurship that was approved by the Kentucky Economic Development Finance Authority. This was for a transfer in the amount of $15,000,000 from the High-Tech Investment Pool to the Economic Development Partnership for a capital contribution to Commonwealth Seed Capital. No action was required.
Lease Report from Finance and Administration Cabinet
Ms. Brawner reported one lease modification for the Cabinet for Health and Family Services, PR-5260 - Calloway County. Two quotes for the renovation were received and the low quote of $85,360 was accepted.
A motion to approve the lease modification was made by Representative Rudy, seconded by Representative Brown, and approved by unanimous roll call vote.
Reports from the Office of Financial Management
Ms. Adams reported four Kentucky Infrastructure Authority loan requests: Lexington-Fayette Urban County Government - Midland/East Main Sanitary Trunk Sewer Replacement project/Town Branch Commons project’s green infrastructure (Fund A -Clean Water State Revolving Fund (CWSRF) - $9,969,585); City of Stanton (Powell County) - Sanitary Sewer Service Area Expansion Phase I project (Fund A - $1,095,462); City of Bowling Green f/b/o Bowling Green Municipal Utilities (Warren County) - Water Treatment Expansion Plant project’s engineering costs (Fund C - Governmental Agencies Program Fund - $3,800,000); and City of Stanford (Lincoln County) - Water System Upgrade project (Fund F - Drinking Water State Revolving Fund (DWSRF) - $2,690,000). All are twenty year loans with a 3 percent interest rate for the Fund C loan, a 1.75 percent interest rate for the Fund A loan for Lexington-Fayette Urban County Government, and a .25 percent interest rate for the Fund A and Fund F loans for Powell and Lincoln Counties, respectively.
Representative Rudy made a motion to roll the KIA loans into one vote. The motion was seconded by Representative Brown, and approved by voice vote.
A motion was made by Representative Rudy to approve the KIA loans, seconded by Representative Brown, and approved by unanimous roll call vote.
Mr. Barrow reported two new bond issues. The first bond issue reported was State Property and Buildings Commission (SPBC) Project No. 117; which will be a negotiated General Fund supported transaction in an amount not to exceed $305 million. The taxable revenue bonds (Series A) will fund a $15 million economic development project authorized by the 2017 General Assembly; the tax-exempt revenue bonds (Series B) will finance an additional $100 million of the capital projects authorized by the General Assembly since 2005; the taxable revenue refunding bonds (Series C) will advance refund an existing taxable series and a series that was already advance refunded; and the tax-exempt revenue refunding bonds (Series D). Mr. Barrow said that market conditions will determine if all refunding candidates included in the preliminary amounts for Project No. 117 are included in the upcoming transaction. The estimated net present value savings is $3.5 million for taxable revenue refunding bonds and just under $6 million for the tax-exempt revenue refunding bonds.
Mr. Barrow next reported the Kentucky Housing Corporation (KHC) Tax-Exempt Conduit Multifamily Housing Revenue Bonds (Lincolnshire Portfolio Project), Series 2017, to be issued in an amount not to exceed $13,000,000. The project is comprised of 280 units in Owensboro, Kentucky.
In response to a question from Representative Rudy regarding forgone property tax revenue, Mr. Diaz referenced the distinction between projects in which equity is contributed by for-profit entities, typically to receive tax credits; in which private activity bonds would be issued and projects involving 501(c)(3) non-profit entities, exempt from property taxation, with no equity contribution from for-profit entities; in which qualified 501(c)(3) bonds would be issued. The project under consideration is the former: a facility subject to property taxation that will be financed by tax-exempt private activity bonds. For the latter, KHC facilitates an agreement between the county and the developer in which the developer pays taxes. Mr. Barrow reiterated that this particular transaction is a traditional tax-exempt bond issue and that the project should be subject to property taxation.
Mr. Barrow reported six new School Facilities Construction Commission (SFCC) school district bond issues for Anderson, Boyle, Fleming, Hopkins, Nicholas and Pikeville Counties, for total SFCC annual debt service of $482,656. The bond issues will refund outstanding bonds, finance school construction, and school improvements. There were no local tax increases associated with these projects with the exception of Boyle County, which had a tax increase necessary to fund the construction of the middle school project.
Representative Rudy made a motion to roll the two new bond issues and the SFCC bond issues into one vote. The motion was seconded by Representative Brown, and approved by voice vote.
A motion was made by Representative Brown to approve the two new bond issues and the SFCC bond issues, seconded by Senator Girdler, and approved by unanimous roll call vote.
Mr. Barrow presented one follow-up report for a previously approved bond issue: Kentucky Housing Corporation Tax-Exempt Conduit Multifamily Housing Revenue Bonds (Riverport Family Apartments Project), Series 2017A, $14,500,000; and Series 2017B, $4,900,000. The project, a component of a campus including senior housing and a Family Scholar House, is comprised of 240 units in Louisville, Kentucky. The bond issue was previously approved and no further action was required.
New Local School Bond Issues with 100 Percent Locally-Funded Debt Service Participation
Ms. Halloran reported one local school bond issue for Hopkins County. The issue had 100 percent local debt service support, involved no SFCC participation, and required no tax increase. All disclosure information had been filed and no action was required.
Updated Debt Issuance Calendar
Also included in members’ folders was the debt issuance calendar. No action was required.
With there being no further business, the meeting was adjourned at 1:20 p.m.