Call to Order and Roll Call
The Capital Projects and Bond Oversight Committee meeting was held on Tuesday, December 19, 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 Rick Girdler, and Christian McDaniel; Representatives Larry Brown, and Will Coursey.
Guests: Mr. Scott Aubrey, Director, Real Properties; Mr. Craig Turner, CEO, CRM Companies; Mr. Ryan Barrow, Executive Director, Office of Financial Management; Ms. Ashley Adams, Financial Analyst, Kentucky Infrastructure Authority.
LRC Staff: Katherine Halloran, Committee Staff Administrator; Julia Wang, Legislative Analyst; and Jenny Wells Lathrem, Committee Assistant.
Approval of Minutes (November 21, 2017)
A motion was made by Representative Brown to approve the minutes of the November 21, 2017 meeting. The motion was seconded by Representative Coursey and approved by voice vote.
Lease Report from the Finance and Administration Cabinet
Mr. Aubrey introduced Mr. Turner who presented specifics regarding the Capital Plaza redevelopment project in downtown Frankfort. The presentation referenced the demolition of the Frankfort Convention Center and the Capital Plaza Tower as well as the construction of the five story, about 77,000 square feet per floor, office building and connected parking garage, comprised of about 1,200 parking spaces. The LEED certified office building will be similar to the 300 Building on Sower Boulevard in Frankfort, for which CRM/D.W. Wilburn was also the developer. The annual rent will be about $7.3 million, $18.86 per square foot for 385,500 square feet.
A motion was made by Representative Brown to approve the lease, seconded by Representative Coursey, and approved by unanimous roll call vote.
Mr. Aubrey next reported one new lease renewal under the same terms and conditions through June 30, 2026 for the Cabinet for Health and Family Services, Magoffin County, $10.78 per square foot for $11,203 square feet.
A motion was made by Representative Moffett to approve the lease, seconded by Representative Brown, and approved by unanimous roll call vote.
Report from the Office of Financial Management
Ms. Adams presented various Kentucky Infrastructure Authority loan requests.
The Regional Water Resource Agency, Daviess County, requested a $5,619,274 Fund A (Clean Water State Revolving Fund Loan Program) loan to finance the David W. Hawes Treatment Plant and Ragu Pump Station project.
The Mercer County Sanitation District requested a $278,194 Fund A loan increase to finance the Kennedy Bridge Road Sewer Improvements project, resulting in a revised loan amount of $701,694. The increase was due to project delays and higher than estimated construction bids.
The Fund A loan and loan increase were for 20 years with a 1.75 percent interest rate.
The City of Lewisburg requested a $250,000 Fund B (Infrastructure Revolving Loan Program) planning and design loan for the Sewer System Upgrade project. The loan is for five years with a 2.75 percent interest rate.
Ms. Adams submitted five Fund C (Governmental Agencies Program) loans to refinance 20 year Fund F (Drinking Water State Revolving Fund Loan Program) loans as follows: Carroll County Water District No. 1, $800,281 refinanced for approximately $24,000 in savings over the remaining seven years; the City of Bowling Green, $988,979 and $2,284,113 refinanced for approximately $51,000 and $97,000 in savings over the remaining five and ten years, respectively; the City of Eddyville, $738,605 refinanced for approximately $25,000 in savings over the remaining eight years; and the City of Ashland, $1,784,102 refinanced for approximately $60,500 over the remaining eight years.
The interest rates were reduced from 3 percent to 2.25 percent, with the exception of the $988,979 loan for the City of Bowling Green, for which the interest rate was reduced from 3.8 percent to 2 percent [the higher Fund F interest rate was due to the earlier loan origination date and the lower Fund C interest rate was based on the shorter term of the loan].
The City of Morehead requested a $1,297,200 Fund F planning and design loan for the Regional Water Treatment Plant construction project. The loan is for five years with a 2.75 percent interest rate.
In response to questions from Senator McDaniel regarding the Fund A loan increase, Ms. Adams affirmed that contracts for water and sewer projects are overseen by the Division of Water.
In response to questions from Representative Moffett regarding the Fund C loans, Ms. Adams stated that KIA recently restructured its Fund C program (loans were previously 3 percent regardless of term) to offer lower interest rates for shorter term loans.
A motion was made by Representative Moffett to roll the KIA loans into one roll call vote, seconded by Representative Brown, and approved by voice vote.
Senator McDaniel stated that he wished to record a pass vote for the Mercer County Sanitation District Fund A loan increase due to ambiguity regarding increased costs and supplemental federal funding.
A motion was made by Representative Moffett to approve the KIA loans, seconded by Representative Coursey. The motion passed by a roll call vote of 6 yeas for all KIA loans with the exception of the Fund A loan increase for the Mercer County Sanitation District Fund A loan increase which recorded a roll call vote of 5 yeas, 1 pass.
Mr. Barrow submitted the Kentucky Economic Development Authority (KEDFA) Hospital Revenue Bonds, Series 2017C (Baptist Healthcare System Obligated Group), a conduit refinancing transaction not to exceed $73,415,000. As a conduit borrower, Baptist Healthcare System will use KEDFA to secure tax-exempt status for the bond issue, which is not an extension of the Commonwealth’s credit, and is projected to result in approximately $8.1 million in present value savings. This transaction will price prior to December 31, 2017; after which proposed federal legislation, terminating tax-exempt advance refundings, will go into effect.
In response to questions from Representative Moffett, Mr. Barrow confirmed that reviews of conduit transactions are commensurate with the fact that they not a liability of the Commonwealth and that, in the event of default, the Commonwealth is not obligated to make debt service payments.
A motion was made by Representative Brown to approve the bond, seconded by Representative Moffett, and approved by a roll call vote of 5 yeas, 1 nay.
Senator McDaniel explained his vote, stating that while the Commonwealth is not legally obligated to provide financial support when conduit borrowers do not have sufficient revenue to make payments on conduit bonds, they could approach the Commonwealth for assistance nonetheless.
Mr. Barrow submitted the Kentucky Higher Education Student Loan Corporation (KHESLC) Student Loan Backed Notes, Series 2017-1, in an amount not to exceed $175 million. The Direct Purchase Notes (DPNs) with Bank of America will refinance KHESLC’s variable rate demand obligations under the 2008 trust indenture and finance Federal Family Education Loan Program (FFELP), including rehabilitated, student loans. The projected average annual debt service is about $14.5 million.
A motion was made by Senator Girdler to approve the issue, seconded by Representative Moffett, and approved by unanimous roll call vote.
Mr. Barrow submitted the Kentucky Housing Corporation (KHC) Conduit Revenue Bonds (Jackson Green Apartments Project), Series 2018, in an amount not to exceed $30 million. The transaction is typical of KHC multi-family conduit issues that are submitted to the committee each month. Jefferson Green Apartments is a 312 unit property located in Louisville, Kentucky. A public hearing was conducted in June 2017. The deal is scheduled to price and close in January 2018. The developer is responsible for payment of the debt service.
A motion was made by Representative Coursey to approve the bond issue, seconded by Representative Moffett, and approved by a roll call vote of 5 yeas, 1 nay.
Mr. Barrow submitted the University of Kentucky General Receipts Bonds, 2018 Series A and 2018 Taxable Series B. Series A will be approximately $182 million with an estimated interest rate of 3.7 percent and Series B will be about $54.3 million with an estimated interest rate of 3.77 percent. Proceeds will finance additional renovations within the existing hospital footprint as well as renovations to the chemistry-physics, journalism, and law buildings. Typical of nearly all postsecondary financings, the bonds will be issued via competitive sale.
A motion was made by Senator McDaniel to approve the bond issue, seconded by Representative Moffett, and approved by unanimous roll call vote.
New School Bond Issues with 100 Percent Locally-Funded Debt Service
Ms. Halloran reported a $5.2 million bond issue for the Shelby County School District to finance the purchase a facility for its Big Picture Learning Academy. A tax increase was not necessary for the purchase.
Updated Debt Issuance Calendar
The debt issuance calendar is included in the members’ packets.
With there being no further business the meeting adjourned at 1:30 p.m.