TheCapital Projects and Bond Oversight Committee met on Tuesday, May 15, 2007, at 1:00 PM, in Room 169 of the Capitol Annex. Representative Mike Denham, Chair, called the meeting to order, and the secretary called the roll.
Guests testifying before the Committee: John Cubine, Libby Carlin, and Ben Grow, Auditor of Public Accounts; Ken Ramey and Larry Blake, Northern Kentucky University; John Hicks, Governor's Office for Policy and Management; Jim Abbott, Nancy Brownlee, and Melody Tudor, Finance and Administration Cabinet; General Julius Berthold (Ret.) and Major Brian Demers, Department of Military Affairs; Rob Haney, Kenton County School District; Sandy Williams, Kentucky Infrastructure Authority; Dennis Humble, Kentucky Housing Corporation; Terri Fugate, Office of Financial Management; and Katie Smith, Cabinet for Economic Development.
LRC Staff: Nancy Osborne, Shawn Bowen, Bart Hardin, Kristi Culpepper, and Lesa Prewitt.
Senator Tori made a motion to approve the minutes of the April 17, 2007 meeting. The motion was seconded by Representative Rudy and approved by voice vote.
Representative Denham asked Nancy Osborne, Committee Staff Administrator, to review the correspondence and information items included in members' folders. Ms. Osborne said there were four correspondence items: correspondence from the Department of Parks relating to the profitability of the 21 state golf courses; correspondence from the Department of Commercialization and Innovation reporting a grant exceeding $400,000 from the High-Tech Investment Pool for TapLogic, LLC; correspondence from the University of Kentucky regarding the purchase of scientific research equipment; and the Request for Proposal from the Finance and Administration Cabinet to use the Design-Build construction delivery method for the Paducah Joint Use Readiness Center.
Ms. Osborne then briefly reviewed various items in the monthly Staff Update. She noted that the Finance and Administration Cabinet has asked the US Supreme Court to hear the Davis v. Department of Revenue case. [In this case the Kentucky Supreme Court decided not to review a lower court ruling, therefore letting stand the decision that Kentucky's method of taxing out-of-state municipal bonds while exempting in-state municipal bonds violated the commerce clause of the U.S. Constitution.]
Ms. Osborne also noted that several Request for Proposals for private development on state property have been issued.
Also included in the Staff Update was an article regarding the Kentucky Supreme Court's decision related to the Student Life Foundation at Western Kentucky University. The court ruled that the Foundation had governmental immunity as the "alter-ego" to Western Kentucky University and was incorporated solely for that purpose, and therefore derives its immunity status from that incorporation.
Relative to the Design-Build project, Representative Wayne asked if neighbors had been consulted regarding the construction of the Department of Military Affairs' Joint Use Readiness Center in Paducah. General Julius Berthold (Ret.), Executive Director, Department of Military Affairs, said the property is not in a residential area, it is located in an industrial area at the airport. He said the airport board leases the property to the state for $1.00 a year, and no residents would be affected by this construction.
Representative Rudy added that the planned airport is a mile within his house and should have no residential impact. He said the project would be a benefit to the region.
Representative Wayne noted that the Design-Build method was used to construct the Elliott County Prison, a project that experienced a series of construction problems before its completion. He asked what lessons were learned from the state's experience with the Design-Build approach to construct the prison that were applied to this project. Mr. Jim Abbott, Commissioner, Department for Facilities and Support Services, said part of the design-build team abandoned the Elliott County project. He said they have improved the contract terms relative to this delivery method to ensure that in those situations, if the design-build team should abandon a project, the interest of the state is protected relative to moving forward with construction.
Representative Denham invited representatives from the Auditor of Public Accounts Office, Division of Financial Audit, to present their review of state emergency lease PR-4725 with the Department of Corrections as requested by the Committee. Representatives from the Auditor's Office included: John Cubine, Director of Financial Audit; Libby Carlin, Public Accounts Auditor; and Ben Grow, Public Accounts Auditor IV.
This lease for the Division of Probation and Parole in Campbell County was awarded to EGC Partners after the Finance and Administration Cabinet implemented emergency leasing procedures to secure leased space. A lengthy solicitation process had proven unsuccessful, and after an emergency was declared, three potential lessors were identified. The lease was awarded to EGC and afterwards, a competing vendor, Experimental Holdings, filed a lawsuit in federal court contesting the award. At its November 2006 meeting, the Committee requested that the Auditor of Public Accounts review the process used to award this lease.
Mr. Cubine said every two years the State Auditor's Office reviews state leases as part of an audit program, and this request to review emergency lease PR-4725 fell during one of the off years. He said there were seven emergency leases initiated in 2006. As part of the review requested by the Committee, PR-4725 as well as two other emergency leases were reviewed.
To better understand the process used to award emergency leases, Mr. Grow said staff from the Auditor's Office interviewed personnel from the Division of Real Properties (Real Properties) and the Department of Corrections, reviewed emergency leasing statutes to better understand how emergency leases are awarded, and examined the process used to award two other emergency leases, PR-4823, Environmental and Public Protection Cabinet in Franklin County; and PR-4787, Department of Parks in Spencer County.
Based on its review, the Auditor's Office found that what may have appeared inappropriate in the awarding of this lease was the fact that the lease solicitation was declared an emergency, yet Real Properties proceeded as if it were a normal lease solicitation. At the end of the process, Real Properties used its own discretion and negotiated with the winning bidder. Mr. Grow said adding to the confusion of the procurement process may have been the contact between Real Properties' staff and the winning bidder EGC. After the bids were opened, EGC was contacted by Real Properties' staff and asked to convert a portion of its bid for common space from a percentage to a fixed dollar amount. The question then arose as to whether or not EGC's bid was allowed to be changed.
While the Auditor's Office found that Real Properties complied with the requirements of KRS 56.805 in awarding emergency lease PR-4725, Mr. Grow said the Auditor's Office developed five recommendations to the Finance and Administration Cabinet to better clarify the emergency leasing process. Those recommendations are 1) to develop clearly written procedures to define the emergency process; 2) to develop clearly documented process as to how the emergency lease will be procured; 3) to develop clearly written instructions for prospective bidders; 4) to determine and communicate all cost factors to be weighed prior to the submission of the bid proposals; and, 5) that the statutory declaration of an emergency should be submitted to the Committee when reporting the emergency lease.
Mr. Cubine said three different processes were used for the three different emergency situations the Auditor reviewed. He said the statutes allow the Secretary of Finance a tremendous amount of discretion as to how he approaches emergency requests for property. He noted that the purpose of the statute is to give the Secretary the ability to react quickly in a wide variety of situations to quickly restore public services. Mr. Cubine said because the Secretary of Finance has such broad discretion, the Auditor recommended detailed written procedures to define the emergency lease process. He said since there are no written upfront emergency lease procedures, potential lessors who bid on property may become confused if they are already familiar with the normal process of bidding for state property. He said the same restrictions do not apply when an emergency has been declared and, in the case of the Corrections lease, this may have been the issue. Real Properties was following the process as if it were the normal competitive bid process for property until the end when the Secretary exercised his discretion. Mr. Cubine also suggested that the Committee be made aware of all the requests to the Secretary of Finance for emergencies even if they are not granted.
In response to a question from Representative Wayne, Mr. Cubine said a draft copy of the report was provided to the Finance Cabinet Secretary. He said the Cabinet responded to the first draft of the Auditor's report. They agreed in spirit with the first four recommendations, but believed that the current emergency leasing procedures maintain the flexibility needed to secure leased property under an emergency declaration. The Cabinet's response did not address the fifth recommendation, as that recommendation was added in a second draft of the report, and the Cabinet declined to submit an amended response.
Representative Wayne asked why there were a large number (seven) of emergency leases in 2006. Mr. Cubine said one cannot read a lot into a particular increase from year to year, each case is different. He said when they selected the other two emergency leases to review, they tried to pick two that would give them a better perspective in terms of the emergency lease process.
Representative Wayne and Representative Denham both thanked staff from the Auditor's Office for its good work on this project.
Representative Denham said the recommendation of notifying the Committee about emergency leases is well taken.
Representative Denham asked representatives of Northern Kentucky University (NKU) to discuss a requested scope increase. Mr. Larry Blake, Assistant Vice President for Facilities Management, NKU, said the University plans to purchase and renovate the former Lakeside Nursing Home to serve as a student residence hall. The Acquire New Residence Hall project was authorized in the 2006-08 budget at a scope of $10,000,000 (restricted funds). The $6,150,000 scope increase is a combination of $1,150,000 in restricted funds and $5,000,000 in cash funds from private sources. NKU sought authorization in the 2006 Session to build a residence hall with agency bond funds, which they did not receive. Mr. Blake said they hope in a future legislative session to receive agency bonding authority for this renovation project that will include the authority to reimburse the University's restricted and cash fund accounts for the total amount of the scope increase.
Mr. Blake added that had the University decided to build a new facility constructed of wood and siding, it would cost roughly $23 million, but now has the opportunity to purchase and renovate an existing facility constructed of brick estimated to cost $16-$17 million.
In response to a question from Representative Denham, Mr. Ken Ramey, Vice President of Administration and Finance, NKU, said they hope to have students in the facility by January 2008. The renovation project will involve the complete renewal of the facility, including all the HVAC systems, the electrical systems, and ADA upgrades. Mr. Ramey, added that last year 300 students were turned away for the fall semester so incoming freshmen could have space to live on campus.
In response to another question from Representative Denham, Mr. Ramey said if the General Assembly decides to not authorize agency bonds for this project it will impact the University's financial liquidity.
In response to a question asked by Senator Seum regarding the number of students at NKU, Mr. Ramey said this past fall it was 14,700, and it is anticipated to exceed 15,000 this fall. He said the goal set by the Council on Postsecondary Education is that undergraduate enrollment increase to 22,500 in 2020.
Senator Tori asked if the renovation process would be done by in-house personnel. Mr. Blake said some portions of the project, such as painting, wallpaper removal, and maintenance, will be done by in-house personnel.
Representative Denham asked if NKU is responsible for the oversight of its construction projects. Mr. Ramey said NKU has recently elected to manage the capital construction program and has entered into a Memorandum of Assessment with the Finance and Administration Cabinet to transition projects that are currently under construction. This new dorm project will be managed by NKU. A staff with four project managers and a University architect work under the Facilities Division.
Senator Seum made a motion to approve the scope increase for the NKU project. The motion was seconded by Senator Buford and passed by unanimous roll call vote. The revised scope is $16,500,000.
Representative Denham asked John Hicks, Deputy Budget Director, Governor's Office for Policy and Management (GOPM), and Jim Abbott, Commissioner, Department for Facilities and Support Services, to present the monthly project report submitted by the Finance and Administration Cabinet.
Mr. Hicks reported a scope increase of $1,000,000 ($750,000 federal funds and $250,000 restricted funds) for the Minor Clark Hatchery Water and Drain Line Replacement project in Rowan County. This project was authorized in the 2006-08 budget at a scope of $1,000,000. Mr. Hicks said the project was bid last fall, and the bids came in significantly higher than the estimates. The increase is needed because the cost of the project was underestimated in the design phase, and new items were added to the project.
Representative Wayne asked if the agency performed due diligence when they developed the project budget. Mr. Abbott said bid estimates are uncertain until a hard bid is received. He said there were some bid alternates for amenities in the original estimate they could have eliminated although ideally they prefer not to do this. Mr. Hicks noted that there are not many projects with a 100% scope increase such as this one. He said it was not that the Department's diligence was lacking, they had presented the programming for the project sufficiently. The design consultant's estimate was in error, and the Department followed the consultant's advice.
Representative Wayne asked if the state will utilize this consultant in the future. Mr. Abbott responded that most likely he will be used. He said there were four bidders, and the base bids ranged from $988,000 - $1,189,000.
In response to a question from Senator Tori, Mr. Hicks said it is unusual to have a 100% project scope increase.
Senator Seum made a motion to approve the scope increase for the Minor Clark Hatchery project. The motion was seconded by Senator Rhoads and passed by unanimous roll call vote. The revised project scope is $2,000,000.
The next project Mr. Hicks presented was an unbudgeted land acquisition project for the Kentucky State Nature Preserves Commission. The state plans to purchase a 535-acre tract known as the Stanfield Realty Tract in Fleming County to add 85 acres to the Short's Goldenrod Nature Preserve and 450 acres to the Bluelicks State Park. The state is acquiring this land because Short's goldenrod, an extremely rare federally-endangered species, grows on it. Also, an endangered species of mussels is located on the land. The project has a scope of $615,000, and will be funded with $550,000 in federal funds and $65,000 from the Heritage Land Conservation Fund.
Representative Denham asked if this current project and the proposed Elk Creek Lake Dam project, if it could be built in the future, could co-exist. Mr. Hicks said they would continue to review the options and examine the relationship between this project and the proposal to construct a dam at Elk Creek to create a lake.
Representative Wayne made a motion to approve the land acquisition project. The motion was seconded by Senator Tori and passed by unanimous roll call vote.
Representative Denham explained his Yes vote. He said he would like for the public to know what is happening with this project and recommended to Mr. Hicks that the people responsible for the project contact the local officials in the Buffalo Trace Area Development District before there is a press release. Mr. Hicks agreed that would be done.
The last item Mr. Hicks discussed was an information item for the Department of Revenue. He reported that the Finance and Administration Cabinet has approved the consolidation of two authorized projects: the Streamlined Sales Tax Simplification project authorized in 2005 for $14,062,000 (state bond funds), and the Implement a Comprehensive Tax System Phase project, authorized in 2006 for $23,250,000 (state bond funds). Both projects will replace and upgrade the Department of Revenue's various tax information technology systems. The total scope of the combined projects is $37,312,000.
Mr. Hicks said the Department is in the final phase of evaluating and selecting a vendor for this project. He noted the state's revenue system is the oldest information technology system that has not yet been modernized or replaced. The effort to upgrade the state's tax information systems began in the 1990s when a significant amount of EMPOWER KY funds were devoted to it. However, that project fell through because the market was not ready to provide a comprehensive information technology product that addressed the needs of state tax systems. There were some foreign vendors in the general market, but they were not licensed.
Representative Wayne asked how many vendors responded to the Request for Proposal (RFP). Melody Tudor, Project Manager, Department of Revenue, said she was not permitted to discuss that information due to procurement guidelines. Mr. Hicks added that as soon as a contract is negotiated, they would be happy to communicate back to the Committee.
Representative Wayne said this is a very big project and asked whether additional funds are needed to complete it. Mr. Hicks said the Department has submitted a capital plan identifying a need for an additional $20,000,000 over the next six years which is under evaluation by the Finance Cabinet. Mr. Hicks said there are other small taxes and small systems that will remain in place, and there will be a need to integrate those kinds of systems.
Senator Seum asked if this project would allow the state to collect out-of-state sales taxes. Mr. Hicks said the state will have the ability to collect out-of-state sales tax with the implementation of this system. Vendors will be able to easily report and pay sales tax on purchases made through the Internet or mail-order.
Senator Tori asked if there was a projected implementation date for this new system. Ms. Tudor said the projected date of implementation is July or August 2008.
Senator Tori asked if the money from the EMPOWER KY project was returned to the General Fund or earmarked for future projects. Mr. Hicks said it was returned to the General Fund.
The scope of the two projects has not changed, and no further action was required.
Representative Denham asked Nancy Brownlee, Director, Division of Real Properties, to discuss two lease reports. Ms. Brownlee reported a new lease for the Department of Military Affairs (PR-4840) in Kenton County to lease 59,034 square feet of a facility formerly utilized as a middle school. Military Affairs will utilize this space as a readiness center to accommodate an aviation battalion consisting of approximately 200 people.
Ms. Brownlee said the base rental rate is $6.25 per square foot (SF) excluding utilities and janitor services. During the first 18 months of the lease, an additional rent of $4.33 SF will be paid in addition to the base rate to reimburse the district for the cost of improvements. The improvements will cost $383,295 and include renovations to the interior of the building, as well as construction of a helipad and a vehicle service facility. During the first year of the lease the annual cost will be $624,493 and will drop to $496,728 for the second year and $368,963 during the remaining six years of the lease through June 30, 2014.
Ms. Brownlee then introduced General Berthold (Ret.) and Major Brian Demers, Construction and Facilities Manager, Department of Military Affairs; and Rob Haney, Director of Support Services, Kenton County School District, to answer any questions regarding this project.
Representative Denham asked if the public had been notified of this project and if the helipad would interrupt the residential area. Ms. Brownlee said the facility is located in a rural area of Kenton County. The only other facility in the area is the new middle school, and the superintendent and principal are aware of the operational aspect of the facility and have no problems with it.
Senator Seum asked which branch of the military will staff the facility. Ms. Brownlee said the facility will be staffed by the Army National Guard.
In response to another question from Senator Seum, General Berthold responded that the helipad was needed for infrequent arrival of various operational personnel and area disaster assistance. He said this is not a helicopter training facility, it is strictly to transport operational and administrative personnel and supplies.
Representative Wayne stated that he was concerned about the inconsistency in federal funding. He noted that federal funds are available for one year and anticipated for three years, and the state will be responsible for the cost of maintenance and utilities. He asked why the federal government is not providing consistent funding for this project beyond three years. General Berthold responded that the project is an interim facility and will be utilized only until Military Affairs can construct a new readiness center in Northern Kentucky. He said they continue to look for property in Northern Kentucky located close to the airport, as it is General Storm's desire to build new facilities near airports for security reasons and for rapid responses during emergencies.
General Berthold said Kentucky competed with other states and won the funding for this facility. He said this armory will have a significant economic impact for the state as more people enlist and more federal dollars are brought in to the area.
Representative Wayne asked if an economic analysis had been completed. General Berthold said over a 10-year period, each military member that comes into the National Guard for weekend training will bring in an average of $25,000. In a 10-year period, this unit will bring in $2,500,000 in salaries and area purchases.
Major Demers said the federal funding for this lease is good for three years, and after the third year it will be reviewed and possibly renewed for an additional three years until the construction of a new facility is complete. The projected funding of the proposed new facility is $15-$16 million. (Funding for a new facility has not been requested or authorized to date.)
Senator Rhoads asked if this lease carried the usual state cancellation clause. Ms. Brownlee said the lease carries the normal 30-day cancellation clause.
Senator Tori asked if homeland security funds could be used for this project. Major Demers said they were not being considered at this time. He added that homeland security funds were discussed for the construction of the new facility.
Senator Buford asked if this lease would benefit Kenton County education programs. Major Demers said the building was surplus to the school board. The board will gain some income through the rental payments and, at the same time, the facility will be renovated and improved at no cost.
Representative Wayne encouraged representatives from the Department of Military Affairs to talk with local officials regarding this project.
Senator Seum made a motion to approve the new lease. The motion was seconded by Senator Rhoads and passed by roll call vote. Seven members voted affirmatively and Representative Wayne passed.
Ms. Brownlee next presented a report of four lease modifications costing less than $50,000 each for the period January through March 2007. She said these modifications resulted in a total increase of 1,651 SF of space and a total decrease of $1,602 in annual rent. No action was required by the Committee.
Representative Denham next welcomed Sandy Williams, Financial Analyst, Kentucky Infrastructure Authority (KIA). Ms. Williams presented a report on the status of unspent bond proceeds for its various outstanding debt issues. The Arbitrage Rebate and Yield Restriction Compliance Report was prepared by the firm of Hawkins, Delafield & Wood. There was no positive rebate liability found or yield restriction liability accrued as of December 2006, and therefore no payment was required to the US Treasury Department. Ms. Williams said the firm also advised that future arbitrage rebate and yield restriction compliance calculations will be required at the end of the tenth bond year, which is December 20, 2011 unless the bonds are redeemed at an earlier date.
Ms. Williams said also included in members' folders was a report of 38 coal/tobacco development grants that were funded through line-item appropriations from the General Assembly in 2003, 2005, and 2006.
Representative Denham asked Ms. Williams if any 2003 coal/tobacco development grant funds are outstanding. Ms. Williams said 14% of the 2003 allocation remains unspent and the remainder has been spent.
Representative Denham next introduced Mr. Dennis Humble, Chief Financial Officer, Kentucky Housing Corporation (KHC). Mr. Humble said KHC was requesting that the Committee consider approving KHC Single Family Housing Revenue Bond issues in aggregate "not to exceed" amounts as opposed to on an issue-by-issue basis beginning today. Mr. Humble said each individual bond transaction would continue to be presented to the Committee after the transaction has been priced. Upon full utilization of the approved debt authority, KHC would present a request for approval to the Committee for new bond issuance authorization. He said the advantages of operating under a preauthorized debt issuance program include increased flexibility in the timing of pricing bond transactions and better management of interest rates.
Terri Fugate, Deputy Executive Director, Office of Financial Management (OFM), joined Mr. Humble at the table. She said KHC needs flexibility in the sale of its Single Family Housing Revenue Bonds, and KHC would be monitored to make sure the approvals are met and the bond issue reports are presented. She added that the State Property and Building Commission has similarly modified its approval of KHC debt using the aggregate amount approach.
Representative Wayne asked Mr. Humble if there has been an increase in foreclosures in the past year. Mr. Humble said they have seen a modest increase in foreclosures. Most of KHC's mortgages are FHA and VA insured mortgages so they are insulated from that impact. KHC's foreclosure rates are well below the national averages.
Senator Rhoads made a motion to approve the proposed modification to the approval process for KHC Single Family Housing Revenue Bonds. The motion was seconded by Representative Wayne and passed by unanimous roll call vote.
Representative Denham next asked Katie Smith, Deputy Commissioner for the Department of Financial Incentives, Cabinet for Economic Development, to report on a proposed Economic Development Bond (EDB) grant.
Ms. Smith reported a proposed grant of $2,500,000 to the Graves County Fiscal Court for the benefit of the Purchase Area Regional Industrial Authority (PARIA). The grant will be used for the benefit of PARIA to complete the land acquisition phase of the 2,500 acre regional industrial park project in Graves County. The Graves County Fiscal Court has agreed to be the local public entity through which the EDB funds will flow to the industrial authority. Ms. Smith said the industrial authority has projected that the total estimated cost to develop the entire proposed regional park will be approximately $32,500,000.
Representative Wayne noted that there is a gap between the cost of the project ($32,500,000) and the total project funding ($11,750,000). He asked how this gap in funding will be filled. Ms. Smith said the infrastructure would come at a later date with possible help from the local counties.
Representative Wayne asked if any industry plans to move into this area. Representative Denham said he had researched the project and because of the high unemployment in the area, eight counties have come together on this project. He said if there is no land or potential site to show prospects, businesses will not consider the area.
Senator Rhoads said the Bluegrass Crossing Industrial Park in his district had experienced a similar issue with getting infrastructure out to the park. He said Bluegrass Crossing had plants locate there even before the infrastructure was complete. He said he thought an eight county consortium like this offers more promise because more governmental entities are involved which can help with the financing.
Senator Rhoads made a motion to approve the EDB project for the Purchase Area Regional Industrial Authority. The motion was seconded by Representative Rudy and passed by unanimous roll call vote.
The next report was provided by Ms. Fugate. Ms. Fugate presented a new bond issue for Northern Kentucky University (NKU): NKU General Receipts Bonds, 2007 Series A, in the amount of $48,670,000. The proceeds from this issue will finance two projects: Student Union Building and Parking Garage #3. She said this is the University's first issue under a new General Receipts Trust indenture.
Representative Wayne made a motion to approve the new NKU bond issue. The motion was seconded by Representative Rudy and passed by unanimous roll call vote.
Ms. Fugate presented another new bond issue report: Western Kentucky University (WKU) General Receipts Bonds, 2007 Series A, in the amount of $43,205,000. The proceeds from this issue will finance several projects: South Campus Parking and Dining Improvements, Math and Science Academy Renovation, Construct Student Health Services Building, Information Technology Infrastructure, and Renovate Academic/Athletic #2 football facility. Proceeds from this issue will also redeem Kentucky Asset Liability Commission Agency Fund Project Notes.
Representative Rudy made a motion to approve the new WKU bond issue. The motion was seconded by Representative Wayne and passed by unanimous roll call vote.
Ms. Fugate reported a new bond issue for KHC: KHC Single Family Housing Revenue Bonds, 2007 Series G, H, I, and J in the amount of $80,000,000. She said proceeds from this issue will provide mortgage financing for first-time low and moderate income Kentucky homebuyers.
In response to questions from Representative Denham, Ms. Fugate explained why this bond issue carried a higher interest rate. A considerable portion of this bond issue is taxable and is a blended yield of different estimated interest rates.
In response to additional questions from Representative Denham, Mr. Humble said KHC was not at its statutory bond cap and would prorate the remaining cap throughout the course of the year. Mr. Humble said for the tax-exempt bonds they were limited to a margin of 1 1/8% and they will exceed that this transaction. On the taxable side, they will come close to breaking even.
Representative Wayne made a motion to approve the KHC bond issue. The motion was seconded by Representative Rudy and passed by unanimous roll call vote.
Ms. Fugate next reported a new KHC conduit bond issue: KHC Variable Rate Demand Multifamily Housing Revenue Bonds (Canterbury House Apartments), Series 2007, with gross proceeds of $13,880,000. The purpose of this issue is to provide conduit financing for the construction of a new 230-unit apartment complex in Southgate, Kentucky.
In response to a question from Representative Denham, Ms. Fugate said the interest rate for this bond issue was low due to its variable rate.
Representative Wayne asked if the conduit guidelines adopted by KHC were followed on this issue. [The Committee worked with KHC to establish guidelines for its conduit program in spring 2004. Guidelines require the applicant to notify certain local officials and legislators of in the area of multi-family housing bond issues.] Mr. Humble said the guidelines were followed and the appropriate individuals were notified.
Senator Rhoads made a motion to approve the KHC bond conduit bond issue. The motion was seconded by Representative Wayne and passed by unanimous roll call vote.
Ms. Fugate presented a follow-up report for a previously approved bond issue: Kentucky State University (KSU) General Receipts Bonds, 2007 Series A, for $6,566,411. She said proceeds from this issue will provide for the construction of Young Residence Hall, current refund KSU's outstanding Housing and Dining System Revenue Bonds, Series G, and pay for the cost of issuance. No action is required for follow-up reports.
Ms. Fugate said members' folders included a copy of the Kentucky Asset / Liability Commission (ALCo) Derivatives Policy. OFM operates under this policy and it has now been made into a formal written document.
Representative Denham asked if the Derivatives Policy was developed as a result of an audit. Ms. Fugate said the policy is standard and should benefit the state. The rating agencies look at derivatives and return a rating. Ms. Fugate said Kentucky has a Standard and Poor's Debt Derivative Profile score of 1.5 on a scale of one to five, with one being the best.
Ms. Fugate then reported nine new school bond issues with School Facilities Construction Commission (SFCC) debt service participation: Carlisle County, Clinton County, Eminence Independent (Henry County), Erlanger-Elsmere Independent (Kenton County), Garrard County, Green County, Harlan County, Jenkins Independent (Letcher County) and Pulaski County. She said bond issues for Green and Harlan Counties were funded through the Urgent Needs School Trust Fund.
In response to a question from Representative Denham, Ms. Fugate said projects funded through the Urgent Needs School Trust Fund are authorized for school districts with urgent and critical construction needs. The Urgent Need School Trust Fund was established in the Finance and Administration Cabinet and is administered by SFCC.
Senator Buford made a motion to approve the SFCC bond issues. The motion was seconded by Senator Tori and passed by unanimous roll call vote.
Ms. Osborne said there were three locally-funded school district bond issues submitted to the Committee for review this month: Breathitt County, Laurel County, and Walton-Verona Independent (Boone County). She said all disclosure information has been filed, and no further action on the bond issues is required.
Representative Denham reminded the Committee that the July meeting has been rescheduled tentatively for July 24, 2007.
Representative Wayne suggested to the Committee that road trips be considered during the upcoming months.
With there being no further business, the meeting adjourned at 2:40 p.m.