Capital Planning Advisory Board


Minutes of the<MeetNo1> 2nd Meeting

of the 2013 Calendar


<MeetMDY1> June 26, 2013

Call to Order and Roll Call

The<MeetNo2> 2nd meeting of the Capital Planning Advisory Board was held on<Day> Wednesday,<MeetMDY2> June 26, 2013, at<MeetTime> 9:30 AM, in<Room> Room 171 of the Capitol Annex. Senator Stan Humphries, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Senator Stan Humphries, Co-Chair; Representative Terry Mills, Co-Chair; Senator Whitney Westerfield, Representative Tom Riner, Charles Byers, Carole Henderson, John Hicks, Sherron Jackson, Mary Lassiter, James Link, Carol Palmore, and Katie Shepherd.


LRC Staff: Shawn Bowen, Josh Nacey, and Jennifer Luttrell.


Guests testifying before the Board: Charles Harman, Director, Division of Budget and Financial Management, Department of Education; Stuart Johnston, Director, Division of Technology Services, Brian Easton, Assistant Director, Division of Administrative Services, Barbara Teague, Kentucky State Archivist, and Linda Hume, KET Director of Finance and Administration, Education and Workforce Development Cabinet; Robert L. King, President, Allen Lind, Vice President of Information and Technology, and Shaun McKiernan, Senior Associate of Budget, Policy, and Planning, Council on Postsecondary Education; Eric Shaffer, System Director of Facilities Management, and Ken Marks, Director of Capital Construction and Sustainability Initiatives, Kentucky Community and Technical College System; Dr. Mary Evans Sias, President, Hinfred McDuffie, Executive Vice President for Administration, and Joseph Gronefeld, Senior Project Manager, Kentucky State University; Beth Patrick, Chief Financial Officer and VP for Administration, Morehead State University; Ken Ramey, Vice President for Administration and Finance, and Larry Blake, Assistant Vice President for Facilities Management, Northern Kentucky University; Dr. Gary Ransdell, President, John Osborne, Vice President of Campus Services and Facilities, and Bryan Russell, Director of Planning, Design, and Construction, Western Kentucky University; Bob Jackson, Associate Vice President of Development and Governmental Relations, Kim Oatman, Chief Facilities Officer, and Carl Prestfeldt, Director of Fiscal Planning and Analysis, Murray State University; Larry Owsley, Vice President for Business Affairs, University of Louisville; James Street, Executive Vice President for Administration, Eastern Kentucky University; and Bob Wiseman, Vice President for Facilities Management, University of Kentucky.


Approval of Minutes

A motion to approve the minutes of the May 22, 2013 meeting was made by Mr. Hicks, seconded by Representative Mills, and approved by voice vote.


Information Items

Two information items were included in members’ binders. The items included follow-up correspondence from the Transportation Cabinet regarding the square footage cost for the new District 10 office building in Breathitt County, and a chart outlining university capital projects authorized in House Bill (HB) 7, 2013 Session of the Kentucky General Assembly. No action was required.


Review of Agency Capital Plans

The Capital Planning Advisory Board received testimony regarding 13 state agency capital plans. The testimony included discussion of capital construction, information technology, and equipment needs for the period 2014-2020. The following state agencies and postsecondary institutions testified: Department of Education, Education and Workforce Development Cabinet, Council on Postsecondary Education, Kentucky Community and Technical College System, Kentucky State University, Morehead State University, Northern Kentucky University, Western Kentucky University (via video conference), Murray State University (via video conference), University of Louisville, Eastern Kentucky University, University of Kentucky, and University of Kentucky Hospital.


Relative to a question from Senator Westerfield, Mr. Harmon said facilities at the Kentucky School for the Deaf and the Kentucky School for the Blind are in poor condition. For the last ten years, two facilities have been deemed surplus property. The facilities are unoccupied due to ongoing problems with water leaks and mold.


In response to another question from Senator Westerfield regarding the Department of Education Instructional Device Replacement project, Mr. Harmon said the useful life of instructional devices (tablets) is less than the useful life of desktop computers. The Department of Education provides the funds to districts to replace the devices, but school districts are not obligated to buy tablets, they may also purchase desktops. He added that most districts purchase iPads.


Mr. Hicks asked Mr. Harmon to provide for the members at the next meeting an analysis of what it would cost to lease the instructional devices rather than purchase them. [The Replace Instructional Device project is estimated to cost $100 million over a four-year period, $50 million in the 2014-16 and the 2016-18 biennium.] Mr. Harmon responded that he would provide that information to members.


In response to a question from Representative Mills, Mr. Harmon said desktop computers cost approximately $1,100 and laptops cost about $1,500.


Relative to a question from Senator Westerfield about the Next Generation Support in Education Excellence in Kentucky (SEEK) project, Mr. Harmon said there are numerous deficiencies with the current system of calculating and distributing the annual SEEK allocation. He said the system is slow to generate the required reports and inflexible when computing revised data.


Representative Mills asked how many students are enrolled at the Kentucky School for the Deaf (KSD) and the Kentucky School for the Blind (KSB). Mr. Harmon responded that there are approximately 120 students enrolled at each school. The enrollment has declined because more parents are choosing to keep their children at home, but through various outreach programs, the schools serve about 2,500 students.


In response to a question from Senator Humphries, Mr. Harmon said KSB and KSD underwent an analysis of its deferred maintenance needs in 2011. The repair cost at the KSB campus is $39 million, and the replacement cost is $60 million. The repair cost for KSD is $36 million, and the replacement cost is $57 million. Mr. Harmon said the department was pleased with the analysis; however, the dollar figures were based on the assumption of 700 students, instead of current enrollment figures.


Relative to the Expand the Libraries and Archives Building project for the Education and Workforce Development Cabinet, Mr. Hicks asked why the department has submitted a request for expanded library space when leased space has been secured. [The department recently leased property for $545,764 annually. The single-story, 100,000-square-foot building will have steel shelves able to hold 15 rows of boxes. Moving into the building will likely take about two and a half years and cost roughly $1.6 million.] Ms. Teague explained that the goal, over a 20-year period, is to have permanent records stored in a state-owned facility. There will always be a need for permanent paper records and those types of records should not be stored in leased space.


Mr. Jackson asked how many projects are designated for funding from the Education and Workforce Development Cabinet Miscellaneous Maintenance Pool project ($6,381,000, 2014-16 biennium). Mr. Easton responded that 43 projects within the cabinet are designated for maintenance pool funding. Those projects are within the Office of Education Technology, Office of Vocational Rehabilitation, and the Office for the Blind.


In response to additional questions from Mr. Jackson, Ms. Hume said the Kentucky Educational Television (KET) facility maintenance pool will be used to fund various ongoing maintenance projects. There is no specific list of projects designated for funding, and the largest project, at a cost of $25,000, would likely involve painting transmitter towers. The Federal Communications Commission and the Federal Aviation Administration require that the paint on all broadcast towers be maintained so that it is not flaking and has not visibly faded. The maintenance pool will also fund projects related to the repair of KET’s Cooper Drive location. The building has experienced severe settling problems over the last ten years, resulting in the need to pump concrete into the foundation in an effort to prevent additional structural damage. The actual cause of the problem is still unknown, and an engineering study recommended the soil be studied to help determine the cause of the problem.


In reference to the Council on Postsecondary Education Adult Learner Degree Attainment Initiative project ($1,000,000 general funds, 2014-16 biennium), Ms. Palmore asked how much the project will cost, and if a needs assessment had been done. Mr. King said the Postsecondary Education Improvement Act of 1997, commonly referred to as House Bill 1, established educational goals for the state to achieve by 2020. One of those goals is to increase the educational attainment level of Kentucky residents to the national average of attainment. The Adult Learner Degree Attainment Initiative will be modeled after the Kentucky Community and Technical College System (KCTCS) online degree program. The offerings will be based on the needs of the four-year institutions. To qualify for the program, a student must have completed at least 60 postsecondary credit hours. The students would come in as juniors and would move into a limited number of degree programs to be identified based upon community need. The market or need is potentially 1 million students. As to the cost of the program, Mr. King said the cost of the program should be in line with public university tuition.


Relative to a question from Ms. Lassiter regarding the Council on Postsecondary Education Expand Kentucky Regional Optical Network Infrastructure (KyRON) project, Mr. Lind said the expansion of this network will not directly assist individuals that do not have broadband Internet access. KyRON will assist individuals indirectly by sharing national Internet2 100 Gbps backbone with public entities. The end customers are community libraries, schools, museums, university campuses, etc.


In response to a question from Mr. Jackson, Mr. Shaffer said KCTCS included a request for 2014-16 and 2016-18 for a $38 million Capital Renewal and Deferred Maintenance Pool. If authorized, this pool would fund some of the projects in the first biennium identified as asset preservation. Since 1997, KCTCS has included such a request in its capital plan, however, that funding has never been authorized in an executive budget. Historically, KCTCS has managed its deferred maintenance needs internally with $5 million each biennium. In addition, KCTCS has utilized service contracts for mechanical equipment upgrades and preventive maintenance for almost all KCTCS buildings statewide.


In response to a question from Representative Mills, Mr. Shaffer said KCTCS has been in contact with Ford Motor Company in Jefferson County about training students at its facility. KCTCS would also like to build a manufacturing technology facility to meet the needs of three counties - Jefferson, Bullitt, and Carroll. A 30-acre parcel of land has been acquired in Carroll County with the assistance of the county judge executive, local contributions, and a property trade with the Department of Parks for approximately 30 acres of unused land at General Butler State Park. The site would be for a facility to replace existing leased space and expand programs. In Bullitt County, a parcel of land is being offered by the local government to locate a new facility and replace existing leased space and expand the program offerings.


Mr. Shaffer added that there is a very active training program for service technicians for all manufacturers temporarily located at Toyota Motor Manufacturing in Georgetown. This program is difficult to get into because of its location on Toyota property, and security at the plant. KCTCS has acquired 20 acres at Lanes Run Business Park near Toyota to build a facility to move the manufacturing program into, as well as provide other educational options to the region. The Scott County Fiscal Court assisted in this acquisition.


Relative to the Kentucky State University Expand and Renovate Betty White Nursing Building project ($9,028,000 general funds, 2014-16), Ms. Palmore asked how many students are in the nursing program. Dr. Sias responded that the program has an enrollment of approximately 290 students.


Relative to another question from Ms. Palmore, Dr. Sias said KSU developed the old Paul Sawyier Library building for the Aquaculture Program of Distinction. The building will house a Kentucky Ecological River Exhibit, which will provide the opportunity for school-age children to see and learn about Kentucky aquatic life and river ecological systems. The building has classrooms and public learning space. Additionally, it will be the location of the Center of Excellence for the Study of Kentucky African Americans and display historical artifacts of Kentucky African American heritage. A floating science lab boat, known as the Kentucky River Thorobred, will serve as a classroom, and is planned on the Kentucky River for public learning in aquaculture. The project is developed in conjunction with the Frankfort Riverfront Development Plan.


Relative to the KSU Build Central Boiler System project, Senator Humphries commented that in addition to using horse muck as a heating source, he hoped the university would review clean coal alternatives for the new heating plant. Mr. McDuffie said this project is a high priority for the university, and they are reviewing clean coal alternatives. He added that KSU has been able to find coal that meets the EPA’s compliance guidelines, but it is more expensive. The current boiler plant was built in 1947 and contains two coal-fired boilers installed 36 years ago.


Mr. Hicks asked how Morehead State University (MoSU) evaluates its capacity for debt. Ms. Patrick said the university is drafting a debt policy that will be approved by the university’s board this year. MoSU established a ten-year housing master plan which calls for renovation and razing of residence halls. As a result of implementing this master plan, the university has incurred significant debt. MoSU is in the sixth year of completing its housing plan, and has renovated five residence halls by increasing residence hall rates to cover the debt service for the renovations.


Mr. Jackson asked if the MoSU Replace Electrical Switchgear project ($2,660,000 general funds, 2014-16 biennium) could be completed under an Energy Savings Performance Contract (ESCO) or through third-party financing. Ms. Patrick said they could potentially look at completing the project in another manner if it is efficient.


In response to a question from Mr. Jackson as to whether any of MoSU’s agency bond projects were related to projects approved in House Bill 7 (2013 Kentucky General Assembly), Ms. Patrick said the only connection is that the agency bond projects are part of the ten-year housing master plan that was completed in 2006. The phase that was approved in House Bill 7, the renovation of Mignon Hall, was just started. The next phase in that plan is to construct a 400-bed residence hall, which is the second priority for the university. MoSU is in the process of exploring a private partnership to reduce the potential debt of this project.


In response to a question from Mr. Hicks, Mr. Ramey replied that Northern Kentucky University (NKU) has developed a debt policy, and in the fall, it will be presented to the university’s board for approval. NKU pays close attention to Moody’s recommended debt level ratios and tries to stay within those ratios. All agency bonds that have been issued, or will be issued, must have a designated revenue stream to support the debt service. NKU does not utilize any general receipt funds to pay for agency bonds.


Relative to the NKU Renovate Old Science/Construct Health Innovations Center project ($97 million general funds), Mr. Jackson asked NKU representatives to further describe the condition of this facility and to explain what would happen if the project remains unfunded. Mr. Blake said the university has spent a significant amount of money to upkeep the facility. The shell of the building is in good condition; however, the interior has reached its useful life. The air-handlers quit working and had to be replaced on an emergency basis over the summer. New air-handling units are needed, and there are problems related to vibration of those units, including cracked structural slabs. The HVAC is highly inefficient and needs to be upgraded. There are 275 classes held in the building per semester, and 20-25 percent of all classes would not go forward if the building systems were shut down. The electrical system is inefficient and not working properly, and $60,000 had to be spent on duct work to seal the interior.


In response to a question from Senator Humphries, Mr. Ramey stated that the university has not launched any aggressive discussions with community partners relative to sharing in the cost of renovating the Old Science Building. To date, a $6 million naming gift has been received, and $2 million in private donations have been received for technology needs for the building.


In response to a question from Mr. Hicks, Dr. Ransdell said Western Kentucky University’s (WKU) total institutional debt is under five percent (4.75) of the university budget. The bond ratings, which exceed the state’s bond ratings, are good and in-line with what is recommended by Moody’s and Standard and Poor’s. WKU utilizes federal, state, and private funds, and agency bonds. The debt for WKU’s student housing and the E. A. Diddle Arena Renovation project is not considered university debt. [WKU established the Student Life Foundation to fund and renovate student housing. The WKU Student Life Foundation Inc. was incorporated as a nonprofit, non-affiliated, tax-exempt Kentucky corporation. The foundation purchased, for the independently appraised value of $21.5 million, 17 of the 18 residence halls at WKU through the sale of $65 million in tax-exempt bonds. The Diddle Arena project was funded through a bond issue by the city of Bowling Green.] WKU was the first to use this model in the state capital planning process.


Dr. Ransdell stated that in August, WKU is moving its entire School of Nursing into a new leased building, the WKU Health Science Complex, which the medical center in Bowling Green will fund and build in a classic public/private partnership. The School of Nursing will double in size. Most of the lease payments will be covered by Tax Increment Financing (TIF) revenue, which allows an academic program to serve the region’s needs, and is an economic stimulant for the downtown TIF district in Bowling Green.


In response to a question from Ms. Lassiter, Dr. Ransdell said that all projects are approved by the university’s board of regents.


In response to a question from Senator Westerfield about the land in Hopkinsville being available to build the new Breathitt Veterinary Center ($32,468,000 general funds, 2014-16), Mr. Oatman replied that consultants have recommended that the center be built in a rural area, rather than across the street of the existing facility to remain out of conflict with adjoining developments. Mr. Jackson added that the existing facility may be transferred to KCTCS once the new Breathitt Veterinary Center is built.


In response to a question from Mr. Hicks, Mr. Oatman stated that the MuSU Board of Regents has not adopted a formal debt policy. However, the issue was discussed during the university’s recently completed housing study, and should be formalized in the future.


In response to a question from Senator Humphries, Mr. Bob Jackson said the Breathitt Veterinary Center is a 50-year old animal diagnostic laboratory. The university has had a number of discussions with federal agencies and the congressional delegation in regards to funding to replace the center; however, the needed funding has not been obtained. MuSU has contracts with the Center for Disease Control and the military due to the proximity of Fort Campbell. If there was a widespread case of disease in the Commonwealth’s livestock population, the case would come to the Breathitt Center for diagnosis.


In response to a question from Senator Humphries regarding the development of the University of Louisville (UofL) Shelby Campus, Mr. Owsley stated that the university absorbed this 230-acre campus in 1969 when Kentucky Southern College went bankrupt. The Shelby Campus is located in eastern Jefferson County, and houses the National Crime Prevention Institute and the Division of Distance and Continuing Education. This campus also houses the Center for Predictive Medicine, which includes one of the 13 level-three biosafety labs in the nation. UofL has developed a master plan that would maintain 30 acres for traditional academic purposes and research. The remaining acreage would be used for a business and research park. UofL has entered into a master lease with the UofL Foundation, and the foundation has leased one parcel of land to NTS Corporation for development. The UofL Foundation intends to use the income from the leases to pay for a number of real estate and economic development initiatives.


In response to a question from Senator Humphries, Mr. Owsley stated that UofL is at a 38 percent deficit in classroom space and that this deficit is expected to grow to 80 percent by 2020. There is not an alternative plan in place to expand classroom space if this plan is not funded.


In response to a question from Mr. Jackson, Mr. Owsley said that because of the lack of classroom space and faculty, the freshmen registration date was cut off earlier this year, even though there was a twelve percent increase in applications this year.


In response to a question from Mr. Hicks regarding the UofL Construct Instructional Building at the Health Sciences Center project, Mr. Owsley explained that this $71,730,000 project has two funding sources, $35,865,000 general funds and $35,865,000 agency bonds. Therefore, the project appears in more than one priority listing for the university.


In response to a question from Senator Humphries, Mr. Street said that the bids for phase one of the Eastern Kentucky University Construct Science Building project were excellent, and that the infrastructure for the project was built into the current request for phase two. The Construct Science Building Phase 2 project is the university’s top priority, and the cost of this phase has been minimized as much as possible.


In response to a question from Mr. Hicks regarding the University of Kentucky Construct Library Depository Facility ($15,000,000 general funds), Mr. Wiseman said the project calls for the relocation of the on-campus storage facility to an off-campus site. A high-density, off-site, self-managed storage facility will provide the university libraries with a safe and economical place to store and provide access to its lesser-used documents and collections. The facility will provide about 25,000 sq. ft. of net assignable space. Most of the space would be used to house stored collections, but some space would be allocated for office and materials processing areas. The books that are housed in the central library facility could be brought to campus as needed. The on-campus space will then be renovated to serve as a modern teaching facility for students.


Ms. Lassiter commented that if each number one general fund priority from each institution was funded, it would total $462 million. Of these number one priorities, 54 percent were science buildings. She recommended that the board not lose sight of the outcome, which is better educated citizens, and to focus on what happens in those buildings and not just the buildings themselves.


The next meeting is scheduled for Wednesday, July 17, 2013, in Room 169 Annex starting at 1:00 PM. With there being no further business, Senator Humphries asked for a motion to adjourn the meeting. The motion was made by Representative Mills and seconded by Mr. Hicks, and the meeting adjourned at 3:04 PM.