Call to Order and Roll Call
The Capital Projects and Bond Oversight Committee met on Tuesday, August 15, 2017, 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; Representative Phil Moffett, Co-Chair; Senators Julian M. Carroll and Rick Girdler; Representatives Larry Brown, Will Coursey, and Steven Rudy.
Guests: Ms. Janice Tomes, Deputy State Budget Director; Mr. Scott Aubrey, Director, Division of Real Properties, Finance and Administration Cabinet; Ms. Ashley Adams, Financial Analyst, Kentucky Infrastructure Authority; Mr. Steve Starkweather, Financial Analyst, Office of Financial Management; and Mr. Jeremy Ratliff, Deputy Director, Legal Services, Kentucky Housing Corporation.
LRC Staff: Katherine Halloran, Committee Staff Administrator; Julia Wang, Legislative Analyst; and Jenny Wells Lathrem, Committee Assistant.
Approval of Minutes (July 18, 2017)
A motion was made by Representative Moffett to approve the minutes of the July 18, 2017 meeting. The motion was seconded by Representative Rudy and approved by voice vote.
Correspondence and Information Items
Ms. Halloran stated that there were neither correspondence nor information items for review.
Project Reports from the Universities
Ms. Halloran referenced three equipment purchases in excess of $200,000 by postsecondary institutions. The University of Louisville reported the purchase of a spectrometer for the James Graham Brown Cancer Center from endowment funds and the University of Kentucky reported the purchase of a surgical microscope and a cardiac imaging system for the A.B. Chandler Hospital from restricted funds. No action was required.
Project Reports from Finance and Administration Cabinet
Ms. Tomes reported two unbudgeted federally funded projects. The first was the Kentucky Transportation Cabinet’s request of $1,528,700 for the Rowan County Weigh Station project, entailing the demolition and replacement of the existing Rowan County Weigh Station. The second was the Education and Workforce Development Cabinet, Kentucky Educational Television’s (KET) request of $20,750,000 for the Federal Communications Commission (FCC) Repacking project. The project includes the purchase, installation, and maintenance of television transmitters and will be funded by reimbursement from the FCC’s Television Broadcast Relocation Fund. The FCC has required all KET channels to be reassigned necessitating the purchase and installation of the new equipment in all sixteen KET transmittal locations.
A motion was made by Representative Rudy to roll the two new projects into one vote. The motion was seconded by Senator Carroll and approved by voice vote.
A motion was made by Representative Rudy to approve the two new projects, seconded by Senator Carroll, and approved by unanimous roll call vote.
Ms. Tomes reported two Finance and Administration Cabinet pool projects in excess of $600,000. The first was the L&N Structural Repair project for $1,404,077, consisting of roof and structural repairs to the L&N Building in Louisville. The second was the Capitol Campus Parking Garage Phase III project for $1,333,000, involving repairs. No action was required.
Lease Reports from the Finance and Administration Cabinet
Mr. Aubrey reported one lease modification for the Department of Workers Claims in Jefferson County. The total renovation costs were $121,174.50. The department agreed to pay for approximately 30 percent of those renovations, amounting to $35,859.50 over the remaining lease term expiring June 30, 2024. No action was required.
Mr. Aubrey next reported a lease renewal with an annual cost exceeding $100,000 for the Department of Insurance in Franklin County. The lease renewal involved a rate increase to $9.45 per square foot excluding utilities and janitorial services. As part of the lease agreement the Department will pay $25 per space for parking space per month for 21 parking spaces out of the 149 included in the lease. The total annual cost is $374,708 through June 30, 2021.
In response to questions from Senator Carroll, Mr. Aubrey said when the lease was expanded several years ago, 21 additional parking spaces in the parking garage were incorporated into the agreement and the costs were passed on to the department.
A motion was made by Senator Carroll to approve the new lease, seconded by Representative Moffett, and approved by unanimous roll call vote.
Reports from the Office of Financial Management
Ms. Adams reported four Kentucky Infrastructure Authority loan requests: The City of Prestonsburg is assuming two Fund A (Clean Water State Revolving Fund - CWSRF) loans as a result of its acquisition of Southern Water and Sewer District’s sewer assets, as well as some of district’s water assets. The total of the two loan assumptions is $691,113. The acquisition was approved by the Public Service Commission on May 2, 2017. The City of Catlettsburg has requested a $470,000 increase to a previously approved Fund A loan in the amount of $2,485,000, bringing the total to $2,955,000. This will be a 20 year loan with a .75 percent interest rate. The City of Williamsburg has requested a Fund A loan in the amount of $2,456,489 to complete the requirements of a 2010 agreed order against the city. In addition, the loan will also refinance a 2002 bond issue which had a 4.50 percent interest rate. This Fund A loan will be a 20 year loan with a .25 percent interest rate.
Senator Carroll made a motion to roll the KIA loans into one vote. The motion was seconded by Representative Rudy, and approved by voice vote.
A motion was made by Senator Carroll to approve the KIA loans, seconded by Representative Moffett, and approved by unanimous roll call vote.
Mr. Starkweather presented one new bond issue for approval: Kentucky Housing Corporation (KHC) Tax-Exempt Conduit Multifamily Housing Revenue Bonds, Allied Paducah Portfolio Project, Series 2017, to be issued in an amount not to exceed $35,000,000. These bonds will be used to finance the acquisition, rehabilitation, and equipping of 735 units in Paducah and Murray. The borrower is a 501(c)(3) and has negotiated a payment in lieu of taxes (PILOT) with localities as the properties to be acquired will be exempt from property taxes due to the borrower’s 501(c)(3) status. Public notices and hearings have taken place and the legislators within the affected districts have been notified.
Senator Humphries said he wished to thank KHC for negotiating the PILOT as properties will be taken from the tax rolls and localities still need to pay their bills. In response to Senator Humphries’s request to explain the difference between the Allied Paducah Portfolio Project transaction as compared to other KHC conduit transactions presented to the committee, Mr. Ratliff said that other KHC tax-exempt conduit bond issues are applied towards the bond cap allocated by the Commonwealth each year. This particular transaction falls under a different section of the Internal Revenue Code in which bonds proceeds are to be used by a 501(c)(3) organization to finance a project pursuant to its tax-exempt purpose.
Whether KHC issues the bonds, enabling the 501(c)(3) to utilize the better terms associated with tax-exempt financing, or the 501(c)(3) utilizes conventional financing; the 501(c)(3) would be acquiring real property in the Commonwealth, resulting in that property coming off the tax rolls. Acting as the borrower’s conduit issuer is consistent with KHC’s mission, as a percentage of the units are restricted for affordability, and allowed negotiation of the PILOT to preserve property tax revenue.
Senator Humphries said that he would like it noted that at the last meeting, Mr. Lewis Diaz, Bond Counsel, Dinsmore and Shohl, made references to the distinction between a 501(c)(3) and a for-profit entity utilizing KHC as a conduit and thanked KHC for its work with local officials in both Murray and Paducah.
In response to a question from Senator Humphries, Mr. Ratliff said that if the properties were to be sold again, then the PILOT would not apply. If the properties were to be sold to a non 501(c)(3), then the property would come back on the tax rolls. If the properties were to be sold to another 501(c)(3) organization, then the properties may remain off the tax rolls. Mr. Ratliff stated that it is his understanding that all local officials are aware of this possibility.
Representative Rudy expressed his appreciation for KHC’s work and its inclusion of legislators and local officials. He stated that everyone he has spoken with has found a new comfort level with the financing and that he believes good things will result from the transaction.
Senator Carroll commended those instrumental in creating the PILOT and commented on the importance of PILOTs to local governments. He mentioned the potential for revenues to the City of Frankfort after the redevelopment of the Capital Plaza area. He also noted that between about 87 and 95 percent of properties within the Frankfort Independent School District are owned by the Commonwealth and that no PILOT is made to assist the school district.
Additionally, Senator Carroll stated that, as Governor, he arranged for the Commonwealth to make an annual PILOT to the City of Frankfort for fire and police protection on state owned property. Over time that amount has increased to $90,000.
In response to questions from Representative Moffett and Senator Humphries, Mr. Ratliff stated that the borrower will pay 100 percent of the current property tax liability with a two percent annual increase thereafter.
A motion was made by Senator Carroll to approve the new bond issue, seconded by Representative Moffett, and approved by unanimous roll call vote.
Senator Humphries reiterated his thanks to the staff of KHC for their work with local officials to ensure an outlet for the loss of property from the tax rolls.
Mr. Starkweather reported one previously approved bond issue: Kentucky Housing Corporation (KHC) Tax-Exempt Multifamily Housing Revenue Notes, Downing Place Apartments Project, Series 2017, which sold by private placement on July 20, 2017. The issue financed the purchase, rehabilitation, and equipping of a 193 unit complex in Lexington. The net proceeds on the sale were $12.802 million with a net interest rate of 4.56 percent over 35 years. No action was required.
Mr. Starkweather reported four new School Facilities Construction Commission (SFCC) school district bond issues for Barbourville Independent, Bracken County, Bullitt County, and Pineville Independent. The transactions represented an estimated $14.225 million of renovations and improvements to schools. No tax increase was necessary to fund these projects.
A motion was made by Representative Moffett to approve the school bond issues, seconded by Representative Brown, and approved by unanimous roll call vote.
New Local School Bond Issues with 100 Percent Locally-Funded Debt Service
Ms. Halloran said there was one local school bond issue reported with 100 percent local debt service support in the amount of $400,000. The proceeds, plus $200,000 in cash, will match the $1.5 million allocated from the Education and Workforce Development Cabinet’s Work Ready Skills initiative for the renovation of the Area Technology Center in Green County. The bond issue involved neither School Facilities Construction Commission participation nor a tax increase. All disclosure information was filed and no action was required.
Updated Debt Issuance Calendar
Also included in the members’ folders was the debt issuance calendar. No action was required.
With there being no further business, the meeting was adjourned at 1:31 p.m.