Call to Order and Roll Call
The Capital Projects and Bond Oversight Committee meeting was held on Tuesday, September 19, 2017, at 1:00 PM, 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: 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, Real Properties; Ms. Ashley Adams, Financial Analyst, Kentucky Infrastructure Authority; and Mr. Ryan Barrow, Executive Director, Office of Financial Management.
LRC Staff: Katherine Halloran, Committee Staff Administrator; Julia Wang, Legislative Analyst; and Jenny Wells Lathrem, Committee Assistant.
Approval of Minutes (August 15, 2017)
A motion was made by Senator Carroll to approve the minutes of the August 15, 2017 meeting. The motion was seconded by Senator Humphries and approved by voice vote.
Project Reports from the Finance and Administration Cabinet
Ms. Tomes reported two emergency repair, maintenance, or replacement projects approved pursuant to KRS 45.750(1)(g) and 45.780. The first was the $1 million Kentucky School for the Deaf (KSD) High Voltage Electrical Service System project; with $800,000 allocated from the Emergency Repair, Maintenance, or Replacement Account and $200,000 allocated from KSD’s 2014-2016 Maintenance Pool to replace the primary high voltage electric service system at KSD’s campus. The campus experienced several electrical outages and the project was necessary to protect the health and welfare of students and staff. The second project was the $350,000 KingAir Engine Overhaul project; with $250,000 allocated from the Emergency Repair, Maintenance, or Replacement Account and $150,000 allocated from the Aviation Maintenance Pool to replace the engine. No action was required.
Ms. Tomes next submitted one unbudgeted project for the Department of Military Affairs pursuant to KRS 45.760. The Department of Military Affairs Boone National Guard Fitness Center project appropriation was $1,267,040.50; with $950,000 (75 percent) in federal funds and $317,000 (25 percent) in restricted funds from the Combined Clothing Distribution Facility (CCDF) account for the construction of a physical fitness center to serve Kentucky National Guard troops and civilian employees of the Department of Military Affairs.
A motion was made by Senator Carroll to approve the project, seconded by Senator Humphries, and approved by unanimous roll call vote.
Ms. Tomes next submitted five new capital projects pursuant to Part II of HB 303 and KRS 45.760(6); to be funded from a combination of bond funds from the Workforce Investment Construction Pool (Kentucky Work Ready Skills Initiative (KWRSI) awards), the Kentucky Community and Technical College Systems (KCTCS) institutions’ restricted funds and private donations, and some federal funds. The first project was the KCTCS Construct Community Intergenerational Center project at Hazard CTC, Lees Campus, in the amount of $5,108,000; with $2,888,100 in bond funds, $720,200 in private funds, and $1.5 million in federal funds from the Appalachian Regional Commission.
The second project was the KCTCS Construct Advanced Manufacturing Center at Jefferson CTC, Downtown Campus in the amount of $20,241,386; with $15.2 million in bond funds, $3.3 million in private funds, and $1,741,386 in restricted funds. Jefferson CTC is partnering with Jefferson County Public Schools on this project.
The third project was the KCTCS Renovate and Equip Manufacturing Labs at Owensboro CTC, Downtown Campus in the amount of $3,283,244; with $2,858,244 in bond funds, and $425,000 in restricted funds. Owensboro CTC is partnering with Daviess and Hancock Counties on this project.
The fourth project was the KCTCS Renovate Manufacturing Labs in Somerset CC, South Campus in the amount of $4,456,500; with $3,800,000 in bond funds, $356,500 in private funds, and $300,000 in restricted funds.
The fifth project was the KCTCS Renovate and Equip Manufacturing Labs in West Kentucky CTC in the amount of $3,040,000 in bond funds. West Kentucky CTC is partnering with West Kentucky Area Technology Centers on this project.
Additionally, Ms. Tomes said that each of these projects, with the exception of Jefferson CTC, is backed by an agreement between the institution and the Education and Workforce Development Cabinet stipulating that no bond proceeds will be released until matching funds are received. Bond funds for Jefferson CTC will be released based upon written pledges.
In response to questions from Senator Humphries, Ms. Tomes said that the bond funds were the beginning of the allocations to the community colleges receiving KWRSI awards during the first round of funding.
A motion was made by Senator Carroll to roll the five projects into one roll call vote. The motion was seconded by Representative Coursey and approved by voice vote.
A motion was made by Senator Carroll to approve the five projects, seconded by Senator Girdler, and approved by unanimous roll call vote.
Ms. Tomes next submitted an amendment to a prior capital project approval pursuant to KRS 45.760(7)(a), which was a restricted fund appropriation increase for the KCTCS Pikeville Technology Center at Big Sandy Community and Technical College. The revised project authorization consisted of $3,278,000 (59.6 percent) in federal funds and $2,222,000 (40.4 percent) in restricted funds. The project was originally approved and reported in October 2015 for $4.5 million. Construction bids and equipment needs were greater than originally anticipated.
A motion was made by Senator Carroll to approve the project, seconded by Representative Coursey, and approved by unanimous roll call vote.
Lease Reports from the Finance and Administration Cabinet
Mr. Aubrey reported six lease renewals with an annual cost exceeding $100,000 for privately leased space in various counties. All leases are to be renewed under the same terms and conditions, with the annual rental rate as follows: Cabinet for Health and Family Services (CHFS), Floyd County, $108,744 through June 30, 2026; CHFS, Lawrence County, $123,671 through June 30, 2026; CHFS, Letcher County, $178,579 through June 30, 2019; CHFS, Montgomery County, $125,874 through June 30, 2019; Council of Postsecondary Education, Franklin County, $324,411 through June 30, 2022; and Kentucky State Police, Hopkins County, $110,880 through June 30, 2026.
A motion was made by Senator Carroll to roll the six lease renewals into one roll call vote. The motion was seconded by Representative Coursey and approved by voice vote.
A motion was made by Senator Carroll to approve the six lease renewals, seconded by Representative Coursey, and approved by unanimous roll call vote.
Representative Rudy commented that he has received a number of phone calls from his constituency regarding the Beaver Dam Rest Area project. Mr. Aubrey said that the project is still an open procurement, nothing has been awarded to date, and that a resolution should be forthcoming.
Mr. Aubrey reported one new lease with the Department of Corrections in Jefferson County. This lease was advertised and procured pursuant to KRS 56.803. The new lease is for 11,105 square feet at a cost of $19 per square foot with no utilities and 72 reserved parking spaces. The total annual cost is $210,995 through June 30, 2025.
Mr. Aubrey next reported a lease modification for the Transportation Cabinet in Jefferson County. This lease is being modified to increase the square footage by 29,478 square feet for a total of 201,125 square feet and annual cost of $402,070.76. The space is for storing salt used in treating roads during inclement weather.
Mr. Aubrey lastly reported leasehold improvements to the 300 Building located at 300 Sower Boulevard in Franklin County. The occupying agencies have requested voice data outlets in the glass conference rooms in the collaboration areas. The wiring will be installed in 38 rooms. The occupying agencies will reimburse the Tenant Improvement Fund $9,041.50, bringing the total cost of the improvements to date to $201,113.31.
A motion was made by Senator Carroll to roll the new lease, lease modification, and the leasehold improvement items into one roll call vote. The motion was seconded by Representative Rudy and approved by voice vote.
A motion was made by Senator Carroll to approve the new lease, lease modification, and the leasehold improvement items, seconded by Representative Rudy, and approved by unanimous roll call vote.
Reports from the Office of Financial Management
Ms. Adams reported one Fund A (Clean Water State Revolving Fund – CWSRF) loan increase request and one new Fund A loan request. The City of Elkhorn requested a $37,939 increase to a previously approved $560,000 Fund A loan, bringing the total amount borrowed to $597,939. The increase was needed due to changes in project design for its wastewater treatment plant. The loan is a 20 year loan at a 0.75 percent interest rate. The Oldham County Environmental Authority requested a Fund A loan in the amount of $6.3 million for the third phase of its Orchard Grass Regional Wastewater Treatment Plant project. The loan is a 20 year loan with a 1.75 percent interest rate.
A motion was made by Senator Carroll to roll the KIA loans into one roll call vote. The motion was seconded by Representative Coursey and approved by voice vote.
A motion was made by Senator Carroll to approve the KIA loans, seconded by Representative Rudy, and approved by unanimous roll call vote.
Mr. Barrow provided follow-up reports for three previously approved bond issues. The first report was for the Kentucky Economic Development Finance Authority (KEDFA) Hospital Revenue Bonds, Series 2017A (Baptist Healthcare System Obligated Group). This conduit bond issue financed various Baptist Healthcare System projects and the amount issued was just under $220 million.
With respect to the following two remaining previously approved bond issues, Mr. Barrow commented that both transactions sold into a very favorable market, mitigating some of the effects of the recent ratings actions.
The second previously approved bond issue was the Turnpike Authority of Kentucky (TAK) Economic Development Road Revenue and Revenue Refunding Bonds (Revitalization Projects), 2017 Series A and B, with was Road Fund supported. The Series A portion provided financing for $30 million of transportation projects. The larger Series B portion was a refunding with a net present value savings of $7.8 million, approximately 5.2 percent of the refunded bonds.
The third previously approved bond issue was State Property and Buildings Commission (SPBC) Project No. 117, which was General Fund supported. The bond issue had four separate series to comply with tax laws. Series A was a taxable new money issue, Series B was a tax-exempt new money issue funding approximately $100 million of new projects, Series C was a taxable refunding issue, and Series D was a tax-exempt refunding issue. Mr. Barrow stated that the bond issue in aggregate funded $115 million of new projects and that the refunding portion had a net present value savings of roughly $8.1 million, about 6.3 percent of the refunded bonds.
In response to questions from Representative Moffett, Mr. Barrow said that the Commonwealth’s Issuer Credit Rating was downgraded by one rating by Moody’s [which resulted in General and Agency Fund supported debt as well as intercept programs for K-12 and postsecondary being lowered by one rating] and that the TAK’s debt, which is Road Fund supported, was placed on negative watch by S&P. Road Fund supported debt also received a downgrade by Moody’s. Mr. Barrow stated that due to market conditions, supply was incredibly low and investors needed paper, there was no increase in spreads for the TAK issue and a slight increase in spreads for the SPBC issue. However, given the market conditions and absent the downgrades, the bond issues could have sold even better. Mr. Barrow said that over the long term, the lower ratings will generate a higher cost of capital as he expected spreads to widen in the future due to the downgrades. Mr. Barrow referenced the diversity of the investor base, including those that invest in lower-grade municipal bonds, and the varying opinions of investors. He stated that while a number of investors will no longer purchase the Commonwealth’s bonds due to the pension issues; there were those that did as evidenced by the recent transactions. No action was required.
In response to questions from Senator Carroll and Representative Moffett, Mr. Barrow stated that the ratio of annual debt service to revenues was currently below the six percent threshold.
Mr. Barrow reported nine school district bond issues submitted with SFCC debt service participation. Five of those bond issues were new money transactions for the following school districts: Bath County, Beechwood Independent, Clark County, Harrison County, and Williamsburg Independent. The transactions were approximately $40 million in aggregate, with just under 90 percent locally-supported and about 10 percent state-supported. There were no tax increases for four of those five transactions. A recallable nickel tax was passed in 2015 for the Williamsburg Independent School District. The remaining four bond issues were refunding transactions for the following school districts: Bell County, Garrard County, Glasgow Independent, and Leslie County. The transactions were approximately $17 million in aggregate with a total savings of $777,000. The local portion of the debt service is about 75 percent and the state portion is about 25 percent.
A motion was made by Senator Carroll to roll the school bond issues into one roll call vote. The motion was seconded by Representative Brown and approved by voice vote.
A motion was made by Representative Rudy 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 reported one local school district refunding bond issue with 100 percent local debt service support. No action was required.
Ms. Halloran said that included in members’ packets is a spreadsheet itemizing approved tenant improvement requests for the 300 Building. The list includes a $1,369.60 item reported to staff in July for the installation of an antenna. LRC staff and Finance and Administration Cabinet staff spoke about consolidating future requests when possible; however, the Division of Real Properties reported the most recent item separately as there were no additional projects to report. 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 1:35 p.m.