Call to Order and Roll Call
The 1st meeting of the Interim Joint Committee on Transportation was held on<Day> Tuesday, June 7, 2016, at 1:00 PM, in Room 149 of the Capitol Annex. Representative Hubert Collins, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Ernie Harris, Co-Chair; Representative Hubert Collins, Co-Chair; Senators Joe Bowen, C.B. Embry Jr., Jimmy Higdon, Gerald A. Neal, Dorsey Ridley, Albert Robinson, Brandon Smith, Whitney Westerfield, and Mike Wilson; Representatives Leslie Combs, Tim Couch, Donna Mayfield, Tom McKee, Russ A. Meyer, Charles Miller, Jerry T. Miller, Terry Mills, Rick G. Nelson, Marie Rader, Steve Riggs, Sal Santoro, John Short, Arnold Simpson, Diane St. Onge, Fitz Steele, Jim Stewart III, Tommy Turner, and David Watkins.
Guests: Greg Thomas, Secretary, Kentucky Transportation Cabinet (KYTC); Andy Barber, Deputy State Highway Engineer, Project Delivery and Preservation, KYTC; and Megan McLain, Staff Attorney Manager, Assistant General Counsel, KYTC.
LRC Staff: John Snyder, Brandon White, Dana Fugazzi, and Christina Williams.
Introduction of the Transportation Cabinet Secretary and key executive staff
Greg Thomas, Secretary, KYTC introduced himself and several key executive staff of the Cabinet including; Asa Swan, Chief of Staff, Office of the Secretary; Samantha Davis, Legislative Liaison; Steve Parker, Commissioner, Department of Aviation; Robin Brewer, Executive Director, Office of Budget and Fiscal Management; Jessica Castenir, Deputy Executive Director, Budget and Fiscal Management; Patty Dunaway, State Highway Engineer; Andy Barber, Deputy State Highway Engineer, Project Delivery and Preservation; Paul Looney, Deputy State Highway Engineer, Project Development; David Martin, Commissioner, Rural and Municipal Aid; Gary Reece; Deputy Commissioner, Rural and Municipal Aid; John Mark Hack, Commissioner, Department of Vehicle Regulation; Ben McKown, Executive Director, Office of Inspector General, Kevin Moore, Executive Director, Legal Services, Ryan Watts, Executive Director, Office of Public Affairs, and Gray Tomblyn, Executive Director, Office of Support Services.
Implementation of Legislation from the 2016 Regular Session and Kentucky’s “Pause 50” plan
Secretary Thomas explained the “Pause-50” approach, which is KYTC’s plan to preserve and shore up the Road Fund cash balance by halting all new state-funded projects in phases for the first year of the biennium; and in the second year, aim for a goal of $50 million to allocate on state-funded project starts. The pause in adding new state-funded projects for the first year will not apply to statewide resurfacing, which is funded at $125 million per year. The $50 million allocated on state-funded project starts could be higher or lower depending on the flow of revenue in FY 2017-2018.
The net Road Fund cash balance is anticipated to drop well below $100 million in the summer of 2016. The Road Fund cash is typically at its lowest point anywhere from the second to third week of the month because over half of Road Fund revenues are deposited in the last few days of the month. The cabinet refers to this as the “low day.” Normally, the cash balance builds from January to May. Conversely, the cash balance typically declines from June to December due to construction season. End of month cash balances have dropped significantly over the last year. The ending net cash balance for January 2015 was $457 million, and the ending net cash balance for January 2016 was $240 million.
Secretary Thomas stated if the cabinet continues the “business as usual” approach, it is anticipated that there will be a negative cash balance on the low days of August, September, and October of 2016, as well as an even more alarming negative balance in August 2017. A negative cash balance compromises the cabinet’s ability to meet current financial obligations, as well as the letting of state road projects over the next biennium. The last time the cash balance neared zero was in 2004 when it hit $30 million.
Secretary Thomas stated the current level of spending is unsustainable and state spending has greatly exceeded revenues since fiscal year (FY) 2014. Road Fund revenues totaled $4.537 billion over FY 2014-16. Over the same period, expenses totaled $5.035 billion, exceeding revenues by $498 million. One contributing factor is the decline of 6.5 cents per gallon in the motor fuels tax in FY 2015. As a result, Road Fund revenues over FY 2015-16 period are anticipated to be $152 million less than FY 2014 revenues. The motor fuels tax is currently at the statutory floor of 24.6 cents per gallon for FY 2016, and it is expected to remain at the statutory floor for FY 2017 and FY 2018. The second factor is state construction spending of more than $1 billion over the last 3 years and increased maintenance spending over the last 2 years. Maintenance costs for FY 2016 is projected to be $401.8 million, $63 million over budget. The third factor is the unspent but obligated balance of state projects at the end of FY 2016, which adds up to approximately $1 billion compared to $506.6 million at the end of FY 2012.
Secretary Thomas stated the cabinet will continue with the following initiatives; ongoing commitments to mega projects including I-69 improvements, Mountain Parkway, U.S. 68/KY 80 roadway improvements and the Louisville bridges project. Federal funding levels are sustainable (about $700 million per year). The cabinet will proceed on new federally-funded projects including the widening of I-75 in Rockcastle County, a new I-65 interchange in Bullitt County and upgrading the William H. Natcher Parkway to interstate standards in order to establish the “I-165” Spur Route between Bowling Green and Owensboro. Local county and city governments will continue to utilize the Flex Fund and Bridge Replacement programs.
Secretary Thomas stated the Federal Highway Administration (FHWA) has eliminated approximately $650 million of toll credits that Kentucky had “banked.” Toll credits cannot be used as cash but can be used for the state match on federal projects. The Federal Highway Administration disagreed with the way the state calculated these credits. The cabinet has assumed that any project that would qualify for federal dollars, where state dollars were invested could qualify as a toll credit. The Federal Highway Administration stated no, it has to be state money spent on tolling projects, so as of December 15 that state will have only the toll credits that are coming with the Ohio River Bridges Project. The cabinet estimates that to take us through the 2020 time frame. There will be approximately $40 million in 2020 required for state match of federal projects and then the number goes to $100 million a year of required state funds to match federal dollars.
In response to a request made by Representative Combs, Secretary Thomas stated a list of the $145 million in halted projects that are in the pre-construction phase will be provided to the committee. The cabinet intends to use $125 million for resurfacing purposes, however, there is some room for flexibility for the use of the $125 million.
In response to a question asked by Senator Bowen concerning the continuing of funding, Secretary Thomas stated that current projects in the pipeline that have all of the pre-construction phases completed will still move forward.
In response to a question asked by Representative Short concerning salary levels for state highway employees, Secretary Thomas stated there is a salary study projected for completion by late fall of 2016. In response to a second question asked by Representative Short, Secretary Thomas stated the completion of the Mountain Parkway will be a priority.
In response to a question by Senator Ridley, Secretary Thomas stated the “Pause-50” plan is not an attempted rainy day fund. Instead, the cabinet views it as a way to stop the Road Fund decline trend in order to shore up the Road Fund and make it sustainable.
In response to a question asked by Representative Jerry Miller, Secretary Thomas stated the cabinet has calculated toll credits as they always have, however, FHWA has decided the toll credits are no longer valid.
Representative Mills stated he is happy to see a salary study for state highway employees being considered. Senator Higdon echoed his comments and encouraged the cabinet to seek out inefficiencies within each department.
Senator Westerfield emphasized the “Pause-50” plan is a needed step in order to shore up the Road Fund.
In response to a question asked by Representative St. Onge, Secretary Thomas stated the money allocated to the maintenance fund is intact.
Representative Combs cautioned the cabinet to be vigilant about where the cuts are made and where projects are halted. Some areas of the state cannot take anymore cutting, loss of jobs, or halted projects.
In response to a question asked by Representative Riggs, Secretary Thomas stated more modified approaches were considered, however this approach was chosen to be the path to shore up the Road Fund.
In response to a question asked by Senator Ridley, Secretary Thomas stated he was not suspending these projects for a year and then flowing in the $50 million a year into the system. The plan is to start with $50 million and then round up to around $150 million to $160 million in state contracting per year.
Chairman Harris stated when he was first elected, the SP (state) program was fairly balanced, and Governor Paul Patton proposed a 7 cent tax increase that would have resulted in an additional $210 million in annual revenue. Then the legislature started increasing the SP program, which became very large. There were a couple of bond pools done so that we were flushed with everything. Therefore, where the program used to be balanced, it became more out of balance because of the input from the legislature. Then after the General Assembly increased the SP program, they did not adopt the 7 cent tax increase, which contributed to the problem. Secretary Thomas has confirmed because the toll credits are going away, it will require Kentucky to take more money and devote it to federal projects. So the $1.3 billion in projects that is in the SPP account now is going to be further challenged as we get ready to look at two biennial budget cycles from now. It is now a landscape where, if adding a state project to the plan, something should be taken out. He added he agreed with the cabinet’s plan to manage cash flow.
In response to a summary request from Chairman Harris concerning FAST LANE and TIGER grants, Secretary Thomas stated there are three total FAST LANE grants that have been applied for including one in northern Kentucky on I-75, one in Rockcastle County, and lastly one on I-71 at the Gene Snyder Freeway North. There are also three TIGER grants, one in Lexington at the Newtown Pike extension, one on the I -65 Bullitt Co. interchange, and the last one on 1-64 at the Gene Snyder Freeway. There are six total but there has been no response on the grants currently. Chairman Harris added if the grants are rewarded that would free up money to be spent elsewhere.
In response to a question from Chairman Collins regarding project lettings being delayed, Secretary Thomas stated the cabinet has paid approximately $6 million over the past year in delayed claims because utilities have not been moved. Coming from a utilities background, he does not know why the cabinet would let a project if the utilities are not clear. Some efficiency improvements are being done on that in terms of how the delays are approached.
Megan McLain, Staff Attorney Manager, Assistant General Counsel, KYTC, stated the P3 legislation (Public, Private, Partnerships) has passed and the cabinet is working with the Finance Cabinet to pass the regulations that are needed to set up the P3 procurement process and make sure those are evaluated fairly and efficiently.
Update on the Louisville Bridges Project and finalized toll schedule
Andy Barber, Deputy State Highway Engineer, Project Delivery and Preservation and Project Manager for the Louisville Bridges Project stated in regards to the downtown crossing, the project is on budget, on schedule and should meet the December 2016 deadline. Since the committee was last updated, the Lincoln Bridge has been opened, which ultimately will be six lanes northbound. The Kennedy Bridge will be six lanes southbound. Work is continuing on the Kennedy Bridge. The entire project is approximately 90% complete. The improvements on the west side of the Kennedy Bridge are also nearly complete. Now that traffic is on the Lincoln Bridge rehabilitation of the deck and some of the floor system on the Kennedy Bridge ($22 million in improvements) has begun. The project website has pictures showing the public any updates that are taking place.
The Story Avenue ramp has been returned to its previous function prior to project start. Now they are going to open up a flyover that will stop the weaving over three lanes of traffic by having dedicated access to I-65 and dedicated access to I-64. In Jeffersonville, 6th Street will open to traffic later in the summer of 2016 and then southbound traffic will return to the Kennedy Bridge restoring that movement from southbound I-65 to eastbound I-64 and northbound I-71. Mr. Barber stated he is very pleased at how this project has progressed.
The construction of the East End Bridge is approximately 87 percent complete. The pavement on the Gene Snyder extension to the river is about 55 percent complete. The tunnel that is part of the East End crossing is fully excavated and the tunnel liner is about 98 percent complete. The towers are complete and the cables are being sawed and erected. The main span is about 80 percent complete. He added the project website has webcams for real time progress. Mr. Barber added the southern Indiana side is approximately 95 percent complete and on the Kentucky side, nothing can be done until the connection to the river on the Indiana side is complete. Both bridges are on track to be completed by December of 2016.
Ms. McLain presented the finalized toll schedule. For 2-axle vehicles that are up to 7 ½ feet in height the tolls will be as follows; $2.00 with a transponder, $3.00 with a registered plate, and $4.00 with an unregistered plate. For a 2-axle vehicle that is higher than 7 ½ feet and all 3 and 4-axle vehicles, the tolls are as follows; $5.00 with a transponder, $6.00 with a registered plate, and $7.00 with an unregistered plate. For a vehicle with 5 axles or more, the tolls are as follows: $10.00 with a transponder, $11.00 with a registered plate, and $12.00 with an unregistered plate. Pre-paid toll accounts will be able to be opened in late summer of 2016. The toll revenue will be split 50/50 between Kentucky and Indiana. Tolling will begin when two of the three bridges are complete.
In response to a question asked by Senator Neal concerning the central location of the tolling operations, Ms. McLain stated there will be some roadside infrastructure and a service center in Kentucky (Louisville) but the central location is in Texas due to a cost and time saving measure. However, after a seven year contract with the location is up, the expenses will be reevaluated and compared to see if it would be more cost effective to move the central tolling location to Kentucky. There is a call center, and web customer service available.
In response to a question asked by Representative St. Onge concerning provisions for rental agencies and tolling, Ms. McLain stated that the Kentucky Public Transportation Infrastructure Authority, the entity that sold the bonds and will collect the tolls, is a member of the E-Z Pass group that is an interoperable agency that allows customers to have a prepaid account in one location, but use their transponders in other locations and that money is distributed accordingly. Through that membership, there are some contracts that allow for cooperation with large rental agencies. From a customer standpoint, it will be on an agency by agency basis. Some will have transponders in the car and they will automatically be charged. Some will have the transponder be an option and have it billed. The cabinet is not dictating how the tolls are to be collected but the ability to collect the tolls from the rental agencies is there through the E-Z Pass contract.
Representative Riggs voiced concerns on the pushback date for the availability of transponders from the advertised May 13th date to the current availability date of late summer.
In response to a question by Representative Jerry Miller, Ms. McLain stated there is a discount available for frequent users of the bridges. After a transponder in a vehicle makes either 20 round trips or 40 one-way trips across the bridges, there will be a $40 credit to that account, and then any trips made with that transponder the rest of that calendar month will be charged a toll rate of $1.
In response to a question asked by Representative Simpson concerning the possibility of traffic projections falling short of what is anticipated and the possibility of raising tolls as needed because of this, Ms. McLain stated the traffic and revenue study was very conservative and it is anticipated that those numbers will be met. However, if it is not met, both the trust indenture and the toll rate resolution passed by the tolling body both indicate that tolls would be increased to meet the rate needed in order to cover the debt service. The projects are handled differently by Kentucky and by Indiana in the fact that Kentucky sold non-recourse toll revenue bonds meaning that Kentucky would not be responsible to cover that. There is an operation and maintenance back stop so the road would still be maintained but the debt service would not. Indiana however, set up an availability payment of a public, private, partnership so Indiana gets the toll money and then separately there is an appropriation for the availability payment to the company that fronted the money and is maintaining the roads. Regardless of what toll money is coming in, Indiana will still be responsible for making their availability payment.
With no further business, Chairman Collins thanked members and guests for their attendance and announced that the next meeting would be July 5, 2016. He adjourned the meeting at 2:15 P.M.